Property fundamentals show it is time for investors to be bold in London
Savvy property investors ignore Brexit ‘expert’ forecasts
As the ‘will we, won’t we?’ Brexit juggernaut rumbles on, it’s time that property investors got back to examining what really underpins profit potential, by concentrating on the property fundamentals that drive supply and demand.
Why you need to ignore Brexit
We’re currently in the second round of ‘project fear’, with the Treasury and the Bank of England warning of an economy driving off a cliff if the UK leaves the EU with no deal in place. We heard exactly the same before the EU referendum in June 2016, when all the same economic ‘experts’ forecast that after a vote to leave the UK would immediately fall into a deep recession, interest rates and taxes would rise, and property prices would fall by up to 30%.
What these forecasts (now being relabelled as ‘scenarios’) don’t do is take into account policy decisions to manage the economy. The Bank of England (under the leadership of Mark Carney) was quick to claim that its 2016 forecasts of doom were avoided because of the action it took. You may remember that it cut interest rates and increased quantitative easing (QE) by £85 billion. It has since increased interest rates and stopped its QE.
If you pay heed to all the headlines, you would think that the UK’s economy is already on its knees. In fact, the UK is in a much stronger position now than it was before the EU referendum in 2016:
- There are now almost 820,000 more people employed in the UK than there were in June 2016
- The unemployment rate is at a 45-year low
- Wages are rising faster than inflation
- The UK average house price in September 2018 was £233,000 compared to £214,000 in June 2016 – a RISE of 8.9%
What about London?
So, the UK as a whole is still doing pretty well – and much better than those May/June 2016 forecasts. In fact, comparing the actual outturn to those experts’ forecasts, there are more than 1.3 million more people in work than was expected, and average house prices are as much as £80,000 higher than predicted.
In London, it was forecast that up to 100,000 jobs would be lost from the city as financial firms fled to set up European headquarters. That hasn’t happened – it is now forecast that less than 5,000 jobs ‘may’ be lost in the City after next March. Perhaps one reason is that the EU has changed some rules to enable financial firms to maintain access to European markets and financing from London post-Brexit.
Meanwhile, the collapse in London house prices that was predicted also hasn’t materialised. Sure, property prices in prime central London have eased – but don’t forget that they had risen very strongly just prior to the EU referendum as home buyers and investors rushed to beat the imposition of extra stamp duty from April 2016 (as The Guardian reported in March 2016). Elsewhere in London and Greater London, house prices have continued rising.
Including the weaker prime London market, the average house price in London has increased from £472,204 in June 2016 to £484,926 in September 2018. Yes, you read that correctly: average house prices in London have increased since the vote to leave the EU.
Could this be the opportunity of a lifetime to invest in London property?
Investors buy property in London for potential capital gains. In 1998, the average house price in London was around £115,000. In 2008, this had increased to around £350,000. Despite the Great Recession in 2008/9, the average house price in London has increased by a further £135,000 in the last 10 years. That’s an average of 7.5% per year for 20 years.
The property fundamentals in London have not changed:
- The population is still forecast to grow strongly, with an increase of almost 9% between 2016 to 2026 – more than 800,000 higher than in 2016
- There is no better place to go shopping in the UK than in London
- It is a lifestyle city with amazing leisure facilities
- It is undergoing huge regeneration, such as the regeneration at Elephant & Castle
- Huge spending on infrastructure such as Crossrail is producing new property hotspots
- It is home to some of the country’s best schools, colleges and universities
- Its economy is growing, with a huge financial and professional services sector and tech and the digital economy
The land is scarce in London. It is a world city in every aspect. The London property market is sluggish at the moment, but the long-term attraction of investing in the capital remains. There is a lot of uncertainty in the market today, but when this is removed we believe that price growth will return. You may never have a better opportunity to invest in London property that exists today. However, not all areas of London are equal. Some locations are packed with potential, others not so much.
To find out where our research tells us are the best investment opportunities in London pre-Brexit, get in touch with Gladfish today.
Live with passion
Brett Alegre-Woodtime fo