|The London Property Market – Up and coming areas
|Acting on advice to ‘invest for the future’ isn’t the sole preserve of the rich and famous. Developing an investment portfolio is something that everyone who wants a secure future can do, as long as they have some initial capital. If there’s one thing that financial experts will always recommend you invest in, it’s bricks and mortar. And London’s bricks and mortar are as desirable as ever.
But what type should you go for? Do you buy to let, invest in central Prime property or go for a leafy suburban town house in an ‘up and coming’ area? How about a multiple occupancy development in newly emerging areas to the east of the City? Here’s a quick guide to investing in London property.
|Where should I be looking?
|Property prices in London are not an accurate indicator of the overall UK picture, so you have to discount countrywide averages and look at London in isolation. The general rule is that demand for property in London is very high (especially buy-to-rent property), and the closer to the centre of the capital you look, the higher the prices.
So the main thing that is shaping the movement of stock across the capital is availability. Because the fortunes of the building industry have been relatively soft in recent years, construction has slowed and housing stock availability is failing to meet demand. This in turn has put a premium on London stock, adding on average £5,000 to the asking price of properties during Q1 of 2015. It is going to take some time to redress the imbalance between supply and demand, even with developers increasing the number of new builds and refurbishments across the capital. Expect competition in the Prime areas and popular parts of the capital such as East London and the south bank of the river to be fierce.
|Estate agents in Canary Wharf and East London letting agents will carry very different types of stock when compared to an agency in Ealing or Wandsworth. In the very heart of London you’ll be dealing with the ‘Prime’ market, where properties are considerably more expensive. You will also need to be aware that central London properties will often be leasehold rather than freehold. So check just how much time you will have on the current lease, whether there are any caveats that could affect the value later on, how much a new lease will cost you, and what the potential resale value of your property will be. It’s best to use a local agent when doing this, as they will have a better understanding of the area, the trends in prices and any local factors that may have an influence on the value of housing stock. They will also be able to ensure that the lease price you pay is fair in comparison to like-for-like properties in that area.|
|Where are the Prime locations?|
|The Prime Central London Index is a list of locations that estate agents and property experts consider to be the prime central London residential marketplace. The list was established in 1976 and includes:
• Hyde Park
• Notting Hill
• South Kensington
• St John’s Wood,
• Riverside (both north and south banks)
• The City and the City Fringe.
Other areas are now coming into the ‘Prime’ marketplace, including E14, Shoreditch, Hackney, Bromley-by-Bow and other parts of the East End.
|Over the next 12 months general predictions are that house prices will stay relatively soft, with only small fluctuations in value. For London, the variation will depend on how far from the centre of the capital you are. For those in the Outer Commute ring and the Prime suburbs (properties that fall outside the London Boroughs or have outer London postcodes) price growth will be a rather modest 1%. For the Inner Commute ring (postcodes not in the Prime locations but within Central London boroughs), the increase is also 1%.
However, the Prime London market may see a slight dip of –0.5% overall. This may be attributed to the Mansion Tax effect on higher value properties. Many properties in the outer commute and some Prime suburb stock fall below the £2million threshold, and are therefore not subject to Mansion Tax levies. This may, in turn, lead to a slightly skewed overall picture of the value of London properties in general.
|Money in, money out|
|Fast turnaround investments are unlikely in London. In fact, in central London you’ll be far more likely to be investing in Prime property – houses, flats and commercial property that starts at around £2million and goes up to around £5million+. So while the initial investment may be greater, the returns are proportionally higher. In up and coming areas that are now starting to be considered as prime markets (such as parts of East London including Canary Wharf, E14 and Shoreditch) the initial return on your investment will be high. But as with other prime areas you will start to see a levelling off on returns the longer you hold onto the property.|
|Don’t go for the ‘quick flip’|
|Be prepared to consider London property as a long-term investment, rather than a quick ‘flip’, as the market is remarkably resilient from negative influences. While returns may be only fair to middling, they are sustainable year in year out. This ability to sustain a continuous growth in return means that even if you are only seeing 1-2% returns year-on-year, you will see those figures every year, regardless of external factors such as recessions, market ‘adjustments’ and fluctuations.|
|Demand for lets is exceptionally high, particularly along central transport links. The development of Crossrail will open up more areas for residential lettings, especially for City and Canary Wharf workers, so the buy-to-let market in the outer reaches of East London and into Essex and Kent has plenty of potential, as well as offering landlords stable returns. A continuing shortage of rental properties with demand outstripping supply means that it is very easy to guarantee a high level of continuous occupancy, and so continuous returns. With rents predicted to rise at around 17% over the next five years, returns on buy-to-let properties is looking pretty solid.|
|Looking further out of town|
|As London increases to attract investors in high-tech industries and communications, the influence of the London property market will cast a wider net out to the suburbs. So if you’re keen to start investing in London property but don’t have the finances to snap up a mews house in Mayfair, look a little further out of town. Areas to the east and north-east of the city are now becoming increasingly worthy of investment, offering good returns for both the medium and long term.
With the advent of Crossrail and other transport improvements, this will mean that new opportunities for developing a London property portfolio that delivers real returns (whether that’s residential property or rental) are opening up all the time.
|All figures and quotes are accurate at the time of publishing|