Strategy Vs Discount  

We just closed a small deal in W2.  The property is a studio in Bayswater, with a short lease.   
  
The price agreed is £225,000; probably the cheapest property one can buy in this location.  There is obviously an anomaly at this price; that is the lease is short - about 46 years.  Surprisingly, there are lenders who will lend even on this ‘short’ length of lease.  Lenders have become more comfortable with the concept than say a decade ago.   
  
This will be extended; and the process started during the conveyancing.  This is done by the current vendor serving a S42 notice which enforces their right to extend the lease further for an additional 90 years.   
  
The property will be purchased in cash and then refinanced on the revised long lease.  The aim is to leave very little money in the deal, should be about 10-12%; that’s the calculation.   
  
There will be a minor refurb programme undertaken in the property.  It’s a studio, so how much can one do.  The aim is to keep this very tight and I’m estimating £7,500, but maybe even less.   
  
The refinance will be done on a 5 year fixed rate at circa 5% level.  This is the prevailing rate for 5 year products currently.   
  
We are in dangerous times; cash in the bank is not a good idea.  Inflation will be eroding any cash which is left stagnant.  Therefore it needs to be in real assets.  Any debt taken is a good thing during these times.  It will shrink with time, in real terms; assuming inflation stays about the rate which is being paid which seems almost a certainty.   
  
There is a very strategic reason for buying in this location.   
  
Traditionally, it has always been seen as the poor side of the park, compared to its neighbours.  Locations such as Kensington and Belgravia actually experienced growth during the last financial crisis.  This means investors were using properties in this location primarily as a safety deposit box and as a protection for wealth.  Something to bear in mind for the coming times, which will be much worse.   
  
The premium which the north side of the park commands is only a fraction of what the south side commands. 
  
It has been identified in a 2014 report by Knight Frank to be an area for growth.  Though this report is 8 years old, the wheels of an area’s regeneration move very slowly, and to the uninformed a cursory glance at Whiteleys shopping centre it looks like it will still take a couple of years to complete.   
  
Retail prices too are only a fraction of what they achieve in Oxford Street which is only a mile away.   
  
The supply side had been identified as only 239 new units, of which about half were under construction.  This lack of supply will serve to ensure prices stay strong.   
  
This purchase was a strategic purchase, no doubt there is some discount there, but the main reason is to ride off the economic wave, which will be rising in the coming years.