Dubai expats group shows the way to managing a property portfolio
Chris Battle loves talking about property. But he knows he has taken it too far when his wife stops listening.
“She sort of glazes over,” says Mr Battle, 46, from England.
The couple do, however, have a lot to talk about when it comes to real estate. They own seven investment properties and a family home, having first become landlords eight years ago after deciding to rent out their home rather than sell when they moved to Dubai from London.
They enjoyed receiving the rent money so much they bought another in the United Kingdom in 2011, two more in the United States a couple of years ago and more UK purchases since then. Their portfolio is now worth about £1.38 million and they have more purchases planned.
While his wife many not want to discuss their portfolio, Mr Battle’s expertise as a buy-to-let landlord is not going to waste. He has set up a meetup group for property investors like himself. Called the The Property Hub Meetup, (http://bit.ly/2fYur7B) the group was inspired by a UK podcast called the thepropertyhub.net, which gives investors hints and tips.
“I contacted them to see if there was one in Dubai and they said no, would you like to start one? So about a year ago I put the group together,” says Mr Battle.
Members meet on a monthly basis in Dubai to discuss relevant topics, goals and the progress of their property investments. Last time around 14 people attended, most of whom have investment properties in the UK.
And there could never be a better time to discuss investing into the UK.
Victoria Garrett, a partner at Knight Frank Middle East, which is currently marketing a development in Staines upon Thames to UAE residents, says the UK market has cooled post-Brexit.
In London, for example, prime central prices are expected to end the year down 9 per cent, according to Savills.
“On everyone’s lips at the moment is currency. It is an all-time low, so in terms of making your money work harder for you, converting your money back now is the perfect time to do it,” adds Ms Garrett.
Investing back home is certainly key for group member Darren Cairns, 32, from Scotland. He now has five apartments in the UK worth about £1.12m (Dh5.1m), having bought his first in London, a two-bedroom flat for £385,000, before moving out in 2013. He then bought a one-bedroom flat in Edinburgh for £120,000 last year; a two-bedroom flat in New Crofton for £80,000, again last year; a two-bedroom in Manchester for £200,000 this year and another in Liverpool this year for £82,000.
His strategy is simple, to create a base of assets – property – most of which he has bought using interest-only, buy-to-let mortgages which he rents out to generate cash which he will use to invest in other things. And it has already started paying off. His London pad is now worth £600,000.
“It’s in Islington and that area has gone up in value quite a lot since then. It was a new build and came with a small garden,” says Mr Cairns, a management consultant.
And he is not the only group member to have cashed in on the growth of the capital’s property market.
Jonathan, 41, a journalist from England who asked for his name to be changed, has five properties worth about £1.37m, the first of which, a two-bedroom apartment he bought in Dundee in 2005 for about £70,000. He bought his second investment property, a three-bedroom terrace in London, three years ago for £380,000; then a three-bedroom home in Nottinghamshire two years ago for £121,000; a two-bedroom apartment in Melbourne in Australia two years ago for A$405,000 (Dh1.23m); and he also has a large Victorian house in Nottingham, which he bought for £175,000 and has subsequently converted into a house of multiple occupancy. The price of that house, which he expects to achieve yield of around 10 per cent, has risen in value by at least £100,000 since he renovated it. And he has also seen the value of his London property rise substantially.
“That has gone up a lot in value, over £200,000, in about three years. Actually it could be more than that,” says Jonathan. He also intends to refinance it to buy more properties next year. And it could be a good time to do so, according to Mr Battle.
“There is a theory they go into on the property podcast on the 18-year property cycle. There will be a crash every 18 years. The idea is that for the first three or four years after the crash nothing will happen, then there will be slow growth up to about year nine, which is probably going to be next year [in this cycle],” says Mr Battle.
“Then there will be a recession or a blip for maybe a year. Then there is going to be rapid growth for seven years. Then after that, the last couple of years is called buyer beware. That’s when people buy at the top of the market and then there is a crash coming in a year or two’s time.”
Group member Joanne Alford, 43, from Wales, knows all about the problems caused by market crashes. She has three properties, all of which are within about 16 kilometres of the Welsh capital, Cardiff.
She bought the first property, a three-bedroom house in Llantrisant near Cardiff, the village she grew up in, in 2002. The second property, a three-bedroom house in Llanharan, near Cardiff, followed in 2006 and then she built another three-bedroom house in the garden of that one the following year. She also owns a three-bedroom house in Jersey which she bought in 2013.
“We thought what we would do was flip that new property, which was all self-financed, sell it for cash then we would invest in other property. But then we had the market crash,” says Ms Alford, whose portfolio is worth £840,000.
She has since tried to sell each of the three properties at least once to no avail and has also had problems finding tenants, particularly with an older property, eventually renting that home for discount to ensure it was occupied.
Jonathan has also struggled to find a tenant for his Dundee apartment at times and his house of multiple occupancy has been slower to rent than he would like.
“There are lessons in that as well. There are a lot of things you can do to make it desirable,” he says.
But one more thing to consider about voids, the periods where properties are empty, is that they are actually easier to withstand if you have a larger portfolio, says Mr Battle.
“Say you have half a dozen properties. If one of them is empty, you still have enough from the others to pay the mortgage. It might take a couple of months before you have any real worries. But if you have one property, and that is empty, that mortgage has to be paid from somewhere. So developing a portfolio is actually less risky than just having one, for that reason. It is a safety valve for yourself,” he says.
The same goes for maintenance, says Mr Cairns. If you have one apartment and your boiler goes, that can wipe out any earnings from rent for a long time.
“But it is very unlikely if you have 10 properties, that all 10 boilers will blow up in one month. It kind of de-risks things a bit. It’s more like a business. And it is a business,” he says.
But as with any business, external factors can also play a big part.
The UK reviewed its tax regulations on property in recent years. Until 2015, UK expats who had lived outside the UK for at least five whole tax years were not liable to pay capital gains tax (CGT) on the sale of their properties. That has now changed, but any gain is calculated from April 5, 2015. A CGT allowance of £11,100 per person is still available though, says Mr Battle..
“This means that a couple that jointly owns a property will have an allowance of £22,200,” he says, adding that stamp duty rules have also changed with anyone buying a second property in the UK since April 2016 liable for an additional 3 per cent stamp duty charge.
And while mortgage interest payments were previously deductible before income tax at the highest tax rate payable, Mr Battle says a new system is being phased in by 2020 so that a tax allowance of no more than 20 per cent is deducted when calculating taxable profit.
Plus economic uncertainty still exists.
In late October Anthony Browne, the chief executive of the British Bankers’ Association, warned that banks are planning to quit the capital early next year following the Brexit vote. The effect that will have on London’s property market is not yet clear. But Aberdeen, Europe’s oil capital, is proof of how a declining industry can hit a property market.
In the Scottish city, prices grew 88 per cent in a decade, from £116,656 in 2005 to £219,177 in 2015, outpacing even London, according to Bank of Scotland. Growth seemed unstoppable until the oil price slump began hitting producers based in the North Sea. From April 2015 to April 2016, prices in Aberdeen dropped almost 20 per cent, according to figures from Your Move.
The effect could be the same in London if the banks leave.
However, Mr Battle remains optimistic.
“Britain is still in the G7. It is a big economy. It might not be banking. It might be a different industry,” he says. “But we will still be OK.”
Chris Battle’s property portfolio (£):
One-bedroom flat in Hornsey, North London: £222,000
Current value: similar advertised on Zoopla.co.uk for £400,000
Monthly rental income: £1,300
One-bedroom apartment in South Carolina, US: £63,349
Current value: not known
Monthly rental income: £462
One-bedroom apartment in Florida: £69,772
Current value: not known
Monthly income: £483
One-bedroom flat in Woolwich, South East London: £270,000
Current value: approximate on Zoopla.co.uk at £325,000
Monthly rental income: £1,150
One-bedroom flat in Romford, Essex, UK: £250,000
Current value: no change
Monthly rental income: £1,170
Two-bedroom flat in Norwich, UK: £157,500
Current value: no change
Monthly rental income: £695
Two-bedroom flat in Ipswich, UK: £115,000
Current value: Expected to exchange this week
Monthly rental income: expected £650
Total value: £1.38 million (Dh6.29m)
Financing a UK portfolio
According to Chris Battle, founder of the Property Hub Meetup group, taking out mortgages to buy in the UK typically require a larger deposit, which can be as high as 35 per cent. It is possible to get a mortgage for 75 per cent but you tend to have to pay a higher interest rate, he says. Applicants have to provide numerous documents including proof of address and income, three months’ bank statements and mortgage statements for the past 12 months, if the applicant already has a mortgage, plus proof that they can pay the deposit.
Options to buy in the UK for UAE residents include:
• Going direct to a UK lender, such as Skipton, which offers expat mortgages. The highest demand for expat mortgages with Skipton has come from expats in the UAE, with almost a quarter of all applications coming from here since the lender first introduced the product in 2014. Al Rayan Bank is another option. It is UK-based, Sharia-compliant and offers expat mortgages to UAE residents.