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London Property

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

Overseas Investor

Is now the time for overseas investors to buy London property?

As Brexit nears, can you afford to miss out on the currency advantage?

One of the most common questions I’m asked by overseas investors is if now is the right time to buy London property. It’s looking increasingly like it is. Foreign investors may never get such an opportunity again, though the investing window is narrowing. In this article, I’ll explain why.

For foreign investors, currency matters

A quick Google search or a few clicks into the currency pages on Yahoo! Finance and you can get a look at how the pound tumbled immediately after the EU referendum back in 2016. The pound’s value has traded in a fairly narrow band since then, bubbling along at around 10% to 20% below its pre-Brexit vote price, depending upon your currency of choice. The uncertainty of the Brexit outcome is holding the value of the pound in this range. In recent months, we’ve had a glimpse of what may happen in the two scenarios most likely on offer: a ‘no-deal Brexit’ or an agreed deal.

  •       In September, when the Prime Minister Mrs May announced the heightened possibility of a no-deal Brexit, the pound fell by around 1.5%
  •       After the preliminary deal was announced in November, the pound rose by around 1.5% – despite the opinion that Parliament would vote against the deal
  •       A day or two later, the pound fell by 1.5%, when five of Mrs May’s cabinet resigned in protest over the deal

Sterling is being held in a tight range. However, it seems to have created a floor. All the potential bad news is out there; the possibility of a no-deal Brexit and its possible effects are well known.

At this moment, it looks increasingly like a no-deal may happen. So the biggest risks are on the upside. If a deal is struck – which is actually in the interest of both the EU and the UK – sterling could take off. The discount that foreign investors could achieve on property deals now could be erased.

At current exchange levels, foreign investors are getting a big bang for their buck. Holding back now risks missing a once-in-a-lifetime opportunity to invest in a global city that benefits from incredible long-term fundamentals.

Foreign investors are returning to London

The signs are that foreign investors are increasing their presence in the London market again, as we head toward Brexit day (March 29th 2019). We saw this in the immediate aftermath of the EU referendum when foreign investment into London peaked as the pound plunged. The proportion of London property sales to overseas investors has receded since, but in the last few months, it has started to rise again.

London property prices are set to bounce

In a series of recent articles, we looked at why London property prices could be about to bounce and where they are likely to rise the fastest. In our article ‘Could this overlooked UK city produce turbo-charged profits?’ we examined fundamentals such as:

  • Massive regeneration taking place and revitalising swathes of brownfield land
  • Enormous infrastructure upgrading and spending
  • Huge population growth-boosting demand for new homes
  • Continuous undersupply of new homes to satisfy demand
  • Increasing FDI in tomorrow’s digital economy

We suggested ignoring the headlines and searching the detail when we asked, ‘Where are the hottest areas for investment in London property?’. We pointed out that some London boroughs offer rental yields of more than 5%, and capital growth is mostly highest in outer London boroughs, such as Redbridge (7.33%), Merton (4.99%), and Waltham Forest (4.82%). Investment in such locations is supported by many factors, including:

  • The infrastructure investment in London (especially Crossrail) has made travel across the city far easier and faster
  • 24-hour underground services allow people to travel more freely for leisure purposes
  • The huge amount of regeneration taking place in many Outer London boroughs is making them more attractive as places to live

London’s population is forecast to grow from less than 9 million today to around 10.5 million in 2041. In a property market that is already suffering from a severe imbalance between supply and demand, this growth is going to boost demand for homes even higher.

The challenge for overseas investors

The uncertainty caused by Brexit is holding sterling, for the moment. This uncertainty, plus other factors such as the reduction in mortgage interest tax relief, is also acting as a dampener on house prices in London. This could all be about to change. In summary:

  •       If a deal is struck, we could see the pound erase much of its post-EU referendum losses
  •       Property prices in London are showing signs that the falls are levelling and they could be about to bounce
  •       Some locations in London are already outperforming national averages

The challenge for overseas investors is, should you buy while the pound is still weak and you are still getting a big discount, or should you wait until stability returns and the potential money-spinning returns from the currency rate are erased?

There are bargains available in London now. Property prices, even if they take a short-term hit, should bounce back in time, with a strong rental market and increasing demand helping to create a good flow of income. For overseas investors, any rise in the pound’s value is money in their pocket.

London property investment benefits from a wonderful basket of strong fundamentals. The question overseas investors should ask is if they can afford to risk the currency advantage they have today.

To find out where our research tells us are the best investment opportunities in London pre-Brexit, get in touch with Gladfish today at +44 (0) 207 923 6100.

Live with passion

Brett Alegre-Wood

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