ICE on the cutting edge of Asia pivot

Sitting in the colonial-era Fullerton Hotel building, the chairman of the New York Stock Exchange enthuses about the impression Singapore makes on visitors as they arrive in the tiny city-state by air. “We flew in at dawn this morning so it was dark. And just the number of lights on the ocean, which are all […]

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RSA seeks new boss for UK and Europe

©Bloomberg RSA’s management restructuring continued on Wednesday with the announcement that Adrian Brown, chief executive of the insurance group’s UK and western Europe business, would be leaving after 25 years at the company. The “agreed resignation” comes a day after the UK’s biggest non-life insurer by market capitalisation announced that Paul Whittaker, the head of […]

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Banks, Financial

Investment bank weighs on Credit Suisse

©Reuters Credit Suisse Credit Suisse’s net profits slumped by a third in the first quarter, missing analysts’ expectations after a weak performance from the Swiss group’s investment bank. In the three months to the end of March, Credit Suisse said that its net profits came in at SFr859m ($976m) – or SFr0.47 a share – […]

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Monte Paschi shares suspended

©Bloomberg Shares in Monte dei Paschi di Siena, Italy’s third-largest bank by assets, had to be suspended from trading on Tuesday after falling more than 10 per cent on reports that the board is considering a near doubling of a proposed capital increase. People familiar with the matter said Monte Paschi, which is the subject […]

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Bank ringfence talks ‘hit brick wall’

©Bloomberg Business representatives warned on Tuesday they were hitting a “brick wall” in discussions with the government over the ringfence for high street banking that will cleave Britain’s big institutions in two. Matthew Fell, director of competitive markets at the CBI, the industrial lobbying organisation, said small and medium-sized businesses face being penalised by the […]

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Categorized | Property

Student pod return pledges under fire

Student pods – the latest buy-to-let vogue, where investors buy a single room in a development – have been attacked for failing to deliver promised double-digit returns.

Attracted by guaranteed returns of up to 10 per cent and prices as low as £30,000 – substantially less than an equivalent buy-to-let property – investors have snapped up pods across the UK.

    But because the properties are small, typically 12-13 square metres, the bite-sized asking prices belie high underlying property values. A £59,995 pod investment on the market in Canterbury, for example, costs more than twice the average for the city on a per square foot basis, according to Hometrack, a housing analytics company.

    Student-accommodation blocks have performed strongly,
    with annual returns of 9 per cent last year, according to estate agent Knight Frank. Rents have been buoyed by the growth of students from Asia, who typically prefer purpose-built housing.

    The strong market has attracted sophisticated investors, including private equity funds and overseas institutions. According to Jones Lang LaSalle, the property group, transaction in the UK student accommodation market was close to £1.9bn last year, more than double the value in 2011.

    But there are fears that some developers are using the buoyant market to sell inappropriate products to private investors.

    Kavita Bachada, an employment lawyer, bought a pod in Liverpool for £42,000 in 2011, tempted by a 10 per cent yield guaranteed for 12 months. “There was nothing out there . . . that offered anything like these returns,” she said.

    While the income flowed as expected for 18 months, it has since dried up. Middle England Developments, the developer, has now asked pod investors for a three-month “payment holiday”. It blamed a surge in vacancies caused by tuition fees, a clampdown on foreign students and a wave of development in the city.

    One problem is that the eye-catching guaranteed yields are typically subsidised by the developer, so income from rents, and property resale value, may fall when the guarantee runs out.

    Another developer, FreshStart Living, last month agreed a settlement to hand over a total of £131,000 in unpaid rent to 70 investors. It has since stopped selling pods to individual investors.

    “The guarantees are rarely sustainable,” said Charlie Cunningham, its chief executive. “Investors are often left with a useless property from which they will not only struggle to generate a reasonable income but they will also struggle to resell.”

    Mr Cunningham called for tighter regulation of the market, noting “people investing in property are not that sophisticated”.

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