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London Central Residential: A class apart

London Central Residential: A class apart. Its potential as a viable asset class in a diversified portfolio. London Central Portfolio Limited. Who are LCP London Central An asset class Performance Credit Crunch What now?. Who are LCP?. What is London Central?.

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London Central Residential: A class apart

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  1. London Central Residential: A class apart Its potential as a viable asset class in a diversified portfolio London Central Portfolio Limited

  2. Who are LCP London Central An asset class Performance Credit Crunch What now? Who are LCP? What is London Central? What makes it an attractive asset class? How has it performed vs. other asset classes? The impact of the credit crunch What now – possible scenarios

  3. Who are LCP London Central An asset class Performance Credit Crunch What now? Who are LCP? For 20 years LCP have approached London Central as an alternative asset class Offering a full service solution: property finding, refurbishment and furnishing, letting and rental management Based on financial criteria (income/expenditure and return targets) Launched the only two closed end residential funds targeting London Central LCP do not SELL residential real estate but enable investors to maximise their profit opportunity through sound business modelling

  4. Who are LCP London Central An asset class Performance Credit Crunch What now? What is London Central… Just 2 boroughs out of 33 • The Royal Borough of Kensington & Chelsea • City of Westminster • Only 440,000 people in 6 square miles • Average price almost £1 million International market with low correlation to the UK

  5. Who are LCP London Central An asset class Performance Credit Crunch What now? Prime London Central The bullseye of the capital

  6. Who are LCP London Central An asset class Performance Credit Crunch What now? What makes London Central an attractive investment class? Globally desirable: the best real estate in the world… International centre: geography, culture, finance, education Lack of new supply (500 new units per annum) Scarcity of stock (215,000 units) Low transaction levels (Ave. sales p.m. 600, 3.4% turnover p.a.) High levels of rental occupancy (97%)

  7. Who are LCP London Central An asset class Performance Credit Crunch What now? Differentiated from the rest of the UK Average price is 1/4 of London Central (£230,562) Affected by domestic factors: unemployment & mortgage availability ...and Docklands & Canary Wharf Average price 1/3 of London Central 42 major developments approved ’08/’09 vs 17 in London Central 30,000 units developed since 2000: oversupply of rental units More impacted by Credit Crunch

  8. Who are LCP London Central An asset class Performance Credit Crunch What now? “The Simplified Map of London”

  9. Who are LCP London Central An asset class Performance Credit Crunch What now? How has London Central performed? “Past performance is not a guide to the future” “Lies, damned lies and statistics”

  10. Who are LCP London Central An asset class Performance Credit Crunch What now? A Strong Performer Capital values have increased more than 12 fold since 1980, 4 times in real terms Capital growth in London residential (1980 = 100) London Capital Growth Index = 1,292 RPI Index = 312 Source: CML/ODPM/Office for Communities & Local Government/Office of National Statistics/LCP In-house Representing 8.7% compound growth and a doubling of values approximately every 8 years

  11. Who are LCP London Central An asset class Performance Credit Crunch What now? A Competitive Performer Demonstrates significantly less volatility and outperforms UK commercial property and the UK stock market Comparative performance 1970 = 100 London Central Residential Capital Growth Index = 5,069 London Central Residential Total Return Index = 7,132 UK Commercial Total Return Index = 5,532 UK Commercial Capital Growth Index = 506 FTSE 100 Index = 1,646 Source: HM Land Registry, IPD, Reuters, LCP In house research

  12. Who are LCP London Central An asset class Performance Credit Crunch What now? A Consistent Performer Despite adverse conditions (1989 and the credit crunch) a 10 year hold has always shown real growth IRR over 10 year period (total return) 10 year IRR shows a spread of 5-12%. Source: CML/ODPM/Office for Communities & Local Government/Office of National Statistics/LCP In-house

  13. Who are LCP London Central An asset class Performance Credit Crunch What now? Investment returns can be further enhanced Net residential yields allow 60-70% gearing Significantly increasing returns over an 8 year period Income tax mitigation CGT exemption for non-res and non-doms Inheritance tax mitigation through offshore holding vehicles Every case differs & you should seek specialist tax advice

  14. Who are LCP London Central An asset class Performance Credit Crunch What now? The impact of the credit crunch London Central has shown a resilient performance Sector % Drop Peak to Trough % Change peak to date London Central - 15% +3% FTSE 100 - 47.75% -27% UK commercial - 40% -22% (total return) Source: HM Land Registry, IPD, Reuters, LCP In house research

  15. Who are LCP London Central An asset class Performance Credit Crunch What now? What has underpinned London Central’s resilience? Desire for transparency: retrenchment into tangible assets Belief in long term desirability & longevity Opportunistic buying Diversification High dependence on international vs domestic economy (investors & tenants)

  16. Who are LCP London Central An asset class Performance Credit Crunch What now? Weakness in sterling increased affordability London Central pricing relative to different currencies Exchange Rate US$ : £ 26% Drop from Peak Exchange Rate Singapore $ : £ 28% Drop From Peak Exchange Rate MYR : £ 28% Drop From Peak London Central Residential Capital Growth Source: HM Land Registry (RBKC &CoW)/xrates.com

  17. Who are LCP London Central An asset class Performance Credit Crunch What now? Reduced borrowing costs increased accessibility An unprecedented fall in interest rates Source: Bank of England Base Rates Gearing on London Central property is relatively low and is primarily a tax planning mechanism

  18. Who are LCP London Central An asset class Performance Credit Crunch What now? What now? – Possible scenarios Press reporting on UK property market should be handled with care…

  19. Who are LCP London Central An asset class Performance Credit Crunch What now? Factors affecting London Central performance differ from the UK Different price trends London Central vs England & Wales 2003 = 100 Source: HM Land Registry HPI (RBKC &CoW)

  20. Who are LCP London Central An asset class Performance Credit Crunch What now? Despite risk of double-dip or triple-tumble, past performance is probably our best predictor Continued weak UK economy (low interest rates/weak sterling): Incentivises the foreign investor Increase in base rates: already factored in at about 4% for 5 year fix High levels of inflation: historically reflected in property prices London loses its allure: not convincing (10m HNW, $39 trillion) Lack of buyers leads to major price reductions: evidence suggests a floor to price falls

  21. Who are LCP London Central An asset class Performance Credit Crunch What now? Major falls in transactional activity result in limited falls in prices Transaction falls peak to trough vs price falls Source: HM Land Registry (RBKC &CoW)

  22. Who are LCP London Central An asset class Performance Credit Crunch What now? Historic data shows lowest 10yr IRR at 3%, average capital growth at 8.7% Capital Appreciation Only Ungeared 3% Ave. Cap.App. 3.8% IRR & 44.5% RoE Total Return Ungeared 3% Ave. Cap.App. 6.6% IRR & 88.9% RoE Capital Appreciation Only Geared (60% LTV) 3% Ave. Cap.App. 7.8% IRR & 111.2% RoE Capital Appreciation Only Ungeared 8.5% Ave. Cap.App. 9.3% IRR & 143.1% RoE Total Return Ungeared 8.5% Ave. Cap.App. 11.8% IRR & 203.6% RoE Capital Appreciation Only Geared (60% LTV) 8.5% Ave. Cap.App. 16.4% IRR & 357.6% RoE Source: CML/ODPM/Office for Communities & Local Government/LCP In-house. Assumes 7.5% day 1 uplift and 3.5% net rental yield Using these as downside and upside parameters projections, un-geared and geared growth can be assessed

  23. Who are LCP London Central An asset class Performance Credit Crunch What now? Summary London Central is a unique market benefiting from: • Scarcity of stock • Increasing global demand • Consistent returns Shown robust performance outperforming conventional asset classes Upside potential due to inherent market desirability Downside possibility due to uncertain economic future 10 year ungeared IRR shows a spread of 5%-12%, ave. growth 8.7% Potential spread of returns makes London Central a strong candidate for inclusion in a balanced portfolio

  24. Who are LCP London Central An asset class Performance Credit Crunch What now?

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