Ground Rents

  • Why Investing In Ground Rents Is Becoming A Popular Investment

    Dec, 20 12 Post by: Ground Rent Sales | No Comments

    Since the economic crisis hit Britain back in 2008, investors have been looking at ways in which to protect their capital but also looking for an investment vehicle that will give a good rate of return with not too much risk. The old adage of ‘high risk, high reward’ has never been more apparent. With investment funds made up of traditional shares dropping considerably since the financial crisis, investors need something that is not so volatile. Traditionally property filled this gap, long has been the appeal of owning a property portfolio, after all you have a real physical asset rather than a share portfolio which is not a tangible investment. But with property prices suffering in the UK and are set to fall further going into 2013, what investment alternatives are available?

    Many investors who are experienced in property may have realised the trend now in actually investing in the land that the property resides on. This essentially means investing in ground rents. Many of us have heard the term ground rents, but what does it actually mean? The ground rent is the amount of money paid by owners of a plot of land. In the majority of conventional properties, and certainly with domestic property, the owner(s) own the freehold. If there is property though that is a development of dwelling such as an apartment block or has or is in the process of being converted into flats, then the actual ownership is split into different interests which can be freehold and leasehold. The leaseholder will own the physical element of their dwelling but the freeholder actually owns the land their dwelling resides upon. In return for having their dwelling upon their ground so to speak the leaseholder is required to pay a ground rent to the freeholder. This is often on an annual basis.

    So how is this a good investment?

    As previously mentioned, investors want growth but without going the ‘high risk, high rewards’ route. Using ground rents as an investment vehicle is an excellent way to get a regular income without the high levels of volatility. The only risk involved is non payment of the ground rent but the freeholder has the legal right to claim the freehold of the land if the leaseholder does not keep their end of the bargain.  So the likelihood of this happening is extremely scarce, after all compared to mortgages etc the ground rent is a small outgoing for leaseholders. There is always an incentive and reason for the leaseholder to continue paying, especially if they ever need to sell their home.

    As this is not a very conventional investment, some investors can be put off by the more alien nature of this investment. However when broken down it is extremely simple. Industry analysts expect a rather conservative annual interest return of approximately 6%. This varies considerably and should not be considered a minimum or a maximum. But when you look at cash deposits at banks or open-ended investments with shares, you are not going to get this level of return with this low risk anywhere else.

  • The appeal of Ground Rents to Investors

    Dec, 17 12 Post by: Ground Rent Sales | 1 Comments

    NW5

    A ground rent is an annual fee paid by the leaseholder’s to the freeholder over the length of the lease for renting the land on which the flats are standing. The number of years in the lease can vary from 99 years to 999 years, although most common are now 125 year leases.

    Investors of this type of investment include; property companies, ground rent funds, pension funds and some private individuals. Investors see ground rents as a safe investment as the annual ground rent is secured against the flat. If the leaseholder did not pay their annual ground rent of say £200, they could, in essence risk losing their flat to the freeholder.  Although this scenario is very rare indeed as the vendors mortgagee would step in and pay the outstanding ground rent to avoid losing their security.

    What investors like about ground rents is that the ground rent in most cases, increases throughout the term, easing their concerns over inflation. The most common uplift for ground rents double every 25 years, although some are linked to the Retail Price Index (RPI).  The RPI linked increases can also take place after 1 year, 3 years or 5 years but most common are every 10 years or 25 years. There are other indexes ground rents are linked to, that include the Halifax Price Index (HPI) and the Nationwide Price Index (NPI). The holy grail of ground rents are those that double every 10 years, so if the annual ground rent is currently £300 per annum, in 2052, it would be £4,800. On a block of 10 units, the annual ground rent income would be £48,000 and 20 years later on that same block, the annual income would be £192,000. These are quite rare and sometimes the income flatlines after the 50th anniversary.

    A lot of companies and fund managers are now looking towards ground rents as an alternative investment as there is very little risk and less exposure than investing on the worlds financial markets.

     

  • Are ground rents a good investment?

    Dec, 05 12 Post by: Ground Rent Sales | No Comments

    Freehold ground rents are proving to be a very popular investment in the current economic climate, which doesn’t look like improving any time soon. We normally agree sales on ground rents in a matter of days, sometimes within hours of sending out the instruction to our investors. Read More