If you were travelling on the London Underground this summer, you might have noticed a prominent advertising campaign promising a once-in-a-lifetime escape from commuter-land. “Quit the Rat Race, Become a Property Millionaire,” screamed a series of 10ft-high posters. They sat alongside advertisements for foreign travel, video games, Jack Daniel’s whiskey - all products tempting you away from rush-hour and the clammy monotony of a 9-to-5 working life. It was not a subtle message, and its website, freedom2fortune.com, hammered home what must be the two strongest yearnings of the average wage slave: freedom and fortune.
Almost 70 years ago, Londoners penned into the fast-growing commuter belt that stretched from Dagenham in the east to Rayners Lane in the west were offered a similar escapist fantasy, also centred on property. The board game Monopoly, invented in depression-era America, was designed to while away hours of penury and pre-television monotony by encouraging speculation and greed. Tim Moore, author of Do Not Pass Go, a celebration of Monopoly published last year, describes it as “a game that filled all those unemployed hours, and did it by pressing a satisfying wedge of fantasy dollars into your hand with the opportunity to develop this into a barely manageable mountain of cash through ruthlessness and wily investment”. It was, he says, an ideal way to forget the fallout of the 1929 stock market crash.
Replace “unemployed hours” with the words “hours spent worrying about pensions”, and Moore’s assessment would be perfectly apt for the get-rich-quick schemes that are flourishing at the fag end of Britain’s housing boom. With an abundance of credit, a housing shortage, weak regulation and depleted stock market returns, a growing slice of Middle England has taken to buying property - whole streets of it in some cases - with the zeal of hardened Monopolists. In the era of virtual reality, it should hardly be surprising that a game might be the basis for real life, rather than the other way around. These days, northern cities such as Manchester, Leeds and Newcastle are the Mayfair and Park Lane of the property binge-buyer.
The cash, however, is not a fantasy. According to the Council of Mortgage Lenders, £15.8bn in mortgage loans was issued to buy-to-let investors in the past 18 months. Much of that was speculation in the booming north, some of it by clubs of property investors whose activities are unregulated and who could be cruelly exposed if the day of reckoning arrives and banks demand the money back.
Nick Rampley-Sturgeon might sound more like a character from Cluedo than Monopoly. But he is one of a coterie of property gurus who have emerged in the past few years to become not just landlords but celebrity investors, masters of the property game. He is often quoted in the media and distributes a CD-Rom called “Who Wants to be a Property Millionaire?” He has written books on the subject of buy-to-let, and is an object of inspiration (or envy) for hundreds of property speculators. Many have paid £1,000 to attend his weekend “bootcamps” across the UK. There they learn the financial formulas to make property investment work, and some use Rampley-Sturgeon to scout out property deals for them, in exchange for a 1 per cent finder’s fee. Last year, he says, he sourced £54m of properties for 450 clients, and he promises to lead from the front - he keeps a unit in every development that he picks for his clients, which means he has an ample portfolio. He should be relishing life as a rich man.
In this business, due diligence is relative. “If you haven’t heard of the town you’re investing in, get on the next train”
Nick Rampley-Sturgeon
But he doesn’t appear to be when he arrives to pick me up on a balmy summer’s day at a rural train station in the Midlands. In fact, I am shocked by his appearance, so at odds with the look of avuncular reassurance that he portrays in his publicity shots. Driving an ageing saloon, he is in shirt sleeves and has beads of perspiration on his brow. One of the first things I notice are his fingers gripping the steering wheel. The nails are chewed to the quick. He is tall and bears an uncanny - and perhaps unfortunate - resemblance to Andrew Gilligan, the former BBC reporter. Evidently, he has a lot on his mind, and it starts to trickle out as we sit in his unprepossessing office in a business park in the new town of Daventry, near Rugby. He is, he admits, under siege from a few of his clients for helping them buy apartments that have produced nothing like the bonanza they had hoped for. They are people who bought property before it was built and then sought to “flip” it - sell it on quickly - to capitalise on the increase in property prices. They say he encouraged that idea, which he denies, and he makes no attempt to hide his frustration with what he calls the “get-rich-quick brigade”. He complains: “The people who see it as a quick buck are always the ones who shout the loudest six months down the road.”
Later that day, we sit in a pub beer garden feeding the bread from our burgers to the birds. Rampley-Sturgeon, who is 41, unwinds, sharing his life story with me. He is softly spoken, and by the way he talks of his blissful days hitch-hiking to “Frisco” and living as a student in Chiapas, south-east Mexico, I detect a trace of the ex-hippie in him. Once a banker, he stumbled into rental property accidentally when negative equity forced him to take in lodgers in his first house in London during the late-1980s property crash. Four years ago, he was advising farmers in North Staffordshire on how to diversify their assets into property when foot and mouth disease struck, and they took him seriously. That led him to start his property syndicates, speaking engagements and a book, published by FT Prentice Hall in 2002, entitled Buying to Rent: the Key to your Financial Freedom.
Like many entrepreneurs, he is impulsive. On a speaking engagement in Arizona he was so taken by the low property prices that he made an offer on a house in a small border town. He has, he admits, become “obsessed” with acquiring property, and you see the hunger in his eyes when the phone rings. Knight Frank, the national estate agency, calls, looking for buyers for some yet-to-be- built flats in Coventry. He has 24 hours to alert his clients, in which time he’ll visit the site, take digital photos of the area and e-mail those and floor-plans to the interested parties. By the next night, he is sure the £1,000 reserve cheques will be rolling in. It all seems terribly hurried to me, but when I ask about due diligence, he rolls his eyes. In this business, he says, due diligence is relative. “If you haven’t heard of the town you’re investing in, get on the next train.”
If there ever is a denouement to this naked speculation, that sentence could well be its epitaph. There is, however, a reason for the urgency. Property developers, especially those with bankers on their backs, exchange contracts on apartments they haven’t built yet, to secure working capital. To attract investors, they offer discounts, typically about 15 per cent below the targeted price of the finished apartment. Through £1,000-plus property seminars, syndicate heads such as Rampley-Sturgeon have built up a captive client list eager to invest. They have to move quickly to secure the sale or it will go to someone else. As in Monopoly, hesitation is not rewarded. When a property is up for grabs, alerts go out in a flurry of e-mails, SMS messages and phone calls and individuals in the syndicate reserve their own apartments. The syndicates liken it to investing in a company before it goes public: it is, in a sense, venture capital that only needs to be tied up for 18 months or so, while the building is built. The crude business rationale is this: the larger the investor’s portfolio, the more upside when property values go up; and the bigger the discounts, the more protection if the housing market goes down. This depends on investors working out their sums correctly. The sums, though, are the problem.
In recent months, interest rates have risen, property prices are unsteady, and rents for up-market apartments have slid - what you’d call a classic “triple whammy” if all three go to extremes. Investors have to be sure there has been an accurate rent assessment and a true judgment of the finished value of the apartment to decide whether the deal stacks up. Who helps with those assessments in the heat of the moment? The syndicate head, such as Rampley-Sturgeon.
I ask if this represents a conflict of interest in a wholly unregulated business. After all, he charges his clients a finder’s fee to locate property, he provides them with rent assessments by third parties such as letting agents, and he suggests financing schemes. Recently, many of the properties he has sold to clients have belonged to his own company, Activation Enterprises, which buys the whole building then sells it off piecemeal. I say it reminds me of a financial adviser suggesting to clients that they invest in his or her own company - something regulators would never permit. He says his syndicate members and those seeking his property advice are rarely the same people, but he acknowledges it would be better to put more distance between both activities. The weakness of the industry, he says, is that there are too many “armchair investors” who have climbed aboard believing property syndicates are easy money. “We’ve already begun the process of turning people away,” he says.
Rampley-Sturgeon doesn’t like the word syndicate. “Syndicate is the wrong phrase. It’s just a group of people who trust you.” For a handful of clients, that trust has been tested this year by complications with properties he has sold them in York and Bristol. It doesn’t stop there, however. In some transactions, the problems have left a messy trail. I picked up that trail in Yorkshire, where Rampley-Sturgeon has placed some of his biggest bets, and where he moved with his family into a spacious farmhouse this summer.
Investors are unlikely to have the patience of owner-occupiers to weather a storm in the market. “There might be forced selling and a glut”
Nicholas Johnson
A year ago, Rampley-Sturgeon was riding high in Yorkshire. A flattering profile in the Yorkshire Post described him as “one of the main players in the British buy-to-let market”. He was a man who could live on the proceeds of his own portfolio, if he weren’t so keen to “spread the gospel”. His message was clear: “Anyone can become a landlord,” he was quoted as saying. “In Yorkshire you need a minimum of £3,000 to £4,000 to get started. From there you can have financial freedom. Give up your job.”
It was a message that met with a ripple of excitement when he spoke at a property investment show at York racecourse last October. So much, in fact, that Keith Hollinrake, a partner of Hunters estate agency which organised the show, recalls drafting extra staff in to help Rampley-Sturgeon deal with 600 people eager to buy his books. Hunters had a reason to keep on his good side. Through them he had just bought, on behalf of his syndicate, two apartment blocks, one with 70 flats, the other with 90, costing £12m and £15m respectively. “It makes sense to buy a whole development,” Rampley-Sturgeon said at the time. “I get a good deal from the developer, and I can pass that on to fellow investors.” Less than a year later, however, this apparently lucrative relationship would come to an end.
Hunters is one of the fastest growing estate agents in the north of England, having positioned itself at the centre of the property syndication game. It was started just 12 years ago, when Hollinrake, 42, and his brother Kevin, 40, found the name Hunters on the stationery of an estate agency being wound up in the Midlands. They bought the stationery and kept the name. Their business plan expects to increase turnover from £10m this year to £200m in 10 years, mostly through the sale of new homes. Already its growth has been phenomenal. Keith Hollinrake tells me this as we walk to his silver Aston Martin to drive to his trading office in Leeds. He is an affable man with freckles and a kind smile, and he effervesces about the transformation of city centres in Leeds, Manchester, Liverpool and Newcastle, in which Hunters has taken part.
Looking over the nose of his DB7, we crest a flyover heading into Leeds, and, scanning cranes on the horizon, he excitedly blurts out something that’s probably never been said of Leeds before: “Look, it’s like Spain when you go on holiday.” He quickly sold K2, Leeds’ first luxury tower block and second-tallest residential building. “People queued through the night in the snow to buy there.” Now he is advising on schemes with 8,000 units that will be under construction over the next two years. To put that into perspective, FPD Savills, the property consultants, says there were 15,000 apartments built in the whole of the Midlands and northern England last year, and five years ago the number was fewer than 5,000. Hunters is clearly in a booming market niche, but much of it is fuelled by speculative forces more akin to the fly-by-night dotcom era than to the long-term security of bricks and mortar. As Hollinrake puts it: “Sometimes people will take longer to decide on a pair of shoes to buy than on a home. It never ceases to amaze me.”
Over the Pennines in Manchester is Urban Splash, a property development company that has done as much as anyone to promote the chic of inner-city living in northern England. It is also amazed at the speculative bubble, which is literally darkening its doorstep. Across a narrow street from Urban Splash’s glass headquarters in Castlefield, Manchester, a new building is under construction, clad in plastic sheeting through which oddly painted bricks are poking out. Nicholas Johnson, director of development at Urban Splash, looks out of an office window and winces at the building, which is owned by another developer, Isle of Man-based Dandara. The aesthetics are one thing. More worrying, he says, is that all the 104 apartments were sold to investors before they were built, rather than to owner-occupiers. Will they be lived in, he wonders?
On the other side of his office, cranes have started to dig, and there too, Dandara is pre-selling most of a 434-apartment scheme, rising up 15 storeys, that will obscure Urban Splash’s view over the Bridgewater canal to Manchester’s thriving city centre. Johnson is philosophical about it - Dandara, he says, paid more money for the site than Urban Splash would ever pay. But that view of a new Manchester marks the realisation of a dream that Johnson and his colleagues have nurtured for much of their lives. It will pain them to lose it.
For that skyline is the epitome of the changes that have swept through the inner cities of northern England in the past decade. Once a crucible of urban culture, with maudlin bands such as New Order, Joy Division and The Smiths, Manchester was jolted into action in 1996 when a 1,000lb IRA bomb blew apart the Arndale Centre, landmark of the city’s blight. What happened next has been described as the most radical facelift of inner-city Britain since the second world war. Out went the stinking clubs and in came the cappuccino drinkers. On to the restored Satanic Mills were built light and airy loft apartments. Young professionals - especially in creative industries such as music and design - discovered that London was not the only liveable city. In the social transformation, Manchester became home to what Johnson describes as Bohos - the bourgeois bohemians who drift easily between the worlds of capitalism and the counter-culture, iPods plugged into their ears. They needed places to live appropriate to their lifestyles.
In came Urban Splash, led by a goatee-bearded Londoner called Tom Bloxham, now a Member of the British Empire. In 1998, he struck ground in the derelict Castlefield district, minutes away from the city centre. Since then, Urban Splash has completed 300 apartments there. The buildings are hip. Paintings by Damien Hirst fill the lobby of one, and original Sex Pistols posters line the show flat. Bloxham lives with his young family in one enormous penthouse, and has statues of cows on his balcony. Nearby, when I visited, a lorry was offloading ready-made apartments that were lifted by crane into Urban Splash’s first attempt at pre-fabrication. Called Moho, for Modular Homes, Johnson says it will have 102 apartments built on land Bloxham bought for £300,000 in 1998. That is the cost of two Moho flats nowadays.
Johnson marvels at the way Manchester has changed. As a student 15 years ago, there were only 250 people living in the city centre - he knows, because he wrote a dissertation on it. Now there are 10,000, and cranes are erecting new residential and office buildings across the skyline. In Castlefield, Urban Splash’s own schemes and those of Dandara mean 700 apartments will come on to the market in the next year, more than twice the total amount built in the area in the past six years. Like Dandara, Urban Splash sells many of its properties to investors, but it relies less on pre-sales and it mostly eschews property syndicates, Johnson says. He cannot afford to be too choosy, though. “These days, the purchase market is about 75 per cent investors,” he says. “There is no question they are massively fuelling the market in northern cities.” Assessing the merits, he believes that with so many investors tied into the property market, the government will have a greater incentive to avoid a housing crisis. On the other hand, investors are unlikely to have the patience of owner-occupiers to weather a storm in the market. “There might be forced selling and a glut,” he says.
"This is not a hobby. I can be concerned when people get things wrong, but I can only help so much. It’s buyer beware"
Nick Rampley-Sturgeon
If Urban Splash’s bold architectural forays are inspired by the dreamy aphorism, “Build it and they will come,” in the vernacular of more traditional homebuilders the saying is boiled down to “Supply drives demand.” The idea is that there is latent demand across northern England for a better quality of housing, especially for the bankers, solicitors and other professionals flocking to places such as Leeds. Supply it, and they will come. And, so far, they have. But in Britain, with its fiendish planning complexities, it takes years for developers to turn raw land into finished buildings, and whether the demand is still strong when all the flats are completed is questionable.
Richard Donnell, head of residential research at FPD Savills, says there is still no accurate assessment in northern England of the ratio of housing completions to new jobs created. In the thriving Midlands city of Birmingham, he says, only 4 per cent of the population can afford a prime inner-city flat. Elsewhere, rents are falling in such developments, which may already indicate over-supply. He believes the age-old British preference for houses rather than Continental-style flats is reasserting itself, meaning more of the new supply should be the traditional two-up, two-down, rather than flats. Planners and developers, focused on their “high density” quotient, may be missing a trick.
But if they have got it wrong, the message has not seeped through to the property syndicates. Nor had the first signs of weakness in the national housing market, as I discovered when I ventured into a darkened hotel room near Victoria, in central London, over the summer, to take advantage of a free property workshop that posed the beguiling question: “A Millionaire in Three Years or Less?” The seminar was offered by Inside Track, a property company whose name was the first to come up when I typed “buy-to-let” into Google. In the thrall of Steve Sweet, its American-born motivational speaker, two hours swept by faster than you can say “put your hand into your wallet”.
He assured us that the 1980s property crash was over-dramatised, that mortgage debt was good debt, that “magnificent magnolia” was the ideal colour for rental property and that professionals would soon be “beating a path” to our rental doorsteps. After all that, at least six of my group of 60 had pledged £2,495 to enroll on a weekend seminar - a preamble to paying a further £3,995 as a fee to Inside Track for information on properties for sale. “This is the most boring way to make a fortune that I know,” Sweet said (referring to property investment, not motivational speaking). But he was so convincing that my next-door neighbour, one of many ethnic minorities in the room, ended up in a lather of perspiration.
Earlier this month I caught up with Brad Rosser, managing director of Inside Track and its property syndication business, Instant Access Properties, in Kingston upon Thames, south London. Once a right-hand man to Richard Branson, Rosser, an Australian, has high hopes for the new era of property investment. He believes it is no longer “a privilege of the wealthy” and will soon turn mainstream. Already, he notes, the government is studying ways to institutionalise it as a pension asset, via funds modelled on US real estate investment trusts [REITs]. “I’ve opened the floodgates to people who want to manage and make money out of residential property.”
Instant Access is an elephant among pygmies. Many of its competitors are one-man bands, but Instant Access has 100 staff in an office that loosely resembles the trading floor of a City brokerage. It has its own mortgage-brokering business and is churning out sales at about £1m a day in the UK alone - in August, it booked £34m of sales and an additional $9.5m in Florida, where it is also selling apartments. These are not completed sales, because most of the properties are not yet built. But according to a valuation this summer of Instant Access Properties, by estate agents Allsop Co, the market value of 2,500 properties bought over the past two years for £395m has now risen 16 per cent to £459m - and the cash stake that investors have in the properties has grown far more.
That was before the housing market started to wobble, however. Now Instant Access is shrinking its exposure to the UK market, from about 70 per cent to 50 per cent, with the other half invested abroad. In Leeds and Newcastle, the company said in a recent e-mail to its investors, about 75 per cent of apartment developments have been sold to investors, and it suggests over-supply is looming. Rents are falling as investors compete for tenants, it says. In Manchester, for example, rents of £900 a month 18 months ago have slumped to £725. “This is due to the increased availability of stock and we do not see it improving from the landlord’s perspective for at least two to three years,” it says, in an unexpectedly candid appraisal of the troubled market.
Keith Hollinrake, who works closely with Instant Access, remembers the last time the property market stalled, as it appears to be doing now. During the Iraq conflict in the spring of 2003, a number of what he calls “pseudo investors” came to him looking for developers selling at deep discounts because of the slowdown in the housing market. But when it came to putting down money, they vanished. “When the market tightens these fly-by-night investors will come and promise the earth, but they can’t really deliver the goods. We’ve been caught out once, we don’t want to be caught out again. We want to see the colour of their money.”
Hollinrake stresses that there was never anything sinister or fly-by-night about Rampley-Sturgeon. However, after the excitement of that property investment show at York racecourse, their relationship started to go off the boil. Problems emerged both with Heron Court, the 70-apartment property Rampley-Sturgeon bought through Hunters from Scotland-based Cala Homes, and Fulford Place, the 90-apartment development near York University. At one point this spring, Fulford Place had so many apartments flooding the resale market that one local newspaper said the for sale signs were sprouting “faster than the daffodils”. That was because an unexpected number of Rampley-Sturgeon’s clients, instead of holding on to the flats for the long-term, decided to “flip” them - a practice he condoned at the time. Rampley-Sturgeon admits to being caught out. “I knew [some people] were just looking to flip. But more of them chose to than we had expected.”
As for Heron Court, there were delays in paying for and handing over the apartments, which left neither side happy, and Rampley-Sturgeon ended up buying the flats of some of his syndicate members who were unable to complete their transactions.
According to Hollinrake, Rampley-Sturgeon is a “nice guy” but had trouble keeping his multiple investors in line: “It was manana, manana, manana, but in this business you can’t say manana.”
Gary Hardy, managing director of Cala Homes in Yorkshire, found the experience of dealing with a syndicate head frustrating. “I don’t think that at Heron Court the 70 investors were all in place as they were portrayed.” Those two developments, Rampley-Sturgeon says, have caused him more trouble from investors than he is used to, and he is now scaling down his business to 100 of his most loyal clients, investing in small developments with units below £100,000. The crunch, he says, came when one investor exchanged contracts with money he had borrowed on his credit card. It was a lesson, if ever one was needed, that things had gone too far.
In Monopoly terms, Rampley-Sturgeon may have finally realised that Mayfair and Park Lane were beyond him, and so settled for the low-rent stability of Old Kent Road and Whitechapel Road. However, that realisation has come too late for two of his clients. John and Lorraine Page are in their early 50s, and have been worrying about retirement for several years since John, a self-employed quantity surveyor, saw the value of his pension funds hit by the slump in the stock market. Like many others in their shoes, the Pages turned to property, buying three modest flats in Coventry to let out, which have risen in value without ever having a void in the tenancies. Eager to expand their property portfolio, they turned to Rampley-Sturgeon for help. John uses a quaint phrase to describe their investment goal: they want “mouse holes”, he says - a place in the country, a place in the town and a place abroad that they could shuffle between in retirement. But for the past nine months they have been living in a nightmare.
The Pages’ village just outside Oxford is about as far away as you can imagine from the inner cities of northern England. It has two pubs - The Plough and The Thatched Roof - sunflowers lean over the garden fence, and “mouse hole” would indeed be a good way to describe their neat, timber-beamed cottage. Yet they are not unworldly. They have both held senior jobs in London and regularly drive to the capital for art exhibitions. Where they say they went wrong is in buying three properties in quick succession through Rampley-Sturgeon. One, in Fulford Place, York, they hoped to sell on completion to fund the purchase of two more in Hamilton Court, Bristol, a building where Rampley-Sturgeon has sold his clients 90 out of 105 apartments. Nine months later, the York property is still unsold. That means, they say, there are insufficient funds to buy the two properties in Bristol that were due for completion when this article went to press. It was not clear how their situation would be resolved, but there is no love lost between them and Rampley-Sturgeon. They wish they’d never heard his name. He says he’s never had such problematic clients: “I’m pulling out what little hair I’ve got.”
Chris Barber, 47, is another client of Rampley-Sturgeon’s who has been disappointed. A coal merchant for 19 years, he sold his business last year, partly, he says, because he liked the idea of becoming a full-time property investor. He bought three flats in Fulford Place, believing - after discussions, he says, with Rampley-Sturgeon - that he could sell them on quickly. Nine months later none has been sold, and two have been rented at £250 a month less than his mortgage payments. He bought the three flats from Activation Enterprises, he says, taking advice from Rampley-Sturgeon that they could be let to corporate executives at £1,000 a month. Barber is getting £650 a month.
Rampley-Sturgeon says such cases are isolated. If, like him, the Pages and Barber had decided to let the flats straight away rather than try to sell them, they would, he believes, eventually make money. He acknowledges such cases risk bringing bulk property buying into disrepute, and he is increasingly keeping short-term investors at arm’s length. “This isn’t a game and it’s not a hobby,” he says. “I can be concerned when people get things wrong, but I can only help so much. It’s buyer beware.”
The industry is already coming in for closer scrutiny, however. Recently, the Department of Trade and Industry alerted the public to the dangers of property syndicates, dismissing them as “get-rich-quick” scams. In March it closed down a £100m racket involving an elaborate scheme to sell derelict, boarded-up houses, promising to refurbish them and rent them out as social housing. Last month it warned specifically of property seminars and investment syndicates, including those that buy blocks of properties as buy-to-let investments, or buy development properties at a discount. “While a few people have made a million, the vast majority are losing thousands of pounds,” the DTI said.
In Monopoly terms, that’s the Go to Jail card. So far, it’s only being waved as a warning, and syndicates would have to deliberately defraud the public to face criminal charges. More than fraud, the biggest risk may be the gullibility of investors, who have grown used to soaring property prices and see the housing market as easy money - especially after what stock markets have done to their pensions. It is true that as a long-term investment property has been a good bet, and there are plenty of buy-to-let landlords who are in for the long haul. For those in too much of a hurry, however, it is an accident waiting to happen.
Henry Tricks, a former FT residential property editor, is the FT’s senior corporate reporter.
