Fortwell Capital: Anticipating MIPIM
by Bob Sturges, Head of PR & Communications, for Development Finance Today
27 February 2017Development Finance Today
As Fortwell Capital’s senior team prepares to decamp temporarily to the Côte d’Azur, we’ve been busy ahead of MIPIM 2017 (14-17 March in Cannes) meeting and speaking with many of our valued clients and introducers.
Most are positively bullish about the prospects for UK real estate – or at least the sectors in which we share a common interest – but the same themes often emerge in our discussions. They range from subjects such as recruitment and education to how development funding practices can be improved.
We’ll return to these in future blogs, but for this month I’d like to focus on three issues we’ve been hearing rather a lot about lately: overseas investment; the ongoing impact of changes to the property tax regime; and the growing need to take into account transport when planning residential development projects.
Overseas investors still active
UK real estate remains a highly attractive asset class and continues to offer sophisticated investors a range of opportunities currently absent or less appealing elsewhere (although the FTSE 100 is an obvious exception with investors enjoying spectacular gains since the depreciation of sterling).
For a range of reasons, but not least because of reduced engagement by institutional players, we believe that 2017 will see specialist alternative lenders consolidate their positions in the property sector, and particularly in the short-term funding market.
This will not be lost on cash-laden overseas investors seeking reliable and higher-than-average returns on their money.
With a mountain of global capital waiting to be profitably invested, it should come as no great surprise that some of it will find its way into the UK’s successful bridging and property development markets.
But don’t expect investors to spray their cash around recklessly. They will look to invest in or work with businesses with a proven track record, strong management teams and those with a realistic and achievable long-term business strategy.
Those who meet the criteria can benefit in a number of ways: either through direct investment in their propositions, by securing new funding lines or by financing the individual property purchase transactions of overseas investors.
SDLT – death knell for prime property?
As a high-value lender operating in the prime and super-prime residential real estate space, we have seen first-hand the negative impact of George Osborne’s stamp duty land tax (SDLT) increases on buying sentiment and activity.
Targeted principally at overseas and buy-to-let investors, the former chancellor’s fiscal interventions were a key factor in helping dampen a sector that was already showing signs of slowing down and, in some specific areas, turning negative.
While we have some sympathy with the government’s attempt to rebalance or make fairer aspects of the property market, it is clear to us that SDLT has become just another source of reliable and valuable revenue for the authorities and one they are unlikely to surrender or substantially reform anytime soon.
That builders, developers and buyers would welcome constructive reform of a tax device that long ago exceeded its original purpose is hardly in doubt, but we have to deal in realities, and there are no signs on the horizon of any likely change in the status quo.
However, it is clear to us that while tax (and regulatory) interventions have had an impact, prime London property remains compellingly attractive to wealthy investors and buyers, both overseas and domestic.
The key to success in the sub-sector is to provide high-quality units at realistic prices. Poorer-quality assets marketed at prices detached from reality will always struggle to sell and are unlikely to receive a sympathetic hearing from lenders should finance be needed.
Transport is key
Recent research by a well-respected property firm revealed that 71% of people in London – the engine for UK house prices – rate good transportation links as the single most important factor when deciding whether to rent or buy.
The same research revealed that only 26% of people were prepared to spend more than one hour commuting each day.
From this, I think we can safely conclude that transport considerations have become increasingly important when planning where to build new housing – whether for rent or purchase, or whether in London or the other great metropolitan areas.
But our existing transport infrastructure is already creaking. More than ever, therefore, it is essential that future major residential development projects take a holistic approach incorporating housing density and mix, transportation links and civic infrastructure. Without all three properly catered for, buyers and renters simply might not appear.
Both Crossrail and HS2 exhibit elements of how this might work on the ground but are, nevertheless, just forerunners in an overall solution that will take years, political commitment, billions of pounds and the resolution of national and local wrangles to fulfil.
So, back to MIPIM, where we anticipate these and many other property-related subjects to rear their heads. Last year, it was all about the looming EU referendum; this year, Brexit will doubtless be centre stage. But fear not, we’ll faithfully report what we hear – and learn – in next month’s blog from Fortwell Capital: “Dispatches from MIPIM 2017.”