Wealthy investors urged to consider affordable flats by Finance News Bulletin

Published: 22/12/07

All times are London time look for News in the FTcom siteSearchSearch Quotes in the FTcom siteQuotesYOUR MONEY Your investmentsBreadcrumb follow navigation:FT Home > Your money > Your investmentsEDITOR’S CHOICEMortgage amount overdue alarm could be falseDon't miss the ship on this homebuying boomHouse prices increase despite interest speed riseFT index shows house prices calmingEducation in hire as landlords look for bargainsUK’s high house prices be unsuccessful to deter buy-to-let landlordsLATEST YOUR MONEY STORIESWelcome defense from exchange-listed funds Green investment is still in its budding stageA halfway house offers a put to shelterPound teeters close to the topMore than a leg up for cash-strapped first-timers Well-heeled tread a trail to the pawn shopCustomers can click on advice beyond compareStellar performance that could become dimmerDon’t fail to spot the boat on this homebuying boomFSA to distribute warnings to shareholders about tank room scamsDisused banks and flats above shops might not be as glamourous an investment prospect as a cabin on the Cote-d’Azure but buying into the development of these types of buildings has good-looking tax perks for wealthy investorsThe government’s promise to increasing the amount of affordable housing means it is offering 40 per cent duty relief on the development costs involved in turning unused space into housing flats for people on near to the ground incomes

This tax break has not been widely promoted and so far there are only a handful of schemes obtainable But new schemes are about to be launched Braemar, a property management corporation in which Vincent Tchenguiz, the Iranian property investor holds a 299 per cent stake, already runs three schemes and is rounding up cash from investors to finance the fourth

It expects to raise £5m by ChristmasSince the Chancellor shut the entrance to putting your main possessions or holiday home into your pension, there has been a rising interest in more specialised tax-efficient property schemes Many of these schemes - such as syndicates that invest in student halls of residence, prisons or profitable buildings - enjoy tax compensation only when they are wrapped within a pensionBut by leaving down the route of affordable housing, you can benefit from the duty savings without having to imprison funds until you retire

The government has pledged to boost affordable accommodation to cater for groups such as students, foreign nationals and stressed first-time buyersScheme managers, such as Braemar, basis capital from investors - usually a minimum of £25,000 per being - and this, together with borrowed funds, is used to buy and develop large unused buildings, typically in town centres outside LondonSuitable properties include old section stores, banks, empty offices and empty space above shops The bonus of these types of conversions rather than novel builds is that no planning consent is required

Once bought, the buildings are developed into one and two-bedroom flats, which can be let out to people on lower incomes Braemar says a growth will hold anything from 12-60 flats The expenses incurred in converting these meet the criteria for tax relief at a rate of 40 per cent Investors can wait for to receive this three or four existence after they paid the initial capital

The tax relief is, however, only available if the property is held for at least seven years from the day the units become habitable Given often lengthy periods to expand properties, investors therefore have to be willing to tie up their money for around ten existence in totalInvestors receive a share of any increase in the value of the possessions as a result of the change to affordable housing When the property is eventually sold any profits are shared out equally

The scheme boss does accuse an initial 2 per cent After that, there is an yearly management fee of 15 per cent, although this should be enclosed by the rental incomeJason Butler, a financial adviser at Bloomsbury Financial preparation, has recommended these schemes to a figure of wealthy clients

He says they could set of clothes higher rate tax payers who already have diversified portfolios and are looking for an interesting property investment thought“These schemes mix asset in affordable housing with generous and above board tax release,” he saysBraemar says that signing up to a system, rather than trying to invest directly, means investors do not have to get involved in the management of the properties But wealthy investors, or groups of individuals, could purchase properties for development themselves and maintain the tax reliefs

One of the advantages of a tailor-made scheme, however, is that the hassle of managing and rising the properties is handled by a third social gathering“Some investors want exposure to buy-to-let assets but don’t desire the headache of managing them We approach residential possessions as if it was a commodity,” says Marc Duschenes, chief executive of BraemarInvestors also have the safety of knowing that these schemes are regulated and the mortgages used to finance them are arranged on a “non-recourse” foundation, which means the lender cannot call on any individual partner in the event of any missed payment

Also, because these schemes have right of entry to high levels of capital they can have enough money to develop larger blocks of flats and can therefore good deal down prices for kitchens, bathrooms and other such fittingsSo far obtainable schemes have performed well Braemar first launched a system four years ago Already the investors in that scheme have had more than 60 per cent of their money back - from the tax rebate and an early refund - and they still own their original stake in the property

However, as the first schemes are yet to mature, there is no evidence of how easy they are to sell on Investors are relying on the fact that a purchaser will emerge at the finish of the seven year rental term and offer the right price for the urbanized properties There are no guaranteed returnsBut Braemar estimates that even if there is nothing growth in the capital worth of the assets, investors would still receive an annual return of 5 per cent exclusively on the tax relief on development

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