Celebrating 20 years of successful property investment by Harold Phillips
As I sit in my pleasant office overlooking Richmond Green (watching with baffled amusement the chronically inept attempts of people trying to park their cars!), I can reflect on the changes that have taken place since the company has been in business and the differences and similarities in working in the property investment and lettings industry then and now.
One of the biggest and most obvious changes is of course the property prices. *Statistics for house prices show a good level of stability in the market. Nationwide suggests house price growth has been 18.2% over five years, 41.2% over 10 years and 309.0% over 25 years. Land Registry data, which uses a different methodology, is roughly the same – in fact, their measurement of average property price is slightly more optimistic, registering 26.4% growth over five years, 45.6% over 10 years and 314.2% over 25 years. These figures, impressive though they may be are national averages and do not reflect the price inflation in central London, which has, in our experience has comfortably outstripped these figures.
Another big change is that of the introduction of increasing amounts of government legislation into the rental industry. The gas safety certificates, the EPC’s the Right to Rent, the rigid data protection legislation, and now the introduction of AML procedures have all taken place in that time.
In addition to these controls there has been a steady series of changes to the taxation effects upon investment property. I started in the business 50 years ago, and 35 years ago stamp duty was charged at the rate of 0% up to £30,000 and 1% above that. Typically, a 2 bedroom flat at that time would cost about £100,000 in a secondary location such as Earls Court. The rental return would be around 15% but the bank base rate was around 11%. However, mortgage interest could be offset at the rate the landlord paid it. Maintenance and repair costs could be set against tax, as could insurance premiums, ground rent and management charges.
That same flat would have risen to a sale price of about £1.4m in 2014 when the market in Central London peaked and would have fallen back to around £1.15m now in early 2020. The stamp duty level for an investor would now amount to £93,250 and the cost of future repairs and replacement of machines cannot be classed as valid tax-deductible expenses. The rental yield would now be around 3% gross.
We have bought properties for clients in areas of London where prices have appreciated beyond anything we had forecast, yet rental levels have not risen to anything like the same extent. This has led to yields falling to a level that 20 years ago would have been considered uneconomic but are considered normal today. It was this yield compression that led us to buy properties in Berlin and Poland where the yield was perhaps double that of London, and yet we now see yields in the German capital very similar to those in central London.
The effects of the technological revolution that has swept wider society have of course been felt in this industry too. Not all of it for the good, the Airbnb phenomenon has made the life of a managing agent far more difficult, we are now always on our guard for so called tenants wishing to rent and then rerent our clients’ properties for this purpose quite against the terms of the lease and often to the detriment of the good management of a building. This was of course unknown when we first opened our doors.
On the positive side, the ability to attract a worldwide audience to our properties through the internet is of course a great boon. The dominance of emails has led us to be able to conduct business, in our case reach clients in the Far East and manage our agents in Europe with relative ease and great speed. Working practices have definitely changed for the better. 40% of our staff work 3 or 4 day weeks, and accounting and IT is often done externally. For me, personally, the most positive change is being able to come to work in Richmond, about ten minutes from home to the office, rather than the daily trudge into central London. I don’t miss the noise or the crowded unreliable trains one little bit!!
The relaxation of strict dress codes is another huge change. When I started work I had to wear a stiff collar, tie and of course a suit. These days, negotiators, clients and applicants often turn up in sweaters and jeans. The other major change is the dramatic rise in the number of women working in the industry. When I started work women were rarely seen in the front office, they were support and administrative staff, today they fill all roles, the same goes for the legal profession too. One of the most positive things that I have done has been to be one of the earliest in our industry to recognise the potential of women who wanted a more fulfilling career and to encourage them to fulfil their potential.
This article is about changes in our industry but looking back over the past I am reminded that there are some things that never change, the old fashioned virtues of attention to detail, listening to what the client needs and offering good honest advice are still as important today as they ever were. I also remember a piece of very good advice given to me many years ago. Embrace change – the only thing that doesn’t change, is change itself!!