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London firm offers 10-year rent guarantee

LONDON: A British estate agent is offering rental returns guaranteed for 10 years at a London development — the first time an agency has offered such a guarantee for flats sold off-plan in Britain.

Asian investors have bought 80% of the units sold at the development since marketing started late last month.

Estate agency Hamptons International is offering buyers at the 18 Alie Street development in Whitechapel, east London, yields of 6% gross, guaranteed for 10 years.

A corporate tenant, it says, has agreed to rent all 25 flats for 10 years when it is completed in the spring of 2012. The agreed rent level will rise with inflation, but not less than 3% or more than 5% each year. Investors can pull out of the deal at three, five or seven years during its 10-year term.

Matthew Tack, the global investments and asset management director at Hamptons, said his agency was the first to offer a guaranteed rental package on an off-plan scheme. Normally, it is developers that offer rental guarantees.

Hong Kong investors have bought nine units at 18 Alie Street since it was launched here on November 19. Singaporean investors have bought 11 units. Tack said 90% of the buyers were investors.

"What is unusual about this deal is that we have a corporate tenant lined up to take occupancy when the development is complete," he said. "The development won't be completed until March 2012.

"In normal circumstances, it would be quite difficult to let something that far in advance. Most corporate tenants looking to take tenancy would be looking to do so quite quickly, so more often than not they are looking for a development that is already completed."

The cost of providing a rental guarantee had not been added to sale prices of flats, because the developer CMC Homes, was not subsidising the scheme, Tack said.

The Hamptons deal is rare because it runs for a decade. Rental guarantees offered by developers and agents on completed projects usually run for two years.

Tack said buyers were told of the corporate tenant's identity. He is not publicising the company's name to stop other agents from striking deals with it. He said the company specialised in housing for bank staff.

"The corporate tenants are looking for growth in their own business," Tack said. "They need accommodation, they know they need it two years from now, and it is in the right location... and the right size, so it was a marriage that worked."

Hamptons will charge investors a 16% letting and management fee. Investors must pay a building service charge of £2 (RM9.87) per square foot each year.

Hamptons plans to offer similar guaranteed-rental deals on projects and expects other estate agencies to copy them in an increasingly competitive market for Asian buyers.

"I am amazed at the amount of product being taken out to Asia and I am sure I feel the same as a lot of the big agents," he said.

Prices for the one-, two- and three-bedroom apartments at 18 Alie Street start at £315,000.

Robert Hadfield, managing director of Pineflat, an investment property management company, said Hamptons' 10-year deal was promising, provided the corporate tenant was of good standing.

"For people keen to invest in London, this sounds as if it merits a closer look," Hadfield said. "If it stacks up under closer examination, I imagine that other developers will follow suit, but then, of course, the problem is finding enough good-quality corporate tenants as the counter-party." — South China Morning Post
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