Picasso’s Women of Algiers sold for £116m in New York. While the painting saw price growth of 462% from 1997, London’s property market is not far behind, up by 334% over the same period, reports Nationwide.
For buyers looking for a slice of the UK’s vibrant property industry, auctions offer the opportunity to invest beyond traditional bricks-and-mortar house purchases. From ground rents to garages, properties with life tenants in situ to unusual buildings, there are plenty of ways to access the property market in addition to owning a home.
The appeal of alternative property investments varies dramatically depending on the type of asset an investor is looking for. While ground rents and garages can offer regular income, properties with a life tenant in situ, unusual buildings and land often have greater potential long-term gains.
Ground rents are popular auction lots, offering investors a low barrier to entry with good potential returns. Buying a ground rent gives the owner the freehold of a property, receiving regular payments from leaseholders. These have become increasingly sought after over the past 10 years, enabling buyers to access parts of the UK property market for a fraction of the price of a house.
This is particularly true in London, where Land Registry data shows that the average price of a property is more than £462,000. Yet ground rents in the capital sold for as little as £15,000 at our May auction. As well as regular income from leaseholders, ground rents can generate larger windfalls when leases end and a revision occurs.
Savills research predicts that growth in the property market will generate £230m in new ground rents in 2016, indicating an increasing number of investment opportunities for the years ahead.
Garages are another type of property that have proved popular with investors in recent years. While they have already made headlines for achieving incredibly high prices in prime central London, garages still offer good potential returns.
At our last auction two garages sold in Brondesbury Park, north-west London, and Croydon, south London, for £286,000 and £163,000 respectively. In city and town locations where many properties do not come with off-street parking and for those close to good public transport links, garages can be let out for thousands of pounds each year. The development of a number of parking space websites and mobile apps have made generating an income from a garage easier than ever before.
Alternatively, blocks of garages and garages with parcels of land attached could potentially become development sites subject to the usual planning consents.
For cash buyers looking to purchase a second home and who are focused on capital growth rather than rental yields, properties with lifetime tenants can offer an impressive investment opportunity. Occupied properties can sell for up to 50% less than equivalent vacant properties, giving substantial scope for value growth when the life tenancy comes to an end. Although the property will not generate an income, the tenant will cover all associated bills and is responsible for maintaining the property to a good standard.
Once the property is vacant, all rights return to the owner. Properties with regulated tenancies also offer similar long-term investment potential.
Former pumping stations, water towers, nuclear bunkers, public toilets and alleyways have all been in our auction brochures over the years.
Some of these properties already come with planning, such as a former pumping station with planning permission for a unique three-bedroom detached house in Swindon, Wiltshire, which sold for £79,000 at our auction in May. With the average price of a detached property in the same postcode being £279,000, there is potential for the purchaser to see a significant return on their investment.
Investors stand to make considerable gains by taking on the weird and wonderful, either by converting unusual properties into more traditional commercial or residential offerings, or by taking a long-term view and waiting for capital growth.
Chris Coleman Smith, head of auctions, Savills
