Why Buy Ground Rents As Investments?
There are many types of buyers that invest in freehold ground rents. Individual property investors, small property companies and large institutions looking for a low risk investment and a steady if not exciting return on their money. The latter tend to concentrate on large portfolios of of £100 million to £500 million. Most large investors are looking for a steady income stream and tend to buy buildings with long leases as opposed to leases that are under 80 years. Leases with an unexpired term of under 80 years tend to cost much more and the return on your investment is lower initially.
These tend to be insurance companies looking for a long term income stream that annuity providers need. It is really the annuity providers that buy the very large portfolios and they are not interested in small portfolios as it is not cost effective buying up small lots.
They tend to look for a good return on their investment and tend to buy blocks where the leases are not heading toward the 80 year mark as these tend to be costly and do not fit into their business model. The ground rents are considered very low risk as the ground rent must be paid come what may.
If you are a leaseholder and do not pay your ground rent you could face the ultimate sanction forfeiting the lease on your flat. With the average price in London now at levels not seen before this is not going to happen and therefore these investments are considered to be virtually risk free for annuity providers.