EIS eyes up Prime London properties
RAM Capital Partners is promoting the Prime London enterprise investment scheme, an EIS that invests in the design and refurbishment of high-end residential properties in prime Central London.
Property development activities are not eligible for EIS investment but this investment qualifies as returns are generated from construction contract fees, not the profits from property development, which would not qualify for an EIS.
The directors of the EIS will work with architects, structural engineers and building contractors to refurbish prime central London properties for property developers and high-net worth individuals, who will pay contract fees to the EIS calculated on a cost plus or fixed fee basis. Prime London will not benefit from any profits the developers make from the completed refurbishment, as this is ineligible for EIS investment.
The prime Central London property market covering areas such as Knightsbridge, Kensington & Chelsea and Mayfair, is seen as attractive despite the current economic climate due to a shortage of properties coupled with strong demand particularly from wealthy overseas buyers. This is pushing up prices and there is demand for refurbishment, particularly with business rates being so high that office space is being squeezed out, making it easier to convert commercial properties back to luxury residential use.
Properties have already been identified for Prime London, which has a minimum target return of £1.05p for each £1 invested before tax reliefs. Before the contract is agreed, Prime London insists on an obligation and proof from developers that they will contribute enough capital to ensure the completed project can withstand a 30 per cent fall market value, before revenues to Prime London would be at risk. There will also be an independent report for each project commissioned from a RICS qualified surveyor, and fixed-price contracts with all third-party sub-contractors to prevent the costs over-running.
This is a lower-risk EIS but there are no guarantees that it will meet its aims.