Profit on the equity from an investment in rental properties of 15–50%? Is this still possible? It turns out that one can achieve such rates of return by investing in rental properties, not in Spain or Dubai but… in the United Kingdom – according to Piotr Kubalka, CEO at J.P. Dauman Group (www.jdauman.com), a consulting firm with many years of experience in investing in real estate in the United Kingdom.
The British real estate market has attracted foreign investors for years, including more and more investors from Poland. In addition to higher profits, stability, high demand for renting and favourable conditions for external financing, which often do not exist in other countries, also matter – points out Piotr Kubalka.
Compared to the Polish market, the United Kingdom offers a number of benefits which make investments more profitable and predictable. According to P. Kubalka, the most important ones include:
1. Stability and long-term value increase
Real estate in the UK has been increasing in value for decades, even despite global crises. The United Kingdom is also distinguished by a relatively low risk of market fluctuations compared to other countries. Long-term price increases result from a limited supply of land and growing demand for flats, particularly in large cities such as London, Manchester and Birmingham.
2. High demand for renting
A significant proportion of the UK society rents flats instead of buying them, which is the result of high prices of real estate and high occupational mobility. This means a stable demand for renting, especially in academic and business centres.
3. Favourable system for external financing
The British real estate market provides investors with extensive financing possibilities, including buy-to-let mortgages that enable the purchase of rental properties with a relatively small personal contribution. It is also possible to repay only the interest on the loan for the duration of financing (the so-called interest-only mortgage), without the need to repay the principal at the same time. Banks and financial institutions are open to investors, and lending is based on the estimated rental income of the purchased property, not on the investor’s personal income, like in Poland.
4. Friendly legal regulations for landlords
The British legal system protects property owners to a greater extent than in Poland. Eviction of problematic tenants is easier, and the contracts are more transparent and protect the interests of the owner.
5. Possible tax optimisation
In the UK, investors can choose from various tax solutions, such as investing through companies (Limited Companies), which allow for deducting many financial costs or through real estate investment trusts (REITs).
Profits are higher by nearly 40% when investing in property through UK REITs
REITs are dividend-paying, legal and tax vehicles which allow small retail investors to build their additional quasi-retirement pensions on the basis of rental income from properties they do not own. More than 70 such entities have been operating in the United Kingdom for over 15 years. UK REITs are exempt from CIT, provided that they pay out to their shareholders at least 90% of the profits generated from renting properties in which they invest. The payment of these dividends is mandatory and can even take place on a monthly basis. In addition, when investing from IKE/IKZE accounts, an investor from Poland does not pay the capital gains tax on the dividends received, which translates into higher profits by a total of nearly 40% – notes Dr Grzegorz Mizerski, CEO of CrowdREIT PLC (www.crowdreitplc.co.uk) – a company that is supposed to become a British REIT.
We have been preparing for this project for over 2 years, and I personally – since 2017, when I started on my doctoral dissertation, which was supervised by Professor Adam Glapiński. I was the creator and founder of a fund in Luxembourg which invested in American REITs listed on the NYSE and NASDAQ. Our investment strategy assumes investing in two markets: in Poland and in the United Kingdom. In Poland, there will be rental apartments in the PRS segment, specifically in a unique franchise residential concept such as in RENTONs. This is a concept owned by brothers Robert, Michał and Piotr Kiereś, known in the blogosphere as Rozsądni Bracia [Sensible Brothers]. There are already nine of them, and new ones are under construction – according to Dr Mizerski. We also build on the market strategy of Cushman & Wakefield Polska, a consulting firm that has developed an investment strategy for Polish REITs. Moreover, we are going to invest in retail – business parks and, opportunistically, in a variety of other real estate assets – he adds.
The market in the United Kingdom forms the second investment leg of CrowdREIT PLC. This is true for at least four reasons – emphasises Mizerski – the first one – low interest rates of approx. 4.5% p.a. The second one – friendly banks that grant financing for the purchase of property on conditions that are unavailable in Poland. The third one – higher rates of return on the rent of apartments and houses, especially outside London, due to millions of immigrants. And the fourth one, perhaps the most important one from the point of view of the Polish investor – we want to offer a profitable method of investment diversification and a ‘safe investment haven’ – points out Dr Mizerski.
London AIM and legal tax optimisation for IKE/IKZE owners
CrowdREIT PLC plans for an IPO on the British AIM. This is an alternative market of the London Stock Exchange – a British equivalent of the Polish New Connect – but approx. 40 times larger – points out Piotr Baran – Head of PCG SA, a Wrocław-based developer – co-founder of CrowdREIT PLC. The British legislator requires that UK REITs be listed on a recognised European stock exchange, but New Connect was not included in that group – he adds. Despite this fact, the company plans for the so-called dual-listing in a few years’ time, i.e. being also floated on New Connect, apart from the AIM, to facilitate investing to Polish investors. We will not be the first ones on AIM – seven other entities of this kind are listed there. Interestingly, one of the largest British REITs listed on the LSE – Segro PLC REIT – with a market capitalisation of more than GBP 10 billion, has been operating in Poland for many years in logistics real estate – he adds.
The structure of CrowdREIT PLC should appeal to the investors in Poland who have IKE/IKZE accounts that account for more than 1 million.
The company will be exempt from CIT, and Polish investors who will invest in its shares will not have to pay the capital gains tax. Thus, we count on their interest in the offer, because it was also designed for them – emphasises Dr Mizerski.
Investing in real estate in the United Kingdom is an attractive option for Poles who are looking for stable, profitable investments. High demand for renting, easier access to financing and friendly legal regulations make the UK a noteworthy market.
We would like to invite all those who are interested to a special free webinar that is going to take place on 18 March at 12:00 p.m. (Polish time). In addition, all participants will receive a free e-book on investing in real estate through UK REITs.
