The owners are from Uzbekistan and wealthy individuals who don’t speak any English, they employed an architect to carry out the works which he did without permission from the council. He charged the owners a hefty fee of £500,000 for doing so. There is a new professional on the scene now who is involved in tidying up the mess.
The property was being used as an HMO previously to this, this is a House In Multiple Occupation which basically means individual rooms are let and facilities are shared. What complicates matters is this too was illegal and unlicensed. Therefore the council cannot insist that the property be put back to what it was formerly, as this too wasn’t bona-fide.
Therefore this is a problem property and a problem deal, which is why I like it. The owners are not so price conscious, firstly they cannot afford to be as there are many uncertainties associated with this deal and secondly this has been a problem for them and they are fed up of it and simply want to get rid.
This is a good situation for an experienced investor, such a deal would first scare off novice buyers who would normally pay over the odds just to grab the property. Second this property will be problematic when it comes to funding, no high street bank will take a view therefore this building will either have to be purchased in cash or have a specialist funder who is prepared to take a view on these issues.
Buildings like this tend to float around like a bad smell, this building was shown to me many months ago by another runner. The problems were not mentioned at this time, it was presented as a conventional deal and it was presented as an ‘off market’ deal. The term off market is actually a nonsense term, as soon as one person tells someone about a deal it becomes on the market, as the person who’s speaking about the deal is marketing it, even if it being done by one person.
The price it was presented at was £5m which equates to £1,000 per sq. ft., which is a good price for a freehold, but the fact it comes with these issues, means it isn’t. We have no intention to buy at this level.
Taking a broader view, this is a great location to purchase and hold, the properties in this patch have been seen as being on the poorer side of Hyde Park, being on the north side of the park. New build schemes in this location are reported by Knight Frank to be in the region of £2,000 and £2,500 per sq. ft. The other three sides of the park can command £4,000 to £6,000 per sq. ft.
W2 in general is seen as a strong place to put your money. It has strong potential for price growth than the other sides adjoining Hyde Park. Although in the past the price growth for the other three sides were higher.
Over the last decade prices on the other three sides have increased by 27% more than in the north side of the park. The currents have shifted and going forward the growth will be on the north side of the park. The price growth over the last 18 months on this patch has outperformed the other sides of the park, this is indicative of where the price will go in in the future.
There are a couple of things which are contributing to the growth of this area. One is the deal done by a wealthy far eastern buyer last year of Whiteleys Shopping Centre, this area is earmarked for major development. The other will be the arrival of the Cross rail in 2018 in Paddington. Many blue chip companies are already relocating to this area.
There is a fundamental lack of supply in W2 over the foreseeable future, which means new stock coming on to the market will only be 137 units. This will by no means be able to satisfy the demand which exists in this area. From a very fundamental supply and demand point of view this area is ripe for sharp growth.
The price per sq. ft. of hotels in this area vary from between £700 - £1,000 per sq. ft. there is a strong case for hotel to resi conversion. We will be looking to close the deal we have been presented at around £900 per sq. ft. which is a completed newly refurbished ready to rent deal, bar of course the planning permission.
The recent stamp duty changes will have little effect on this deal, as it will qualify for multiple dwelling relief which is still in place to be taken advantage of. In this scenario the stamp duty applicable for the whole building will be at the rate applicable to a single dwelling. Under the new rules the first £125,000 attracts no stamp duty, the next £125,000 attracts a rate of 2% and the next £675,000 attracts a rate of 5%.
Assuming we do this deal at £4.5m the rate which would apply to an individual flat will be £12,500 on a £450,000 property. This would mean on the whole building the amount of stamp duty payable will be £125,000. This equates to only 2.78% in stamp duty. Word of warning, this is me translating my understanding of the HMRC website, it needs to be verified by a competent solicitor. And I underlined the word competent. This is actually a miniscule rate of stamp duty given the size of the transaction.
It pays to look at the individual property and the area in general when doing your research, the individual property may be a good deal in comparison to the market price, but where is the market going on the whole? If you get a 15% discount but yet the market is pessimistic for the next year, in a year the discount will be wiped off.
If you like the sound of this deal and would like a slice of this pie why not give our office a call.