Walking the ground in search of investment opportunities in London

By Brian Wee,

Lynne Geeves

/ Fundplaces, Benham and Reeves Residential Lettings (Singapore) |

July 10, 2017 10:00 AM SGT

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In the past year, real estate investors exposed to the UK have been taken on a wild rollercoaster ride that has generated anxiety. However, the UK economy continues to experience positive growth; the FTSE 100 Index continues to set new benchmarks and unemployment has fallen to its lowest level in 40 years.

For the property market, the depreciation of the sterling pound was seen by some as a much-awaited opportunity to buy into UK properties at a discount. Marqus Tan, a real estate salesperson who specialises in helping Asian investors purchase UK properties, observed that after the Brexit announcement, a number of clients who had been waiting on the sidelines took advantage of the currency depreciation and jumped into the market. The demand was particularly strong from his clients residing in Thailand and China.

Source: Bloomberg

London is benefiting from huge infrastructure projects that are coming to fruition

On the ground

Recently, we went on the ground to get a feel of what is really happening and to investigate the potential for investments in residential projects. On the big picture, London is benefiting from huge infrastructure projects that are coming to fruition. The imminent launch of the multi-billion-pound Crossrail initiative is already having a positive effect on property values along its route.

This is expected to make locations further away from Central London more appealing for homeowners and improve journey times.

Source: Benham and Reeves

Wapping recently topped the list of London property hotspots with the biggest house price growth — 154% — across the capital over the last 10 years

--thisisapagebreak

Housing shortage persists

One of the key factors for the strong market has been the housing shortage in the UK. The Royal Institute of Chartered Surveyors (RICS) claims that the country faces a critical rental shortage and predicts that 1.8 million more households will be looking to rent by 2025. The ruling Conservatives have pledged to build a million homes by end-2020 and deliver half a million more by end-2022. London Mayor Sadiq Khan recently announced plans to invest £115 million ($204 million) to develop 5,000 afford able new homes.

Rental activity remains strong in selected areas

Consistent performers with over 3% rental growth include Paddington, which is set to further benefit from Crossrail, and Hammersmith, which has continued to attract corporate professionals owing to its West London riverside location.

According to Benham & Reeves Residential Lettings data, 84% of homes in prime central London’s most recognised new developments have been sold to overseas investors. These high-net-worth clients choose to have a second home in London rather than any other city. A mid- to longer-term location could be the regeneration hub of Wapping, which recently topped the list of London property hotspots of the decade with the biggest 10-year house price growth across the capital — a staggering 154%. The London Dock development is expected to provide 1,800 new homes and is already attracting considerable interest.

SAUL properties are recommended for investors

Other than the above, we think investors should be looking at SAUL properties: small-sized projects where development time is short, restricting risks; affordable homes priced for local purchasers; locations where there is an undersupply of homes and strong local demand.

There is no denying that it has been a turbulent year for the buy-to-let sector in London so far, with the introduction of stringent buy-to-let mortgage lending criteria and phasing out of mortgage tax relief that has squeezed yields. These interventions have resulted in fewer rental properties coming onto the market. This supply crunch is exerting an upward pressure on rents. Rising inflation continues to outstrip wage growth, denying first-time buyers the opportunity to get onto the property ladder, so the demand for rental accommodation continues to remain robust.

Thus, investors should be looking at locations where the locals want to stay. Lower value markets on the outer fringes of the capital in zones 2, 3 and 4 are outpacing growth in prime London postcodes. Professional investors have been able to navigate these political and legislation changes and capitalise on localised property hotspots. There is still value to be found, if you know where to look for it.

Brian Wee is the CEO of FundPlaces, a real estate investment platform. Lynne Geeves is the key executive officer of Benham and Reeves Residential Lettings (Singapore), a specialist in residential leasing in London.

This article appeared in The Edge Property Pullout, Issue 786 (July 3, 2017) of The Edge Singapore.

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