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FOREIGN INVESTMENT IN LONDON

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Danielle John

by Danielle John, Associate at Charles Russell LLP

  • The London prime real estate market

Property prices in London have been increasing rapidly and although a full recovery from the 2007 crash is yet to be achieved, the capital continues to be considered a safe haven for investors both domestic and foreign.

The most desirable, or “prime”, areas of London have seen a staggering 118% price increase in residential property prices over the past 8 years and we are now seeing some interesting movements within these prime areas. Movements which suggest that investors might need to change tactics in order to see good returns.

Danielle John

Danielle John

Prime Central London, for example, has seen a slightly more modest 8.9% increase year on year for Q1 2014 and London’s “ultra prime” (i.e. properties worth over £10million) has seen an extremely modest 1.9% increase year on year[1] whereas the annual rate of increase in the London Borough of Waltham Forest was a whopping 23.5%[2]. The rates of increase within prime areas seem to be more rapid where owners don’t hold on to their properties for as long a period of time such as prime South West (14.7% increase) and prime North (15.8% increase) or where there are properties which can be up-cycled such as in Prime East London where properties have seen an exciting increase of 17.2% year on year [3].

There are murmurs that the soaring increase in property prices will lead to another housing bubble but some, including Savills, believe the slower rate of growth in the ultra prime and prime Central areas might just help consolidate the rapid recovery seen in recent years and avoid the risk of a bubble. Can it really be a simple case of onwards an upwards?

  •  Foreign investment and the need for affordable housing

In 2013, 75% of new homes built in inner London and 50% of central London properties sold for over £1m were bought by “foreign” purchasers.[4] There are concerns that foreign investors are buying up London’s best properties, increasing the property prices and leaving homes empty, but when we look at residence as opposed to nationality of property owners a different light can be shed on the matter. London is a global city and so it isn’t surprising that a large number of the city’s population are “foreign” and looking to live in the capital. Knight Frank’s analysis of prime Central London sales split by nationality and residence (12 months to June 2013) showed 49% of sales were to Non-UK nationals but only 28% were to Non-UK residents.[5]

London needs more homes and foreign investors are not only adding to the limited stock but are more willing to take on projects domestic developers don’t have the capacity to take on, such as off plan sales. Developers, whether foreign or not, are often required to provide affordable housing or make CIL payments which although can in some cases be prohibitively high for investors, they are good for Londoners since the money is filtered into the local area.

  •  A taxing question: Is the “Safe Haven” still safe?

The UK is undoubtedly a top European destination for foreign direct investment with a 22% increase in FDIs in 2012/2013 compared to an 18% fall globally during the same period[6] but there are fears that talks of a bubble, the strengthening pound, increased tax burdens and a looming general election might put off the less risk averse investor.

Unlike their domestic counterparts, non-UK resident investors are currently exempt from paying capital gains tax when reselling UK property but the government’s plan is for the balance to be redressed. From April 2015, non-UK resident owners will be required to pay CGT on disposals of UK property and so some investors will need to consider taking on new structures of property ownership or looking at new assets in which to invest altogether. Even if CGT doesn’t put off investors, it is likely that we will see a lull in investments whilst the inevitable teething problems surrounding the complex new tax rules are overcome or at least better understood.

  • Current considerations for investors

Investors want to see a good return on their investment and the statistics show that London, for the time-being at least, ticks that box. The diversity of the capital provides a wide ranging menu of investment opportunities to satisfy differing risk appetites. We have seen that the rate of increase in traditional prime areas is slowing down and that the prime areas are expanding and so it isn’t surprising that some investors are looking to invest in areas which have more room for growth.

The rate of property price increase versus the rate of salary increase has seen many people living in London priced out of home ownership and having to live in rental properties. The demand for more rental properties has driven investors towards the buy-to-let market but consideration has to be given to the practicality and cost of carrying out landlord’s duties if investing from overseas.

 Tips for Foreign Investors

  • It is a highly competitive market out there and knowledge is golden. Investors need to know the market, know how to find the right property and know the right people for the job. Having a team of advisors lined up and ready to go when the right property surfaces will hopefully mean beating the competition. Have accountants ready for tax planning, lawyers who are experienced in working in the chosen investment area and agents who can negotiate the right deal.
  • Part of knowing the market means staying on top of political and economic developments so that these can be factored into decision making. The government are well aware of Londonners’ feelings towards the lack of affordable housing available and so it wouldn’t be surprising to see more incentives and schemes introduced to address this.
  • Don’t be left behind! Keep an eye out for emerging submarkets with character and good infrastructure; these are already seeing higher percentage growth than prime areas.

[1]  Savills, Market in Minutes, Prime London Residential Markets, April 2014

[2] Land Registry, House Price Index, March 2014, Release date 30 April 2014

[3]  Savills, Market in Minutes, Prime London Residential Markets, April 2014

[4] Land Registry, House Price Index, December 2013, Release date 29 January 2014

[5] Knight Frank, International Buyers in London, October 2013

[6] United Nations Conference on Trade and Development, World Investment Report 2013

Investing

Northern Trust: Outsourcing Accelerates Through Pandemic as Investment Managers Seek to Improve Margins, Enhance Business Resilience, and Future-Proof Operations

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Northern Trust: Outsourcing Accelerates Through Pandemic as Investment Managers Seek to Improve Margins, Enhance Business Resilience, and Future-Proof Operations 1

White Paper Sees Increase in Managers Outsourcing Middle and Front Office Functions to Achieve Optimal Business Structures

According to a white paper published today by Northern Trust (Nasdaq: NTRS), investment managers of all sizes and strategies have been prompted to undertake a comprehensive review of their operating models as a result of the Covid-19 pandemic which has accelerated existing trends that are compounding cost pressures. This has led increasing numbers of managers to outsource in-house dealing and other functions, such as foreign exchange and transition management, hitherto seen as core.

While cost savings remain a core driver, and indeed are one outcome of outsourcing, costs are no longer the only focus. Far from being solely a defensive reaction to increased pressure on margins, the white paper (‘From Niche to Norm’) describes outsourcing as part of the target operating model, or moving toward the ‘Optimal State’ for many investment managers, and  explains how the focus “has expanded to the variety of other potential benefits offered – enhanced capabilities, improved governance and operational resilience.”

Gary Paulin, global head of Integrated Trading Solutions at Northern Trust Capital Markets said: “The pandemic has challenged a range of operational assumptions. Working from home has, for example, questioned the need for a portfolio manager to be in close proximity with the dealing desk. Previously considered essential, the pandemic has effectively forced firms to ‘outsource‘ their trading desks to remote working setups and the effectiveness of this process has disproved the requirement for proximity, in turn, easing the path to third-party outsourcing. Many investment managers are actively considering outsourcing to a hyper-scale, expert provider as a potential, cost efficient solution – one that maintains service quality and, hopefully, improves it whilst adding resiliency.”

Northern Trust’s white paper compares outsourced trading to software-as-a-service stating: “instead of carrying the cost and complexity of running an in-house solution, firms move to an outsourced one, free up capital to invest in strategic growth and move costs from a fixed to a variable basis in line with the direction of travel for revenues.” 

Guy Gibson, global head of Institutional Brokerage at Northern Trust Capital Markets said: “The opportunity to deploy capital to build new fund structures, develop new offerings, focus on distribution and enhance in-house research has been taken up by several of our clients to the benefit of their investment approach, and to the benefit of their investors.  Additionally, in the last two months alone, many firms have recognized that outsourcing to a well-capitalized, global platform has enabled them to take advantage of cost-contained growth opportunities in new markets.”

A further development, which has echoes of the journey the technology industry has already undertaken, is the move towards ‘whole office’ solutions, which represent the next potential wave in outsourcing.

According to Paulin; “recently we have observed a growing number of managers wanting to outsource to a single, hyper-scale professional service provider who can do everything, everywhere. This aligns with Northern Trust’s strategy to deliver platform solutions for the whole office, serving our clients’ needs across the entire investment lifecycle.”

The white paper can be downloaded here.

Integrated Trading Solutions is Northern Trust’s outsourced trading capability that combines worldwide locations and trading expertise in equities and fixed income and derivatives with access to global markets, high-quality liquidity and an integrated middle and back office service as well as other services, such as FX. It helps asset owners and asset managers to meaningfully lower costs, reduce risk, manage regulatory compliance and enhance transparency and operational efficiency.

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How are investors traversing the UK’s transition out of lockdown?

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How are investors traversing the UK’s transition out of lockdown? 2

By Giles Coghlan, Chief Currency Analyst, HYCM

Just when we thought we had overcome the initial health challenges posed by COVID-19, the UK Government has once again introduced lockdown measures in certain regions to curb a rise in new cases. This is happening at a time when the government is trying to bring about the country’s post-pandemic recovery and prevent a prolonged economic downturn.

This is the reality of the “new normal” – a constant battle to both contain the spread of the virus but also avoid extended economic stagnation.

Of course, no matter how many policies are introduced to spur on investment, traders and investors are likely to act with caution for the foreseeable future. There are simply too many unknowns to content with at the moment.

To try and measure investor sentiment towards different asset classes at present, HYCM recently commissioned research to uncover which assets investors are planning to invest in over the coming 12 months. After surveying over 900 UK-based investors, our figures show just how COVID-19 has affected different investor portfolios. I have analysed the key findings below.

Cash retreat

At present, it seems that by far the most common asset class for investors is cash savings, with 78% of investors identifying as having some form of savings in a bank account. Other popular assets were stocks and shares (48%) and property (38%). While not surprising, when viewed in the context of investor’s future plans for investment, it becomes evident that security, above all else, is what investors are currently seeking.

A third of those surveyed (32%) said that they intended to put more of their wealth into their savings account, the most common strategy by far among those surveyed. This was followed by stocks and shares (21%), property (17%), and fixed interest securities (17%).

When asked about what impact COVID-19 has had on their portfolios throughout 2020, 43% stated that their portfolio had decreased in value as a consequence of the pandemic. This has evidently had an effect on investors’ mindsets, with 73% stating that they were not planning on making any major investment decisions for the rest of the year.

Looking at the road ahead

So, it seems that many investors are adopting a wait-and-see approach; hoping that the promise of a V-shaped recovery comes to fruition. The issue, however, is that this exact type of hesitancy when it comes to investing may well slow the pace of economic recovery. Financial markets need stimulus in order to help facilitate a post-pandemic economic resurgence, but if said financial stimulation only arrives once the recovery has already begun, the economy risks extended stagnation.

It seems, then, that there are two possible set outcomes on the path ahead. The first is a steady decline in COVID-19 cases, then an economic downturn as the markets correct themselves, followed by a return to relative economic stability. The second potential outcome is a second spike of COVID-19 cases which incurs a second nationwide lockdown – delaying an economic revival for the foreseeable future. At present, the former of these two scenarios is seemingly playing out with economic growth and GDP steadily increasing; but recent COVID-19 case upticks show that it’s still too soon to be certain of either scenario.

A cautious approach, therefore, will evidently remain the most common investment strategy looking ahead. But investors must remember that, even in the most uncertain times, there are always opportunities for returns on investment. Merely transforming a varied portfolio into cash savings risks a long-term decline in value.

High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information please refer to HYCM’s Risk Disclosure.

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Hatton Gardens 5 top tips for investing in Diamonds

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Hatton Gardens 5 top tips for investing in Diamonds 3

By Ben Stinson, Head of eCommerce at Diamonds Factory

Investing in diamonds can be extremely rewarding, but only if you know what to look for. For investors who lack experience, finding your diamond in the rough can be quite daunting.

For even the most beginner of diamond investors, the essentials are fairly obvious. For instance, you need to ask yourself will the diamond hold its value over time? What’s the overall condition of the stone and the jewellery? Is there history behind the item in question?

Although common sense plays a big part in investing, people often need insider tips and tricks to go from beginner to expert. Tony French, the in-house Diamond Consultant, at Diamonds Factory shares his professional knowledge on the 5 most important things to look for when investing in diamonds.

1: Using cut, weight and colour to determine value

Firstly, consider the shape, colour, and weight of your diamond, as this can play a pivotal role in guaranteeing growth in the value of your item. Granted, investing trends change with time, but a round cut of your diamond will almost always be the most sought after. The cut of your diamond is incredibly important, as it can influence the sparkle and therefore, the overall value. It’s a similar story for the intensity of some colours, such as Pink, Red, Blue, Green etc. Concerning weight, the heavier (bigger) stones will generally increase in value by a bigger percentage. Collectively these factors also contribute to the supply and demand aspect, which will determine their high price, and will ensure your item is re-sellable.

2: Provenance

Looking for significant value? Well, aim to own jewellery or diamonds that come from an important public figure. If you’re lucky enough to own a piece that has significant history, or was owned by a celebrity or person of interest, it’s an absolute must to have concrete evidence of this. Immediately, this proof will increase an item’s overall value, and there’s a good chance the stardom of your item might drum up interest amongst diehard fans, increasing the value even further…

Equally, it’s possible to proactively bring provenance to unique diamonds of yours. For instance, you can offer to loan bespoke, or unusual pieces for film, theatre, or TV performances – then it can be advertised as worn by xyz.

3: Find the source

Ben Stinson

Ben Stinson

Establishing your diamond’s source is one of the most important things you can do when investing in diamonds. If you’re starting out, try to purchase diamonds that have NOT been owned by too many people, as the overall value of the diamond will reflect multiple ownership. Alternatively, I’d always recommend buying from suppliers like ourselves or other suppliers and retailers, who buy directly from the people who have had them certified.

Primarily, this will allow you to have a greater degree of transparency, which is crucial when buying such a valuable item. Next, you should immediately see an increase in value of your diamonds, as identifying a source will allow traceability and therefore, market context.

4: Certification

Linked closely with my previous point, is the requirement to ensure that your diamonds are certified by a credible lab, and you have the evidence to prove so (a written document with specific grading details about your diamonds) – this will remove any doubts of impropriety.

It’s essential to remember that not all labs are the same, and many labs are better than others. Both the AGS (American Gem Society) and GIA (Gemological Institute of America) have great reputations and are world renowned. I’d recommend doing your own research into the labs, and when you’ve found the pieces that you’d like to invest in, then make an informed decision based upon your findings. Ultimately, proving certification will make your stones easier to insure, and deep down, you can have peace of mind knowing you have got what you have paid for.

Don’t forget to keep this paperwork in a safe location as well – you’d be surprised how many people we’ve met who have lost, or forget where they’ve placed it.

5:  Patience is a virtue…

If the market is strong, it might be tempting to look for an immediate sale once you’ve purchased a high value item. However, I suggest holding onto your diamonds for some time before even thinking about selling. More often than not, an item is more likely to increase in value over a few years than a few days – try and wait a little longer!

Equally, I would encourage having your diamonds, or jewellery professionally valued regularly. If you don’t have the knowledge to make a rough judgement on how much your pieces are worth, a consultant or expert can provide both a valuation, and contextualise that amount in the wider market. From there, you should be empowered with the knowledge to decide whether to keep or sell.

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