Property TV Property Question Time S1 Ep57

Our MD Paul Mahoney is on the Expert Panel for Property Question Time which features on Property TV – Sky Channel 198. In this show, the public asks property related questions to the panel of industry experts. The experts also provide “Golden Nuggets” or Pearls of Wisdom from their experience on what viewers should be aware of. In this episode, they discuss Long-term Investment in Properties, Buying off-plan and Advice on Deposits on Investments. Watch Property Question Time on Property TV – Sky Channel 198. Click above to watch this week’s episode.

Bryony Billson:

Hello and welcome to Property Questions Home. I’m Bryony Billson and this is the show where you get the chance to have your questions answered by our resident property experts. So, let’s see who we have in the hot seat today. First of all a warm welcome to Suchit Punnose founder and CEO of Red Ribbon.

Suchit Punnose:

Thank you.

Bryony Billson:

We also have Satyen Lakhani from OffMarket Investment, and last, but by no means least, Paul Mahoney from Nova Financial Unlimited. Thanks for joining us today gentlemen, and we have a lot of questions to get through today. We have our viewers sending in some very detailed questions to do with property and investment, and our first one goes to you Suchit.

“I’m trying to buy property from an NRI. The location is in Bangalore and the amount agreed upon was 60 lakhs. After digging through Google for procedures to buy property from NRI I came to understand that I have to do tax deductions at source before I make the payment, and when I informed this to the seller the seller wants to back off, saying he wants to do the whole transaction in black. I also understand that I have to give him form 16-A when I deduct TDS, and give him the balance amount. I’m really not sure how to proceed here. Any guidance would be highly appreciated. We really like the apartment and do not want to miss it.”

Suchit Punnose:

Well there’s quite a few points in there. To simplify the matter from what I understand there, there is a non-resident in here in the UK buying from another NRI and the property is in Bangalore. I think a very simple approach to it is that when you are transacting or selling a property you have to follow local tax guidelines. If there is a tax deduction at source, that’s what TDS stands for, but then that is something you have to comply with. So there’s no two ways about going about this. If the seller is asking for a reverse to black, which is cash, it’s illegal, you cannot do it, therefore you need to simply follow the route of finding another property.

Bangalore’s a city with a lot of options, so it wouldn’t be hard to find good quality properties, and like with anything it’s all about common sense. If you have a seller who is being difficult, then you do want to walk away from that property.

Bryony Billson:

Fantastic. Thank you. Brilliant response to what seemed like a confusing question but you clarified that really well for us, thank you. Do you have … Does anybody else have any advice in that area, or perhaps particularly in terms of say, trusting your instincts with when to walk away from … it sounded quite like a pushy situation here, getting the right advice. How can you trust that you’re being advised in the correct way?

Paul Mahoney:

Yeah I think I would say Indian properties aren’t my area of expertise, the only thing I’d say is when you see somebody trying to do something that is clearly not right, then as you say it gives you a bit of a bad feeling about it, so it wouldn’t be something that I’d be interested in getting involved in.

Bryony Billson:

I think perhaps when you have a lot of experience investing with property, it’s very obvious to you when something is perhaps not going in the right direction, or doesn’t seem quite work right, but from what I understand with perhaps with some of our viewers is that when it’s a first time investment, or you’re quite new to the industry, it is actually quite difficult to gauge, well is that just how people operate in this field? Or is there something not right here?

So you think it all comes back down to just doing more research?

Satyen Lakhani:

Absolutely. I think the clue is when you’re buying offshore, follow process where you’re buying from.

Bryony Billson:

Right. Yeah.

Satyen Lakhani:

Research that exactly.

Suchit Punnose:

I think we cannot discount that there’s clearly emotions playing in there. They have fallen in love with the property and overlooking the seller and what his intentions are, which as may experts have said in previous shows as well, it’s all about making sure that you keep the emotions out of this.

Bryony Billson:

My next question goes to you Satyen.

“I’m trying to understand the process of buying off-plan properties. We have a house currently that may be under offer in the coming weeks. The house we are interested in is a new build and would require a 25% deposit with an exchange of contracts within 28 days. Although it’s not even built yet, but we don’t have these kinds of funds in liquid assets, but we do have them in the equity of our house. How would we be able to exchange contracts, say in 28 days if our house was under offer? They say they’re just trying to understand the process and if it can be done.”

Satyen Lakhani:

Yeah. Not exactly easy from what you’ve read out there. The buyer clearly has a motive. They have a property that they want to sell and they’ve got money in that property, but from what you’ve mentioned is they need to realize that money from that property to proceed with the purchase of an off-plan property. I think it’s fair to say that most off-plan properties require a deposit to be put down which will reserve the unit, and then followed by a quick exchange; usually in 28 days, and in this instance with a sum, which is quite a large sum of 25%, but that is by way of conveyance what the process is. So it’s not something that’s untoward, but again you need to seek clarity to make sure you’re in a position you can do that. Clearly in this case, the funds are not ready. The funds are in the property that they want to sell. So how long is that process going to take?

They need to seek advice there from an agent that they may want to give the property to, to sell, and how again timing is key here. If it takes longer, there’s a chance they would lose that property and whatever reservations fee they put down, it would go with it as well. So again, seek the right advice from a third party that can help you sell that property and how quickly that property’s saleable, then you need to speak to the developer to see how long you would really have, and again utilizing your own solicitor to see if they can seek extension on that 28 days. Usually the developer’s going to say, “No, we’ve done this with all our sales. It’s 28 days or nothing.” So again, do you want to go through that pressure that you might lose your reservation fee, if your money … or if your property doesn’t sell in time? So there’s a lot of things to find out first before you say, “Yes, I’m going for this.”

I think we’ve all alluded to the same thing. They’ve got to keep the emotions out of this. Don’t go head first falling in love with the property you want to buy, then you make the wrong decisions. You let emotions get in the way, but clearly in this instance they’ve got to do their research on their current property first to make sure, “How quickly can we sell it? What price do we need to sell it at to make it a quick sale as well?” And again, figures come into this. How much are they looking to lose to gain from that property so they can go ahead and purchase the new one? So there’s a lot of ifs and buts there, and-

Bryony Billson:

It’s an amazing … Thank you.

Satyen Lakhani:

Yeah.

Bryony Billson:

Yeah, sorry. No, brilliant, fantastic answer and I think it’s well worth keeping in mind that perhaps buying off-plan, and in this [inaudible 00:07:23] it isn’t appropriate for everyone, or isn’t the right situation for everyone to do. So thank you for that. We are going to have to move on from that question, but really fantastic answer because I can see there are a number of permutations to this situation. So thank you for clarifying some of that for us.

My next question comes to you, Paul. This person has inherited £250,000. They want to invest it wisely, quite rightly, and they’re considering shares or property, maybe both, but they want it to be a long-term investment that works for them. What would you advise?

Paul Mahoney:

Well good question. Firstly it’s important for me to say that my answer is very general in nature and not specific to them, so they shouldn’t act upon it. They should definitely seek personal advice before investing that money. Certainly my take though, when it comes for investing for the long-term, and I suppose the reason for my preference for property as an investment asset class, even though it’s not necessarily considered that in the greater market, is with property you can invest over the long-term with relatively high loan to value ratios, low interest rates, and often with no ability for a mortgage lender to recall your mortgage.

So the main differential I would say between shares and property is the ability for leverage or a mortgage. Overall, the returns tend to be relatively similar. You know you’re looking at kind of 4 to 6, 7% returns per annum from both kind of shares and property as a cash purchase. So to get as a cash purchase they work relatively similarly, although I would say property is a bit more stable. It’s the ability to take mortgages on property that really makes it quite a strong investment. The fact that you can for example, invest a £25,000 deposit into a £100,000 property and just by achieving relatively average returns on that property of you know, 4, or 5% yields and 4 or 5% growth, you can be achieving a 20 or 30% return on your cash. Now often when I speak to people about that 20 or 30% return, that seems really, really high, but it’s on the cash that’s invested and it’s because you’re multiplying your returns through the use of the mortgage. So that’s one thing to consider. The fact that you can do that with property and you can’t necessarily do that with shares.

You can borrow with shares, but the interest rates are high, the loan to values are low and you also run the risk of what’s called margin loans, which means if the value of your shares fall you either need to sell or apply more cash, often at the worst possible time. So, certainly my take in general would be that property as a larger part of the portfolio is more suitable for a broader range of people, but of course it’s worth having diversification as well. So perhaps a little bit into each, but as I say, seek personal advice because that will be very much based upon the specifics of your situation whereas this is quite a general question.

Bryony Billson:

Yeah, brilliant advice. Thank you Paul.

Suchit Punnose:

I think just to add to that-

Bryony Billson:

Yeah of course.

Suchit Punnose:

… more in terms of an investment opportunity or decision making, I think it’s also about diversification. Paul’s very right in the fact that when you’re leveraging on a property your return on equity is higher. Equally, one needs to appreciate that anything to do with properties [inaudible 00:10:44] liquid. Now whilst the viewer wants the long-term investment, you never know when you need access to cash and why people tend to traditionally go for shares is for the liquidity. So long-term is very good, that’s the right approach, but you want to have a balance between return and liquidity.

Bryony Billson:

Brilliant, yeah.

Paul Mahoney:

One more comment on that.

Bryony Billson:

Yeah, please do.

Paul Mahoney:

And again, I do agree with you but a little bit of healthy debate here. I think sometimes people are their own worst enemy when it comes to investing. Liquidity causes you to be your own worst enemy. Now what I mean by that is a lot of people don’t really have the stomach for shares. I don’t mean that in a negative way. I mean you see on your share platform the value of your shares have fallen by 40%, the automatic reaction is to sell, you know get out. Properties don’t have a ticker on the letter box. They don’t tell you how much the value’s fallen by, so sometimes liquidity can be a positive thing when you’re investing for the … Sorry. Iliquidity can be a positive thing when you’re investing for the long-term because you protect yourself from yourself.

Bryony Billson:

Yeah of course, yeah. Thank you. Do you have anything else to add there?

Satyen Lakhani:

I think the distinction between the two again, shares area bit more short-term in terms of how quickly can manage, how quickly can purchase, whereas the property, it may be a longer term process. So again it’s down to the individual and their appetite of how much time they can devote to one or the other, and with shares clearly as we’ve seen and as been mentioned, you need to give it the time it deserves, that you nee to be on your ball, on your game to see your platforms, how quickly they move up and down, whereas property is far more indirect in that regard. So I think where’s your time? Who’s going to give you the advice and expertise? And that will dictate which route to go and how much to spread your risk on.

Bryony Billson:

Thank you. I know it’s an area a lot of people are interested in, how to invest, which shares or properties, and I think the three of you have covered that really well. So thank you very much. Right, we are going to take a quick break now, but stay with us because we’ll be back with our property experts to hear more of their advice to some of your questions and maybe one or two golden nuggets. We’ll see you then.

Welcome back to Property Questions Home with me, Bryony Billson, and my expert panelists today are Suchit Punnose, Satyen Lakhani, and Paul Mahoney. So Suchit, you have a golden nugget for us today.

Suchit Punnose:

Yes indeed. Often people ask me the question as a fact that, okay why invest in India? And of course the answer is there’s a great opportunity for both income and capital growth, but how does one go in and do it without the hassles of owning a property, identifying a property, or going to India and buying it? And my answer is to go look for an India-centric property fund. So you’re putting your money in it, it’s indirect ownership. You don’t get the excitement of having a title in your name, but if you went through a property fund, which invests in India, then you get the similar returns, but with experts managing your money on the ground in India. So that’s a brilliant way to go into India and property investment in India.

Bryony Billson:

Thank you for your golden nugget. Next question goes to you, Satyen.

“I was looking at an off-plan flat due for completion in about a year. The un-negotiated value is £326,000 and they want £5,000 deposit, and then the reserve of 30% within 28 days of placing the reserve. So that’s £98,000; a huge amount. My partner and I currently have £20,000 in cash and £40,000 in the value of our flat before selling and solicitor’s fees. Otherwise no debts except a student loan,” and they say they really like the plans to this flat and they think with some negotiation it would be a good buy but they just can’t see a way to fund it and asked, “What can they do?”

Satyen Lakhani:

Well, okay. It’d be foolish of me to give you advice on this because they’d have to seek advice from a financial advisor really.

Bryony Billson:

Of course.

Satyen Lakhani:

And someone who would get to know their personal situation for better than just on the conversation that we have today. So they need to iron out what their current position is in terms of selling that property. How much money is in that property that they can release? What’s the best way to release that? Do they need to sell, or can they refinance to get the money out? Then are they in the position they can utilize that money quickly enough to substantiate the purchase or the next purchase, and again other factors come into this. Would they need finance to complete the next purchase? There’s a lot of things that they need to go through in terms of process, and again by seeking the advice of someone like Paul who’d probably be the expert to say, “Hey look, this is the best route for you. This is where we can get you finance from this lender very quickly, or this is what they would require,” and then take it step by step and then see if the decision is still there and the motivation is still there to purchase the new property, because those are large figures that they’re working with and you don’t want it to fall flat on your face at the last hurdle then.

So you need to make sure that everything’s worked out properly before you approach the developer, because in this instance is developers are very keen to take your deposit money straight away and make you feel yeah no problem, no problem, but you may not get that deposit money back because it usually is non-refundable if you don’t work through and get your finances right in the first instance.

Bryony Billson:

Thank you. Did you … Another example-

Paul Mahoney:

Unless I misunderstood the question, it didn’t seem as like they had enough money for the deposit anyway which might be the first stumbling block.

Bryony Billson:

Yeah, and I think it kind of tied back to the point you were making there as well about the, are they really sure that they’ve got the money to go through with this, and perhaps one of the areas we have been touching upon is the mixture of emotion versus logic and strategy, because as they mentioned they, “really loved the floor plans,” and perhaps they’ve been thinking a little bit more with their heart and not with their head, which-

Paul Mahoney:

Yeah, well they need to-

Bryony Billson:

… picks up on here.

Paul Mahoney:

I heard a figure of £93,000 required for the deposit, and they have £20,000 plus £40,000, being £60,000. So unless the developer’s willing to take £60,000 there’s not even much point in considering any further I suppose. That would be their first thing to consider. Did I get that wrong?

Bryony Billson:

No you’re spot on. It was £98,000 actually, so you-

Paul Mahoney:

£98,000 needed, they’ve got £60,000 so unless the developer’s willing to take a much lesser deposit then that’s the first hurdle that could rule it all out. Satyen’s actually right, the finance is the other thing. What you definitely don’t want to do is be buying off-plan without the confidence that you can then et the mortgage and at the end of the day because legally the developer can take your deposit and take that £60,000 and re-sell your unit. Often they won’t, often they’ll be a little bit more flexible in that because it’s not good business to be taking people’s money and giving yourself a bad name like that, but they are more than entitled to if they want to.

Bryony Billson:

Thank you. It seems to me as well that with the … A lot of people are very keen to go with off-plan, but the risks to me seem quite high, particularly like you were saying about losing your deposit. I don’t know whether I’ve misunderstood that?

Paul Mahoney:

The risk can be high, but the rewards can be high as well.

Bryony Billson:

Okay.

Paul Mahoney:

You know by buying off-plan often you can get a better price, or you can get a better unit within the building. I suppose one of the benefits of off-plan is you can see the whole building. All the layouts, all the pricing, you can position yourself in the best possible way from the start, which of course when it comes to property if you’ve got the better property than everyone else, then there’s going to be more demand both from a rental and a resell perspective. So there’s definitely benefits, but there’s definitely more considerations as well.

Satyen Lakhani:

Also, when you buy off-plan, you are technically locking your pricing today for something that’s going to be built in the future. So there could be … There are massive rewards there. Capital gains, the area might be growing in value as well because of new employment being there, or new infrastructures such as a news station, or new roadways through there. So there’s load so things to look at and I think also this probably alludes to my golden nugget later in the show but it’s apt now.

Bryony Billson:

Please go ahead.

Satyen Lakhani:

That when you buy off-plan, you don’t tend to buy off of one of the portal, property portals, RightMove et cetera, there usually is a company that works with that developer. There are these sales agents and they are by way of a off-plan investment company and they have a sales department there that want to sell you property, but they don’t want to waste their time either. So they’ll assess you to make sure, are you a good candidate for that property and once they tell you what your position is, then you need to go and seek advice from a financial advisor, or from a lawyer to make sure that okay, this is what they said. Am I in the right category for this?

So, you’re not going in blind. There are people there that will support you, or tell you, “No this isn’t the right thing to do,” because no one wants to do a lots of work then see no reward for that.

Bryony Billson:

Of course. Yeah.

Satyen Lakhani:

Particularly sales companies. So they will put you in the right direction to make sure, are you a good candidate for that property? And again, as we’ve all said, emotion. You don’t want to be emotionally attached. It’s too early, but if you buy in the right places and you do your work properly, yes you’ll see some great rewards for buying off-plan. Hence why developers want that forward selling purchase scenario because they know that if they get your money now they can move on to another project, and from yours, your benefit is that you lock that price in today for something’s going to complete in a year’s time or maybe even longer. So you can see that if it’s in an area where the value keeps going up and up, you will win in terms of your reward in terms of capital gain. But to get to that end position you have to be in a position to start the process, and that requires you to be cash rich in a way to at least put the reservation fee down and your deposit to make sure you’re in a position to exchange contracts.

Bryony Billson:

Thank you.

Satyen Lakhani:

It’s quite long-winded, but there is a process there and there are people who will help you through that process.

Bryony Billson:

Thank you. Brilliant advice. So get them, get their finances sorted, take the advice and then sort that head/heart situation out. Excellent. We are going to have to move on, but thank you for your answer to that question. Really helpful and lots to consider there. Paul, my next question goes to you.

[Avio 00:21:13] has asked, “I’m looking to invest in a property in London, but the burroughs seem to move up and down and in some remain steady in others. Are there any safe burroughs to invest in, or perhaps you’d recommend somewhere else?”

Paul Mahoney:

Yeah, well I think the key word there is investment. In that when it comes to London in the current market, it’s actually quite difficult to justify, and it’s difficult to justify because a range of changes that have occurred recently with regard … And again I won’t go into the specifics, but we’ve had Section 24, we’ve had a 3% [inaudible 00:21:48] premium, and more recently we’ve had two changes from the PRA regarding mortgage serviceability and also landlord, sorry portfolio landlords. So what that results in, it’s becoming more and more difficult to borrow a reasonable amount of money on London properties. There are ways around it, but generally you’re putting in a lot of money, so far as a deposit, to a property that is kind of just breaking even. So from the perspective of sort of running the numbers and compAring that to your other options, for example the average property price in London is just shy of £550,000. So generally, you’re having to put in around £200,000 to that purchase as a [inaudible 00:22:36] for something that won’t really give you much cash flow at all. With that same amount of money you could buy four properties in the Midlands or the Northwest that would generate significant positive cash flow.

So, I suppose for this particular person it’s going to be determined by why they’re investing, you know what it is they want to achieve. If it is solely just an investment and this seems to be a running theme with things we’re talking about today so far as being unemotional, being commercially minded, understanding their goals and therefor putting in place a strategy to achieve those goals because remembering property investment isn’t about property. It’s about making money. So, just investing in London, ina London burrough because you live in London doesn’t make London a good investment. You know it might seem familiar, and it might … I read a stat recently that said that 9 out of 10 people invest within five miles of their own home, which kind of makes sense because you get the area, but just because it’s within five miles of your own home doesn’t make it a good place to invest.

I suppose my take on that would be expand your horizons a bit. Don’t just focus on London burroughs for the sake of it. If that’s the only place that you’re familiar then certainly do your research on what might make the most sense because the point in the question is exactly right, between London burroughs they’re all very very different and often very different things, but don’t just assume that because it’s London it’s the best place to invest. I’d say historically that’s kind of been the attitude, that attitude is shifting.

Bryony Billson:

Okay, brilliant. Thank you. So kind of cast your net a bit wider, maybe be a little bit more bold with the areas you’d consider and one burrough’s not necessarily more-

Paul Mahoney:

Yeah, not necessarily bold, just flexible. You know, take the blinkers off a little bit.

Bryony Billson:

Yeah. Great advice.

Suchit Punnose:

I think if the viewer is insistent on London, one of the strategies many property developers and property [inaudible 00:24:34] follow is the cross rails strategy. So with the upcoming cross rail there are new stations coming up, and the common sense approach is to buy property within 500 meters of a new cross rails station. So that’s a common sense route to follow, and a lot of experienced property investors are following that strategy at the moment, and that means then it’s diagnostic to which burrough you’re in. You follow a rail track and you buy near a station. That would be yet another way, again as Paul said, take the emotion out. You have to have a strategy even if you’re investing in London.

Bryony Billson:

That’s a really helpful, practical tip. Thank you for that. I am actually going to come straight back to you for the next question. We’re going to have to move on from that one there. The question is to you Suchit, “Is rental return from overseas property taxable in India?”

Suchit Punnose:

Yes. Like any income within India is treated as and is taxable. So rental return is treated as income and therefor is taxable locally in India.

But you can offset that against your personal tax here in the UK. So you’re not taxed twice.

Bryony Billson:

Brilliant.

Suchit Punnose:

So, yeah. There is double taxation treaties within UK and India, so if you paying £100 tax in India, you can write that off in the tax here in the UK.

Bryony Billson:

Sadly that’s all we’ve got time for today, but please send us your questions to info@propertytelevision.tv, or you can go to our website, property-tv.co.uk where you can have the chance to have your questions answered by our resident property experts. We’ll see you next time.

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