Where next to invest? We profile the world’s top property hotspots, detailing everything an investor needs to know.
Up 4.9% y-o-y in March 2017 (Hometrack)
5.24% yield (Romford – LendInvest)
26% drop y-o-y in prime sales (Q1 2017, LonRes)
Where is it?
London is the place to be, as the old song goes, and it’s testament to the city’s enduring appeal that it needs no introduction, no matter where you are in the world: situated in the south east of England, the capital of the UK sits on the River Thames, providing a financial and business hub for both the country and working commuters from neighbouring regions. The result has become a magnet for investment, both as a safe haven and as a profitable market in its own right.
Who lives there?
London is one of the most multi-cultural metropolises around, a melting pot of more than 270 nationalities and several hundred languages. The city’s financial importance and welcoming attitude has historically brought migrants to the UK from the Commonwealth, but has increasingly attracted migrants from across Europe and further afield. Today, more than one in three Londoners are born overseas, over 2 million people. With the majority of people residing in the capital working for its copious employers and companies, their need for accommodation, particularly rented, has also led to London welcoming buy-to-let investors from around the world, while high-net-worth investors from countries such as China and Russia have also made the capital’s prime central neighbourhoods their home for varying portions of the year.
Whether for prime residential property, buy-to-let returns or office yields, London has long been one of the world’s most popular cities among investors. Perceived as a safe haven during times of political or economic uncertainty, that stable appeal has increasingly been put to the test, following the UK’s vote to leave the European Union. Is London still the place to be?
The UK capital has accelerated ahead of the rest of the country in recent years, with house prices surging on the back of low supply and high demand. With London home to millions of people all seeking employment and accommodation, the city’s need for housing has also fuelled the UK’s biggest buy-to-let market, with rents at the highest levels in the country. However, a sustained period of rising prices has also spelled falling affordability, while the higher purchase costs for landlords has also impacted buy-to-let yields. Indeed, many investors are now turning to regional cities, where prices are lower and capital growth potential (and rental returns) are therefore stronger. London’s markets vary by district and borough, however: investors seeking the best possible yield should focus on the most in-demand areas, such as Romford and Enfield, which are ranked among the UK’s top 10 buy-to-let postcodes for 2017 by LendInvest.
The high-end of the residential market has also suffered a slowdown due to recent changes in stamp duty, which has led to a fall in values. Nonetheless, as the UK enters a lengthy negotiation with the EU, the prime market is showing signs of stabilising and improving, as investors have eventually adjusted to the higher stamp duty charges. Cluttons reports that values across the city’s most desirable postcodes only edged down by 0.4 per cent in the final months of 2016, with a “slightly more normal” amount of activity taking place. The first quarter of 2017, meanwhile, has seen a upturn in activity, with realistically priced stock selling “reasonably” well, according to Strutt & Parker. Indeed, according to the firm, sales across Prime Central London have risen for the last three quarters. The weakness of the pound against the euro, meanwhile, has attracted investors from overseas, which is helping to make up for any shortfall in domestic buyer activity. Knight Frank reports that the rate of decline in prime residential rents fell to 0.7 per cent in the three months to February 2017, with demand from tenants showing signs of increasing.
With landlords facing rising costs due to changes in buy-to-let tax laws, London’s commercial property market has reinforced its worth for many investors in the last year. This is despite speculation about the impact of Brexit upon the capital’s appeal to international businesses using London as a gateway to Europe and the single market. Indeed, London was ranked number one City of Influence by Colliers at the start of 2017, with experts saying that fears of companies fleeing the city have been overblown. According to RCA data, at the end of Q1 2017, London remains the world’s top destination for cross-border investment at £4.77 billion, 18 per cent higher than Hong Kong and 28 per cent above Manhattan.
For financial firms who do leave London, meanwhile, the city’s rapidly growing technology sector is expected to counter departure from traditional jobs.
“Back office jobs have been leaving the capital, but this evolution away from finance is ultimately leaving the London economy stronger,” argues James Roberts, Chief Economist of Knight Frank.
London also remains one of the most sought-after target markets for international retailers, a fact that was underscored by Apple’s decision to launch a new London campus in the Battersea Power Station redevelopment.
The city’s office market is also strong, with investor demand for London offices dampening, but not dramatically: 2016’s turnover remained 45 per cent above the 20-year average, with Chinese investors proving particularly active in the market, encouraged by the good value offered by the weak pound.
That trend continued in 2017’s first quarter, with Savills reporting a record level of £5 billion of transactions, 84 per cent of which went to non-domestic investors.
“Increasing levels of global insecurity have driven a steady shift towards income-producing assets all over the world, and the UK’s unique lease structure is still seen as offering a safe haven in times of volatility,” comments Savills.
UK investors seeking more affordable opportunities during tough conditions for buy-to-let are looking away from London to the UK’s regional cities, but buyers of London real estate continue to hail from around the world, with Chinese investors and US investors most notably taking advantage of the weak pound in the wake of the UK’s vote to leave the European Union.
“There’s no place like London. Even in times of economic or political uncertainty, it remains one of the world’s most attractive safe havens.”
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