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London Property Investment Beats The Downturn

August 26, 2009Article by Ray Withers

High street banks are going in to the property business in a bid to keep down their losses and to profit from a future gain in prices.Much of the money is going in to London property investment – especially as Lloyds inherited huge commercial property mortgages from taking over Halifax Bank of Scotland.Following the example of Spanish banks in the last property downturn, instead of selling off repossessed properties at a loss in a fire sale on the open market, banks have set up subsidiary companies who buy them in at a fair price.

This avoids trouble with the taxman looking at internal bank dealings between companies in the same group and creates an asset on the books instead of a loss.Tax rules say that intercompany transactions like this have to be at open-market value.Royal Bank of Scotland has two West Register companies, for property and one for land. Both give an RBS building in Edinburgh as their registered office address.Lloyds has a subsidiary reportedly for the same purpose.

The probability is banks hang on to properties matched to the largest losses to await a rise in the market.
This does not mean banks are not selling repossession properties, but more likely that they cherry picking the better assets to hang on to for a rise in the market.This was a strategy adopted by Spanish banks in the last property crash in the 1990’s to keep losses off their balance sheets and to prevent a glut of cheap properties on the market. Santander was one of the banks at the forefront of this tactic.

Both residential properties valued at £1 million plus and commercial properties in London are showing peaking interest from many foreign buyers. The market at this level is reportedly attracting a lot of activity from overseas investors.

Controversially, Libyan investment has recently bought Portman House in the West End and a prestigious office block in Cornhill near St Paul’s Cathedral for a total of £275 million. Chinese cash has also rescued the owners of Canary Wharf from a desperate cash crisis.


Ray Withers

Ray has over 17 years’ experience in the international property market and bought his own first international property investment back in 2002. Aside from running Property Frontiers, Ray has been involved in residential, hotel, student and commercial property investment and development in both the UK and overseas and co-wrote "Where to Buy Property Abroad - An Investor's Guide". As Founder and Trustee of the Frontiers Foundation, Ray is directly involved with many of its projects to ensure they have a direct and tangible impact in individual communities across the globe. He is passionate about property, travelling, scouting out new opportunities and finding time to spend with his young family.
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