Reconnaissance, forward planning, research. As any shrewd investor will know, buying an apartment in the UK that won't end up a millstone can take military-style precision. For those venturing into unknown territory, the advice is: make sure you go in armed with the full facts.
"There can be an element of the Paddy-off-the-plane syndrome," says Brian Healy, divisional manager, EBS Property Finance. "A person can be taken in by that impressive show apartment without realising there are loads of apartment schemes in the area and not enough tenants to fill them."
Building up a network of UK contacts before taking the plunge is vital, says Healy. "Before signing anything, get a feel for the character of the area and research the demographic profile. Talk to valuers and solicitors there. Ask advice from estate agents. If you buy a property you will probably need an agent to manage it for you. If a problem arises down the line, you are less likely to get ripped off if you've built up relationships."
Bacon-recommended anti-investor measures adopted by the Government have dealt a series of blows to the Irish investor. Mortgage interest can no longer be offset against rental income and those investing in a second or additional property are subject to 9 per cent stamp duty and 2 per cent anti-speculative tax. This has prompted a huge outflow of investment from Ireland. "Our view is that buying in the UK is probably a good investment in comparison with here. The rental values are quite robust in London particularly and the UK has cheaper entry costs with 1 per cent stamp duty compared to our 9 per cent. You can buy a property a bit cheaper too. There is a fairly plentiful supply of quality investment properties there. Here, you have to be quick to get anything of quality."
He believes that while some parts of the UK are overpriced and some are great value, it generally represents "a less frothy investment" than here. "The UK economy went through the horrors in the early 1990s and it has taken it a while to come back. They are further down the road than us and we are closer to what they were in the late 1980s."
When an investor resident in Ireland buys a property abroad, they are still subject to Irish tax laws. This means that they have to pay the highest rate of tax on rental income and cannot offset their mortgage interest against that income. Peter Bastable of Simply Mortgages believes that if one takes the example of preBacon 3 Ireland, this should not be a huge deterrent.
"Up to Bacon 3, investors were still buying even though the rental income could not be offset. But the 9 per cent stamp duty killed off that upward spiral of capital appreciation. In the UK, the property is costing less and the entry costs and solicitors fees are less, so there is a more effective return."
According to Bastable, the sterling difference, which is currently around 20 per cent, is "not a huge issue" either. "Most people take the view that it is still worth it because of capital appreciation. It's important to remember you are borrowing in sterling and the rents are in sterling. For those who have other rental properties it is possible to borrow 100 per cent-plus costs in sterling by cross-charging the existing rental properties if they have sufficient equity, be they in England or Ireland."
Property prices in Manchester, which is believed to be at the stage Dublin was six years ago, grew by 12 per cent in 1999 and 15 per cent in 2000 and are forecast to rise by over 20 per cent this year. The smart investor will pinpoint an emerging area and sit tight, says Bastable.
"In the UK, there are only certain cities you'd buy in and within those cities there are only certain properties you would buy. Manchester is a fairly typical example of what you would look out for. It has a relatively small city centre and is going through urban regeneration. On the face of it a lot of it is in a bad state of decay but there are serious development plans and you have to be careful. I saw an advertisement recently for apartments close to Old Trafford in Salford for £80,000 to £90,000 sterling. No matter how good the apartment, that is never going to be a good area in terms of capital appreciation."
Simply Mortgages generally advises clients to invest in high quality apartments likely to attract executives. Chorlton Mill, a converted Victorian building located beside Oxford Road rail station is an example of this.
A LOFT-STYLE twobedroom apartment there costs up to £165,000 with rents for a one-bedroom of £650 to £850 per month and rents for a two-bed £800 to £1,300 per month. "It has been identified as an emerging location, it has a rail station next door and is close to Deansgate, a trendy urban centre for Manchester's youth culture."
Another area on an upward trend is the Northern Quarter, which has been earmarked for regeneration. "There is evidence that the British Government is going to pump vast sums of money into the area which has given it some confidence. It is to have the largest Marks & Spencers in Europe. Crosby builders islaunching a landmark development of apartments, Number 1 Deansgate, with prices averaging £300-plus per sq ft."
Other cities worth a look are the financial capitals of the north, Leeds and Newcastle, says Bastable. "Leeds is close to Manchester but is more established and affluent and there is a lot of disposable income. Prices there are about £200 per sq ft for a two-bedroom apartment, with rents of up to £1,250 per month. Newcastle is another emerging area. Some here still see it as a miserable coal mining town but it is a vibrant northern city with a significant youth population. "
Brian Whelan, managing director of quote4it.ie, says that payment for a property is generally set out in various stages, with a booking deposit of between 10 to 15 per cent. "The balance is payable on completion of the development. This can be paid by effecting a sterling mortgage. Some of the Irish lenders with UK offices offer attractive packages, although their rates are higher than in Ireland. Typical criteria for qualifying would be that the rental income matches the mortgage interest repayment by 1.3:1. Some brokers do bulk deals which arrange solicitors, letting agents and fitout. In the UK it is possible to secure 80 per cent mortgage subject to criteria being met."
A spokesperson for AIB Home Mortgages commented that he personally would not invest in the UK simply because he would prefer to be close to an investment property. "It's easy enough to hop on a plane but I wouldn't be comfortable having a property at a distance. "For once I agree with the auctioneers. With anti-speculative taxes, the state is imposing a rural solution to a Dublin problem and now we are being hit and it's driving investment abroad."
