What to know when investing in a London property
London property has had its fair share of challenges to contend with recently, most notably stamp duty hikes and the Brexit result. While some property commentators are predicting Armageddon, others are waving the “business as usual” flag. The reality, of course, is somewhere in between.
The United Kingdom’s historic decision to leave the EU resulted in the pound falling to a record low. Buyers from dollar-pegged currencies, such as the UAE, can also rely on a 20 per cent discount when the correction in property values is taken into account. Ironically, Brexit may have been the resurrection the London property market needed. Tracking London’s property prices over the past 40 years confirms its inflation-hedging qualities. With significant rises in values recorded despite many challenging circumstances, including 2008, the UK economy was one of the first to recover globally, largely buoyed by the London property market.
The referendum outcome has cemented the investor strategy of flocking to tangible asset classes and London is now the world’s most attractive city for investment ahead of New York, according to Knight Frank’s latest Global Wealth Report.
So where is it best to invest? Options include:
Prime central London: this is undoubtedly the best for wealth preservation and capital appreciation. According to a recent Savills report, values in prime central London are set to rise by 21 per cent between now and 2021. The limitations on supply versus demand have kept values high.
the capital appreciation versus yield conundrum can perhaps be solved by investing in so called “twinned markets”. JLL has recently identified 10 such pairs in London. These are areas immediately adjacent to affluent areas which therefore currently command lower capital values and enjoy better yields than their neighbours. The theory being there is scope to benefit from an uplift in pricing as future boundaries become blurred. Data from fourth quarter of 2016 shows that a buyer of a property costing £3.4 million (Dh15.6m) in Chelsea would only need to spend £1.1m in Battersea’s creative quarter.
Crossrail: locations along the Elizabeth line (Crossrail) are set for more price rises and will therefore be a popular choice for tenants. Put simply, Crossrail has shrunk commute times and made London smaller. These locations are still affordable and can present a speculative opportunity for lower budgets. Yields will also be higher and can attract up to 4 per cent. A typical two-bedroom property in Ealing, for example, selling for £500,000 could achieve a monthly rental income of £1,600 per month.
Common principles to follow for buying:
1. Decide on your investment strategy – whether based on capital appreciation or yield. This will dictate where you buy.
2. If you’re not familiar with London, appoint a buying agent to represent your interests by helping to find the property and negotiate the price.
3. Steer clear of new build blocks with any more than 10 units. It makes your property less unique and competition on both the sales and lettings market becomes fiercer. Effectively you are competing for a tenant’s attention with other identical units at any one time.
4. Do your homework around pricing; ask local agents what they have recently let nearby and for how much.
5. Good local amenities are essential to attract a wide tenant base. Vibrant areas with great schools and transport infrastructure perform the best and attract both a domestic and foreign rentals.
6. Buy in a building that has smart common areas, a porter and lift. These elements make it easier to attract professionals and other high-value tenants, although this could mean higher service charges.
7. When negotiating the purchase terms, ask to market the property between exchange of contracts and completion to minimise void periods.
8. When renting out, the offer you get within the first two weeks of marketing is usually the best offer.
9. Employ a professional property management firm, particularly if you are based overseas.
10. Invest in your investment. Repaint between long tenancies, change bathrooms and kitchens when they become tired and invest in technology – this will add to your property’s value and ensure you always let to quality tenants.
Caroline Takla is the founder and managing partner of The Collection, a UK property consultancy based in London.
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