Ireland’s new rich have joined the throng of foreign investors buying UK property, attracted by cheap money and high-yielding investments. Amanda Seidl looks at how private money is affecting the market
There is a fin de si`cle opulence about Dublin these days. Luxury cars crawl down O’Connell Street, designer fashion stores line Grafton Street and restaurants are overflowing with ladies who lunch. Ireland, once the poor cousin of Europe, has come into an inheritance and is flaunting its new-found wealth.
Irish GDP is forecast to be a sizzling 7% this year while inflation is running at just over 2% and the base rate is 2.5%. The booming economy, fuelled by inward investment, has created a new class of wealthy businessmen who are eager to put their money into foreign property.
“Many businesses in Ireland have never had it so good,” says CB Hillier Parker’s Jonathan Hull, who runs the firm’s IRL/UK investment fund.
Linking up with its Irish associate Hamilton Osborne King, CB Hillier Parker set up the fund at the end of 1997 to provide a group of 10 Irish clients with a vehicle with which to invest in the UK property market.
“The weight of money from Ireland is greater now than ever before as investors are attracted by the UK yields and covenants. They are opportunity driven,” says Liam Lenahan, investment director of HOK.
Irish compete for the best UK stock
The Irish have joined a growing crowd of private investors who are competing with the institutions on equal terms for the best stock in the market, and their appetite for UK property shows no sign of abating. Recent research by Jones Lang LaSalle indicates that, in the first quarter of 1999, private investors accounted for 35% of purchases and bought £580m of the £775m of portfolio transactions – or three in every four deals.
The ready availability of attractively priced finance and the ability to obtain high loan-to-value ratios has enabled many private buyers to enter the property market. “They are now competing directly with institutional investors and larger property companies,” says Rupert Clarke, managing director of JLL Corporate Finance.
Many private investors are home-grown, but the UK property market is particularly attractive to European investors, who have access to cheap money and are looking for high-yielding investments. DTZ Debenham Thorpe’s Money into Property report, out last week, confirmed that foreign investor interest in UK property is continuing this year. In the first quarter of 1999, a record £1.4bn of property was sold to foreign buyers. Irish investors now account for 7% of foreign investment.
Of course, wealthy individuals have always been a feature of the property market, and some, such as George Soros, have the buying power to cause a stir in the market. But the recent influx of private money into property differs both in scale and in aspiration. Rather than buying the odd trophy building for their pension fund, private investors are now joining forces to bid for portfolios of institutional stock.
Last year, the IRL/UK fund set a new standard for private Irish investors when it acquired the Sainsbury’s store in Epsom at a sub-7% yield. The £20m fund has now acquired six properties with an average yield of 6.75- 8%. Two Irish investors were the underbidders on the Heinz building on Stockley Park, which sold last month for a sub-6% yield.
A breath of fresh air
“The Irish investors are a breath of fresh air. They know what they want and they’re not scared of breaking yield records,” says Tim Appleton of Fisher Walker in Edinburgh. In February, Appleton bought Queen’s Drive Retail Park in Kilmarnock for a private Irish investor. The £11.4m deal at a 7.5% initial yield was agreed in just two weeks.
Not surprisingly, a number of consultants are eager to guide Irish money into the UK market. Charles Sandy, formerly of Nelson Bakewell, has recently set up a new property company, Charterland & Estates, and is buying properties for a number of Irish clients. “They are all looking for bankable property let to a good covenant with at least 15 years remaining,” he says.
Lot sizes range from £1m to £10m for private individuals with syndicates paying up to £30m for a single purchase, according to Allsop & Co’s Jeremy Hodgson, who reckons that some 20% of properties sold at the firm’s last six auctions went to Irish bidders. “Every few years a different group comes into the market. Now it’s the turn of the Irish,” says Hodgson.
The effect of a wave of private investor bidding on local property values can be seen in Belfast, the first port of call for many Dublin investors. The weight of Southern Irish money chasing prime property in Belfast has pushed retail yields to an all-time low. When an Iceland unit in Belfast was marketed last month it attracted 14 bids and sold for a yield of 8%.
Andy Tough, investment director of Lisneys, claims that one private client from the Republic has spent £22m in Northern Ireland in the past 18 months.
Investment interest has put speculative office development back on the cards in Belfast for the first time in five years. “There is a perception in Dublin that new stock would establish a new rental level,” says Tough.
The buying power of Irish investors has also been felt in Scotland. Fisher Walker has sold £18m worth of property to Irish investors in the past six months and has clients keen to buy south of the border.
It is difficult to estimate the total amount of Irish money coming into the UK market. DTZ’s statistics of known investment deals suggest that, last year, Irish investment in the UK market was around £303m. According to Hull, CB Hillier Parker/HOK’s investment work for Irish clients has totalled £170m to date. Lending by Irish banks could indicate a much higher total (see above).
“There are a lot of novice investors in the market chasing yields,” says Michael Pierce of McCombe Pierce in Belfast. “Some of the stock they are buying, experienced investors wouldn’t touch with a bargepole.”
Michael Lister, head of property lending at Bank of Ireland, is also concerned about some decision-making by Irish investors. “They can feel comfortable with 6.5-7.5% yields for properties that don’t deserve it,” he says.
“I do feel that people are going out and buying because of the availability of money.”
Tough is also concerned about the quality of investments being presented to potential buyers in Dublin, but he believes many private investors are well informed or well advised. “I don’t see the weight of money creating a problem so long as people buy for the medium to long term.”
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Recent investment purchases of UK property by investors from Ireland, 1998-99 |
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|
Use |
Purchaser |
Vendor |
Address |
Price £m |
|
Mixed |
Private investor |
Clydesdale Bank |
Aberdeen |
na |
|
Office |
Unknown |
GlaxoWellcome |
Buchan House, St Andrew Square, Edinburgh |
6 |
|
Office |
Private investor |
Ogden Group |
Centre 27, Birstall, West Yorkshire |
1.75 |
|
Office |
Dublin-based investor |
An institution |
Charlotte Street, Edinburgh |
1.3 |
|
Office |
Private investor |
Hermes |
Charter House, Welwyn Garden City |
4.4 |
|
Office |
Private investor |
Benchmark |
Dial House, Upper Richmond Road, London SW15 |
6.5 |
|
Office |
Private investor |
Starlight Investments |
Doughty Street, London WC1 |
1.13 |
|
Shop |
Private investor |
Unknown |
High Street, Kirkcaldy |
1.075 |
|
Office |
Tilman Asset Management |
Teesland Group |
Lisbon House, Leeds |
6.82 |
|
Office |
Private investor |
Kodak PF |
Manpower High Street, Slough |
2.37 |
|
Shop |
Private investor |
Morden College |
Quadrant, Richmond, Surrey |
5.45 |
|
Retail park |
Private investor |
Dawn Developments |
Queen’s Drive Retail Park, Kilmarnock |
11.4 |
|
Shop |
Deramore Property Group |
Land Securities |
Parade of shops in Corstorphine, Edinburgh |
2.16 |
|
Mixed |
Private investor |
Teesland |
RWF House, Union Street, Glasgow |
7.23 |
|
Office |
Dublin-based investor |
An institution |
West George Street, Glasgow |
1.775 |
|
Source: DTZ Debenham Thorpe |
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Bank lending Irish banks support investors Bank lending on property has hit a new record of £41.3bn, according to figures released by the Bank of England this month. FPDSavills’ most recent funding indicator, out last week, showed that foreign banks accounted for 30% of property lending last year. Lending on UK property by Irish banks is estimated to have been over £1bn last year. Bank of Ireland and Anglo-Irish Bank are each thought to have lent over £400m on UK property investments, mostly to Irish property companies and individuals. Anecdotal evidence suggests that foreign banks are eager to support private investors and companies buying UK property. “The amount of leverage is incredible,” says Ian Dodwell of Weatherall Green & Smith. “Lenders have been able to go to high loan-to-value because of the low cost of money, and that means that the private investor can compete for prime property with the institutions,” agrees William Newsom of FPDSavills. Michael Lister, head of lending at Bank of Ireland, says that Irish investors are coming to the UK in droves and have access to some very high gearing. “Irish investors are buying institutional quality property; the funds find that they are competing with them.” Despite the leverage on property loans, the high level of bank lending to private investors is not causing alarm because most loans are for secure property investments and the debt is ring-fenced in a special purpose vehicle. “The use of SPVs makes it less significant if the loan is to a private individual or a company,” says Newsom. But some believe that the weight of money is distorting the true value of some properties. “We are now seeing a repricing of property assets in response to demand,” says CB Hillier Parker’s Jonathan Hull. |
|
Bank loans on property (£bn) |
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The proportion of private buyers is rising |
|
Source: Bank of England/JLL |
