The APW Investor Profile Series: the Dubai expat

Posted by Stuart Williamson on Dec 21, 2018 6:47:05 AM


Expats around the world live very different lives; however, there are some things they share in common.  The importance of diversified portfolios for future retirement income is a widely held anxiety.

We’ve taken a look at the stories of different investors, here and here, and in this article we look at an interesting case of a Client based in Dubai, UAE.

Martin is a British expat, aged 44, from the Midlands. He runs a successful recruitment company in Dubai. He’s been working in this field for a good decade and more and would like to retire by the age of 50, with an intended career change.

Martin already holds a well-diversified portfolio of one- and two-bedroom residential buy-to-let properties throughout the economic strongholds of the Midlands and the North. He also has a percentage of his assets invested in stocks and shares. Martin is concerned at this point about diversifying away from residential assets and is looking to cast the net wider.

Investor worries

Plenty of factors play in the minds of investors, and in Martin’s case, Brexit was an influential worry. At the time of purchase (late November 2018), the Prime Minister’s deal was emerging in Parliament and uncertainty about withdrawal from the EU in March 2019 was reaching a fever pitch.

By diversifying to an asset and income stream that was whole dependent on the domestic market, Martin felt he had to mitigate risk as best he could.

Stock Market Corrections

Guiding the decision to divest from the stock market, was the acute sense that a correction is on the way.

Typically, market corrections tend to upset the stock market every 7 – 10 years. This wipes out a proportion of the value of the portfolio: it is similar to a minor recession. The last one was the Global Financial Crisis of 2007, and in his judgement, a similar event is going to occur in the next few years – with the potential to wipe out a tranche of their portfolio as the market corrects itself.

The APW solution

With these considerations in mind, we researched the market and suggested a buy-to-let care home unit in Manchester. A Studio apartment for sale at GBP74,999. These units provide a rental yield of 8% ­– or GBP5,999 per annum, rising to 10% after four years.

Martin had sufficient capital to cover the purchase with cash, but in order to guard against any future stock market corrections, he chose to pay 50% from savings, and liquidate the other 50% from the stocks and shares portfolio.

The client was attracted to the approach because the concept is simple and straightforward to understand. In return for investment, investors get a title deed, leasehold and a fixed quarterly return. In fact, it’s just like buying any other sort of property.

What’s more, care homes are a domestically-driven market, but this is a market with very strong fundamentals. Furthermore, it’s absolutely Brexit-proof.

The reason it’s so strong is that the UK population is aging, with the over 85s becoming the fastest growing demographic. In fact, it’s estimated to grow by 106% by 2030.

Furthermore, the combined market value for care for older people in the UK is currently estimated to be worth £22.2bn of which £13.4bn is attributable to residential care. As the number of elderly people increases in the UK so will the market value of care and the demand for modern, fit-for–purpose care homes. From 2005 to 2013 alone there has been an increase of 22% of residents living in care homes.

How it works

The residential care home purchase is conducted through UK Land Registry, and clients will receive a Title Deed. It pays 8-12% annually as a fixed return.

It’s not off-plan: it’s already built, therefore the risk is lower.

It is shielded from Brexit, leverages the demands of a rising population in the UK and is based on a fundamental undersupply of housing for the elderly.

It’s based in pounds sterling, but is a commercial property asset and there are no ongoing costs after purchase, and no Stamp Duty to pay either.

Property Management

The next area of concern for the investors is of course the question of management of the property itself. Naturally, this would be very difficult to do from Dubai. However, the management of the care homes is taken care of by the care home providers, and after covered by government funding, meaning that the 8% is paid to the client net. With no additional charges after property purchase.

The End Result

The end result of these efforts was that, the client had purchased  income producing asset, that is ring-fenced from Brexit, a stock market creation and diversified from their existing portfolio.. it created a income straight away, with no additional cost. The client plans to purchase one more per year before retirement, in order to build a income to fund his career change.

See more APW property ideas here

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