Introduction
Bucharest is booming, yet Romania’s capital has a short supply of well-located, top quality commercial investment property. Situated on the western edge of the city, close to the arterial A1 highway, CentreWest Commercial Park is ideally located for both small businesses needing logistics space and to serve the thousands of shoppers that use the ring road every day.
Commercial properties are often the first choice for professional overseas investors because they are easier to manage and have minimal overheads. Our CentreWest units come with all the benefits of commercial investment property but at an entry price that is affordable to all.
Our logistics units represent the perfect hassle-free investment with a guaranteed 8% net rental guarantee for up to 10 years.
The retail units have the potential to be cash-positive with much higher expected yields of 15% but this is not guaranteed.
Demand for similar units from both multi-national and local businesses is strong – an ideal supply/demand situation to support future capital growth.
A 35% deposit with 65% non-status finance – virtually unheard of in this market – can secure a commercial unit in this development.
The following section runs through the financial viability of investing in a retail unit at CentreWest Commercial Park.
Rental Income
As per the market research on page 9, the current rental rates of out of town retail property in Bucharest is around €30 per m2 per month gross.
Taking a more conservative rate of €20 per m2 per month – less 40% for rental pool management – a CentreWest retail unit should still deliver a healthy income.
Rental Yield
A projected net income (after management costs) of €1,128 per month delivers an annual income of €13,536 – with a purchase price of just €91,650 that would be a potential net yield
of circa 15%
Non-Status Finance
The developer is offering a repayment mortgage for retail units at CentreWest. This is a non-status, no penalty mortgage. Due to the low purchase price, assuming maximum borrowing of 65%, monthly payments would still only equate to €521.
Annual Cash Flow
One advantage of being part of the rental pool is the uncapped upside of the high anticipated income. Even after mortgage payments and annual costs are subtracted, you should still have a very positive cash flow, around €400 a month.
This means there is also ‘buffer’ room built in. Even if CentreWest were to take a few years to build up reputation and demand, occupancy could decrease by 35%, or rental rates could drop to as low as €13 per m2 a month, and you would nevertheless still break even.
What's so special about non-status finance? Generally you can only get mortgages subject to your status, where the bank carries out checks on your income and financial history before they will lend. However, this is not always suitable for property investors. You may be self-employed or a full-time investor and have difficulty proving your income; you may own many properties and already be heavily mortgaged; or perhaps you are of an age too old to qualify for a mortgage. With non-status financing, all you need to show is your passport and proof of address.
Profit forecast
The value of a commercial property is normally based on its yield, that is, a measure of the ratio between the cash flow produced by the property and its original price. However the yield expected by a potential buyer will vary depending on the perceived market risk associated with the property.
Emerging markets typically carry more risk, thus yields are higher and prices are lower, but as a market matures over time, the yields compress and prices rise. So, as with most property investments, it is a risk versus reward relationship.
Your potential profit will come from entering into the Bucharest market at this optimum point in its cycle where high yields are still commanded but where the risk – politically, economically and commercially – has already started to reduce.
The table below demonstrates how the growth in value of the units, combined with the cash-positive rental income and leverage provided by a 65% mortgage, could deliver a substantial return on your capital.
You can see your potential return on capital after a ten year period and how that would translate into an annual rate of return for a retail unit at CentreWest.
Calculating the value of commercial property
To calculate the value of a commercial property, you divide the income by the gross yield. So to calculate the future value of a commercial property we assume that the expected yield will drop over time (as the risk associated with a market reduces) and that the rental income will increase in line with inflation. We have used this method to calculate the expected sales value of the CentreWest units.
If we assume that the open market rent will increase with inflation by a modest 2% per year, then a current income of €22,560 would be €26,961 in ten years.
By contrast the gross yield a buyer would expect to achieve would decrease over ten years from the current 25% to an estimated 10%. This is based on knowing retail yields in West European cities are around 6% and accounting for a less mature market we believe a yield of 10% in Bucharest in ten years will be a fair reflection of the market at the time.
So assuming the above, the potential future value of the units would be:
A retail unit at CentreWest could deliver a potential rate of return of more than 20% p.a.
1. Based on a current open market yield of 25% and a forecasted open market yield in 10 years of 10%. In addition, we factor an increase of 2% in rental income p.a.
2. Sales price minus outstanding mortgage debt
Exit strategy
When you do decide to sell, it’s good to know that there’s a strong onward market. We see this opportunity as a mid- to long-term investment and our own strategy is most likely to hold on to the unit for the ten year term and re-evaluate the project at the end. Here are three potential investment strategies to consider:
Sell to local owner-occupier market or multinationals
Selling your unit to a local owner-occupier could make a lot of sense. In a few years it is possible that the small- to medium-sized enterprises that will rent your unit to begin with may be in a position to buy it. As 75% of the country’s economic output is from the private sector and most of this consists of SMEs (small and medium enterprises), there should always be a strong local market for these units.
In addition, there is already demand from large multinational companies, such as the Bank of Cyprus and Vodafone, wanting modern, high-spec premises in Bucharest and these could provide an ideal exit when the time comes.
Sell to another investor
For the reasons stated above, there should always be strong demand for high-quality, well-located commercial space in Bucharest. So while a sale to a local firm is an option, it is also likely that other landlords, foreign or domestic, will view these units as viable and profitable investments.
Keep your unit
Of course, with well-maintained purpose-built commercial space that is commanding great hands-off rental income you may decide not to sell at all. At the end of the rental term, you will have the option of renegotiating the rental guarantee/pool terms with the rental management company to maintain your income, or of renting the unit on the open market.
“Romania is enjoying its strongest period of economic expansion in a generation and is full of confidence and optimism, on the threshold of a new era inside the European Union1.” Oxford Business Group
Oxford Business Group: “Emerging Romania 2007”
Payment timetable
The table gives a breakdown of the costs associated with the purchase of a retail unit in CentreWest:
Marketing, maintenance, management and security costs are covered by the rental operator. However, you will need to factor in ongoing costs associated with owning a company with land in Romania, such as local land and municipal taxes, insurance and annual lawyer/accounting fees.
Lawyers
When buying property in any foreign country, it is imperative to have a good English-speaking lawyer who will guide you through the process step by step.
Lawyers representing our clients must be able to accomplish the following:
Set up a Romanian company for investment purposes.
Act with power-of-attorney for the investor.
Guide through the conveyancing process until completion.
Provide a good level of service especially around busy times, such as completion, keeping the investor up to date with what stage they are at.
Provide an English-speaking key contact who can respond to enquiries within 48 hours by email or phone.
Provide receipts for all disbursements or out-of-hand expenses.
With these points in mind we have instructed a UK legal firm, Live Overseas, to liaise between a legal firm in Romania and you, our investors and to guide you through all the legal aspects of buying an unit in this development in Romania.
The charge for legal services is €2,280 (£1,520) for the purchase of a unit in CentreWest, and will be payable in full on reservation. In order for the lawyer to work on your behalf and sign documents in your absence you will need to assign them power of attorney. The estimated cost of this is a one-off payment of around £150.
Total disbursements, which will include stamp duty, taxes, company set-up costs, licences, notary fees etc, will be in the region of 2.5% of your purchase price. Live Overseas will provide more information relating to this closer to completion.
In the event you decide not to proceed with your purchase within 14 days of receiving your buyer reservation contract from Ready2invest, your legal fee will be refunded in full by
the lawyer.
Live Overseas
Academy House, 403 London Road,
Camberley, Surrey, GU15 3HL
Phone: 0870 191 3099
Fax: 0870 191 3002
email: info@live-overseas.co.uk
http://www.live-overseas.co.uk/
Currency
Currency Exchange
Small differences in exchange rates make a big difference to the end amount you pay, and specialist companies compare extremely favourably to the high street banks. Ready2invest currently works with Moneycorp and Currency Solutions, currency conversion companies in London that offer an extremely personal service and excellent rates.
Moneycorp
Moneycorp, the UK’s leading foreign exchange company, can help you achieve the best exchange rates, making your money go further. It offers a number of benefits including no commission charges or receiving of bank fees and fast, efficient worldwide transfers. Our contact, Ben Nicholson, is always available to take your calls at Moneycorp’s London office and can be reached on +44 (0)20 7823 7500, or visit http://www.moneycorp.com/.
Currency solutions
The UK’s premier foreign exchange company for clients purchasing property overseas. Its up-to-the-second trading facilities allow you to trade or fix the exchange rate on your purchase at the most opportune time, saving you money.
Nigel Hodges, our dedicated R2i dealer, will be happy to answer any questions you have. The London office number is 08700 42 43 44, or visit http://www.currencysolutions.co.uk/.
The Ready2invest fee
The Ready2invest fee for a unit in CentreWest is £2,500 + 19% VAT (£2,975) payable for every individual reservation made.
What our fee covers:
Finding the Deal
Finding the deals through our network
of international finders.
Personally visiting all developments for
face-to-face meetings with key personnel and viewing the sites.
Negotiating the discount using R2i reputation and buying power.
Financially structuring the deal for maximum returns.
Completing extensive research and due diligence on:
• Title
• Planning
• Legals
• Country and town
• The development
• The developer
Securing protection for your investment.
Sourcing reputable local English-speaking lawyers in every country wherever possible.
Negotiating favourable fee structure
with lawyers.
Service
Our investor relations staff help you through your entire investing process.
Their roles incorporate:
Answering any questions you may have during your investment process.
Guiding you through the contract and payment process.
Helping arrange a Power of Attorney
if necessary.
Help organise and liaise with mortgage companies where necessary.
Arranging site visits (1 week’s notice needed).
Help source and organise furniture packs where appropriate.
Help source local letting agents where appropriate.
Update you on the progress of your investment.
Provide a friendly ear for any worries or queries you may have regarding your investment.
What we don’t do:
We don’t arrange mortgages
We don’t convert currency
We don’t manage finished property
We don’t advise on taxv
About Ready2invest
When Jonty and Alise Crossick sold their retail business and moved into property in August 2003, they invested just £300,000. Twelve months later they were sitting on a property portfolio worth over£7 million with equity of over £3.5 million.
In October 2003, Jonty and Alise set up Ready2invest Limited to share their property strategy with others and deliver a professional investment brokering solution in a fragmented market. The company has become well known for its thorough research and due diligence, and for negotiating and engineering exceptional deals in the marketplace.
“We think like investors, we behave like investors and we personally invest in the developments we launch. Ready2invest grew out of a need to group together with other like minded investors in order to create the buying power to get great deals.”
Over the past two years, the company has built up a customer base of over 20,000 investors, and has achieved over €300 million of off-plan sales in many countries across Europe, each with its own administrative and legal procedures.
“Our job is to build trust with the developer and trust with you. If you know that the properties we offer are well researched, superbly priced, judiciously selected and located in prime spots, then we believe you will buy through us. If the developer is confident that we can sell a lot of properties quickly and efficiently, thereby taking some of the pain out of his transaction process, we can negotiate unbeatable deals with him. The result? You, the investor, wins. The developer wins. And we win.”
Next step
To reserve a CentreWest retail unit, please complete and sign the reservation form on the next page and return it to us, along with a reservation fee of £2,500 + 19% VAT (£2,975 in total).
The simplest way to pay this is by electronic bank transfer – it’s quick, easy and it’s free. The Ready2invest bank details are:
Bank transfer details
Barclays Bank PLC
United Kingdom House
7th Floor
180 Oxford Street
London
W1D 1EA
Ready2invest Ltd Deposit Account (Sterling)
Bank Account Name: Ready 2 Invest Ltd
Bank Account Number: 40559725
Bank Sort Code: 20.03.53
IBAN Number: GB35 BARC 2003 5340 5597 25
SWIFT Code: BARCGB22
Alternatively, if you prefer you can send a cheque which should be made payable to Ready2invest (CentreWest). Please send a separate cheque for £2,975 for every unit you wish to reserve.
Ready2invest (CentreWest) Limited
Olivier House
18 Marine Parade
Brighton
BN2 1TL
For full registration details including the Registration Form and a list of Reservation Terms and Conditions, please download the full brochure as a PDF below.