Yep, we said that right: Welsh dairy farmers. It sounds like an unlikely, if not surreal, combination, but a small group of commercially astute dairy farmers from Pembrokeshire have been investing in Swedish property since 2005 and have been collecting returns in excess of 12 per cent a year. They now have a property portfolio valued at over £35 million.
It all began when Nigel Evans, one of the three co-founders of Evanridge Properties LLP, bumped into a man in a bar in Lithuania (this story has all sorts of strange twists to it) who told him he should consider Sweden.
Swedish buy-to-let property investment
“I had never been to Sweden. I knew nothing about it,” says Evans. “But we researched it thoroughly and discovered that it has a strong, stable economy, that 65 per cent of the Swedish population lives in rented or co-operatively owned accommodation. And, crucially, there is an ongoing shortfall of rental properties, meaning that there is high demand.”
Evans’ partners are Bill Ridge, similarly a dairy farmer from Pembrokeshire, and Huw Evans (no relation), a Welsh tax accountant and former HMRC Tax Inspector. They also discovered that Sweden has an extremely well-regulated rental system. There are no issues with bad tenants or damage to property: because of the demand for rental accommodation, tenants have to be good or they are blacklisted on a central database, accessible by all landlords, and cannot rent again. If they default on their rent, it is on public record.
Occupancy rates are near as dammit 100 per cent too. If anything becomes vacant there are potential new tenants queuing up round the block to fill it. And just about everyone rents, from bankers and businessmen to students and OAPs.
“There are simply not the same problems that you get with the buy-to-let market in the UK. All tenants are employed, they are middle class and able to pay what are controlled, affordable rents. And if they don’t pay, it is easier to get rid of them than here,” says Nigel.
Sweden also has open books, so landlords can check debt records and the full rental history of a tenant. Estimates suggest that the country needs 40,000 new apartments each year but only builds 10,000, so there is a big shortage in accommodation.
Rules for landlords too
While there are strict regulations in place governing the tenants, the landlords also have to abide by tight rules, however. Rent increases are highly controlled and regulated by each municipality, based on the consumer price index, so evil, money-grabbing landlords cannot exist. Prices can’t be put up even if there is huge demand.
Landlords also have to pay for water, heating, laundry facilities and even snow-clearing out of the rent, with tenants only paying for electricity.
Fuelled by their research, Evanridge Properties LLP set up in 2005 as property and fund managers specialising in the Swedish property market. So far they have invested in real estate in three commuter towns outside Gottenburg where the annual rental yields are higher than in Stockholm, namely Uddevalla, Vänersborgand Trollhättan.
Their portfolio is divided 80/20 between residential and commercial, and they have 200 investors on board, 80 per cent of which are farmers.
What is it about farmers and Swedish property?
“Dairy farming is a very big asset producing a very small return so it doesn’t perform in yield terms,” says Huw. “You are working all day every day but the return on capital is poor.
“With Evanridge, you are using the capital to buy investments elsewhere so you are making the money work twice as hard. You are effectively milking the farm twice.”
Peter and Sue Taylor, arable farmers from Whitchurch in Shropshire, have been investors with Evanridge since day one and are converts.
“We heard about Evanridge through the farming grapevine. We liked the way they ran their business. It was very similar to the way I run my farm, so I understood the whole concept,” says Taylor. “They also invest their own money and share the risk along with me. I liked that personal involvement.”
The Taylors invested a six-figure sum and, over the nine years to the end of the first Evanridge fund, they doubled their money. “We are very happy with that,” he says.
“It’s a long-term market, and we like the regulation. There are no nasty surprises along the way – it just ticks over nicely.”
Matt Boley, another dairy farmer, from Somerset, whose brother Adam has inherited an Evanridge fund from their father, says: “Farmers don’t tend to have a pension so investments like this work for us. We are very cynical and suspicious. We never believe anything we hear and only half of what we see, but this has a very transparent fee structure which we like.”
The heavy regulation means that the Swedish property market is not as exciting as the UK, where property can go up in value dramatically. But as Huw sagely points out, “it can go down too.”
“There is a fundamental mechanism in place which makes Sweden steady and secure,” he says.
Investors in Evanridge have to put in a minimum of £25,000 and be prepared to invest for at least five years, waiting until the end of each fund’s life to make their money. So far there have been two funds which are now closed to investors, and a third that is still open.
Now the company is aiming to cast its net wider to appeal to a different breed of investor beyond the farming community. They have, in effect, run out of farmers.
But if a group of grumbly, hard-nosed agriculturalists rate the Swedish property market – and have the returns to prove it works – then it really must have something going for it.