Streetwise Property Alert 30th August 2013

Welcome to today’s UK property news and views…

PCL Bubble?

According to new research by Development Securities and Fathom Consulting, prime central London (PCL) property is in a (modest) bubble and could see prices fall by up to 20 per cent. ‘Economic drivers partly explain London’s residential property price escalation in relation to the rest of the UK. But only around one half of the further substantial appreciation of PCL property prices through 2012 and into 2013 can be justified by economic fundamentals. On that basis, we find some risk that a modest bubble has started to form in the PCL market.’

‘It is more overvalued than we’ve ever found it to be before – and our model goes back to 1995. Demand is not inexhaustible and supply is not inelastic. The three key factors are the value of the pound, the performance of global equity markets and the (perception of London as the) ‘safe haven’ of world markets. It could inflate yet further – but we are now in a position where, once you’re overvalued,  I can’t predict where exactly the trigger will come from, but you are vulnerable to a correction.’ Let us know if you are active in this sector – we are at work on a report.

An Update

Off the top of my head, the Bristol student accommodation units have all gone (other than just-released penthouses which we are discussing with six to eight members). The care home has now been fully taken too, other than one member who has reserved but not yet signed. That may come back to market and we have a reserve list for members who want to snap it up. We still have availability with storepods. These have been very popular.

BTL Mortgage News

Aldermore has amended its BTL lending criteria to accept clients with up to two missed mortgage payments over the past 12 months, CCJs and defaults registered over three years ago and any missed unsecured credit payments such as credit cards etc.

The Aldermore range starts from 3.98 per cent for a two-year fixed product with a 2.5 per cent fee at a maximum 75 per cent LTV through to a 4.98 per cent deal with a £1,999 fee and 80 per cent LTV. As ever, talk to your broker.

Group DD Meeting

I’ve had some members asking if there are any plans to do a group due diligence meeting with Bastien Jack regarding their development propositions. I’m very keen on doing group site visits as you know but it hadn’t even crossed my mind until it was suggested! I thought why not if there is sufficient interest!

It would actually be an office visit to Lincoln giving potential investors the opportunity to meet and interrogate Mick Rawlinson the development project manager. You’ll be able to meet the team and see the resources behind the scenes and Mick will take you though the whole sequence in detail including selection criteria, cost analysis, project planning, legal structure and how it all fits together.

You’ll obviously have the opportunity to ask any questions you can think of, the advantage with a group is that we should be able to come up with a lot of intelligent and testing questions to really put Mick on the spot and get a thorough understanding of the proposition in as much detail as you deem necessary. If you’d be interested in a group visit email me back and we’ll see the level of interest and take it from there? I’ll come and join you for the day.

Portfolio Review Time?

According to Townends, the estate agents, the UK residential market is steady but some areas, and they name London, have seen rent falls this year so it is a good time to review your properties and adjust to these changes as appropriate.

‘Landlords have had to be more realistic in the last few months and adjust their expectations and prices accordingly in order to maintain their competitive edge. To attract the best calibre of tenants and avoid a void period, landlords need to be reviewing their properties objectively to ensure that what they are providing warrants the asking price. Even the smallest re-investment can make a big difference, not least that it increases letability but helps to hold on to good tenants for longer.’

‘If landlords are unable to afford basic maintenance with rent levels as they are, then they are working their finances too tight. Price fluctuation within the rental market is the nature of the business and shrewd landlords will work this into their business model.’

Carbon Monoxide Reminder

Catching up on some reading of the regional press, we note that a Yorkshire newspaper reports that ‘Up to 99,000 rented households across Yorkshire and Northern Lincolnshire have had a fire or gas leak in their home. Only one in four tenants say their landlord has a carbon monoxide alarm fitted in their property and one in ten say they don’t have a smoke detector.’ Food for thought?

An Outlook

We are currently looking at three student accommodation deals and we should have at least one ready to go this weekend. We are also working on a second care home project. We have a hotel in London that we are going to introduce soon; I am in London next week for some dental work and a visit to the BFI Imax and will pay a call then. We are also looking at some BTLs in Yorkshire. We are also looking to run one or two seminars soon as well.

Fractional Ownership

Fractional ownership and timeshare – what is the difference? Our friend Peter Esders comments that there is often a lot of confusion regarding fractional ownership and timeshare and many people are confused about the differences and similarities. In fact, many people selling fractional ownership do not understand the differences and similarities and often come out with statements which are based on common held beliefs but are wrong. Over to Peter…

The Basics

Let’s start with the basics. Both fractional ownership and timeshare are a way of buying property where the ownership is divided up between many people. Basically they are the same product. Timeshare has a definition, according to The Timeshare, Holiday Products, resale and Exchange Contracts Regulations 2010, as being where somebody ‘acquires the right to use overnight accommodation for more than one period of occupation and which has a duration of more than one year, or contains provision allowing for the contract to be renewed or extended so that it has a duration of more than one year.’

The most common misconception is that with timeshare you only have a right to use the property whereas with fractional ownership you own the title to the property. Well yes, that can be the case, but it can also be the reverse as well. Anybody who is telling you this is either simply regurgitating what they have been told by other people rather than understanding the actual situation or is trying to hide something from you (as is the case when timeshare companies try to persuade you to buy more weeks in order to ‘upgrade’ to fractional ownership).

There are two basic forms of timeshare – the trust system and the escritura (title deed) system. In the trust system a property is put into the name of a company which is then controlled by a trustee. The trustee then issues a certificate allowing the buyers to use the property for a certain period of time. In the escritura system the buyers get their name registered at the Land Registry directly and effectively own the property jointly with a number of other people.

Similarly with fractional ownership there are effectively two different models – the corporate model and the personal ownership model. In the corporate model the property is registered in the name of a company and then the buyers buy shares in that company. Those shares allow the buyers the right to use the property that is owned by the company. In the personal ownership model the individual buyers are registered directly at the Land Registry with the other owners.

So, in summary, both timeshare and fractional ownership and timeshare can be structured where you have your ownership registered at the Land registry directly. Similarly, both fractional ownership and timeshare can be structured in a way where the property is in the name of a company and then you get a right to use the property.

Long-Held Myths

Another myth about fractional ownership is that it is a new product that has come about in the last few years. Absolute nonsense. Fractional ownership has been around for years. One of the first cases that I dealt with when I was a trainee solicitor was a fractional ownership case where the buyers were buying a tenth of a property which was owned through a company. Of course, back then, it was called co-ownership rather than fractional ownership but a rebrand doesn’t change what the product is.

Having said all of that, there is no need to run away from fractional Ownership (or timeshare for that matter). Both have their place and can be great products. Unfortunately, the lack of understanding of the products is what is stopping fractional ownership from selling as well as it could be. The public see through the misunderstandings and the more that salespeople deny that the product is similar to timeshare the more people get worried. Similarly, the more timeshare people con their existing owners into thinking that they are magically changing their product into something else simply by buying more of it the more fractional ownership gets a bad name.

Fractional Ownership Reminders

Fractional ownership can be a good product, if set up and sold correctly and the price is right. The problems that the timeshare industry created were that they overpriced the shares in the properties, meaning that they were never a good investment and used dubious sales tactics to sell the weeks. Since then, the maintenance fees have also sky rocketed, meaning that people want out of their timeshare. There always has to be a price uplift when selling fractional ownership but this needs to be a reasonable rather than extortionate increase. Similarly, fractional ownership must be sold responsibly and the ongoing management costs must be kept to a sensible level.

Fractional ownership can have many advantages. It allows you to buy a property when you weren’t otherwise able to afford one. It can allow you to buy shares in several properties rather than just the whole of one property – and therefore allows you to spread your risk. It allows you to have a property that is used for more of the year round rather than having a property that empty when you don’t use it. It allows you to share the cost of maintenance with other people.

Of course, it also has its downsides, such as the co-owners falling out, getting divorced or dying, which is why setting up the structure of the co-ownership at the beginning and thinking of the worst-case scenarios at that stage are vitally important. I have seen many cases where people decide to buy a property together and then fall out afterwards. Usually the fall out is over payment of maintenance or who is going to use the property this Easter. Many of these potential problems can be sorted out in advance and avoided via the use of proper documentation.

Peter Esders is a solicitor at Judicare. He can be contacted at

Tel; 01438 840258

Skype; Peter_Judicare

Judicare Group,Suite 3,29 Mill Lane,Welwyn, Herts AL6 9EU

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