What does the future hold for the buy to let market in London?
Anita Mehra* reports
Prime central London property prices fell 2 percent in the final quarter of last year, but the leasing market remained active, up 25 percent on last year’s figures. Tenants are also tending to stay put for longer, with figures suggesting a renewal increase from 66 percent in 2006 to 71 percent in 2007.
Looking back at the year as a whole, we can see that there was an increase in the number of landlords selling their properties, but it never really amounted to anything significant, and now only those who have to sell are doing so as the volume of buyers has taken a sharp drop.
Long-term investors looking to rent out their properties are therefore rubbing their hands together with glee, as rents are rising yet again because of a shortage of rental property in the capital.
The Royal Institution of Chartered Surveyors’ latest quarterly rentals survey is reassuringly upbeat. It reports that the continued increase in rental growth has picked up at the fastest pace in the survey’s history.
Because of this renewed optimism in the lettings market, and the recent Northern Rock debacle, people are recognising that good old-fashioned bricks and mortar might be the safest bet after all. Investing in property is more flexible than leaving your hard earned cash in the bank – you can let it out, live in it or borrow against it and, while there may be peeks and troughs in the market, overall the long-term prospects are good. In fact, since the 1950s, the UK property market has been an excellent proposition, as prices have roughly doubled every eight years, with even more compelling figures in London.
A window of opportunity
Despite further interest rate cuts in February, there is little doubt that the UK property market is due for a period of readjustment, with drops of up to 10 percent anticipated in some areas of the country. London, however, still appears to be on the up, but if prices do, as predicted, come down then there could be rich pickings for the canny investor during 2008.
There is already evidence of forced sales significantly below market value as landlords and homeowners, who have overstretched themselves, panic sell. So, 2008, far from being a time for consolidation, could present an opportunity for shrewd investment. Indeed, in the past, those who purchased wisely during the hard times reaped the rewards during the good times, ultimately becoming the property barons of the future.
While the UK’s transparent legal system, tax-friendly regime and opportunities for long-term capital growth appeal greatly to foreign investors, the downturn is providing real opportunities for those priced out of the market during the past three years. A growing number of developers and estate agents will be marketing their properties abroad over the next 18 months. And it seems that the new £30,000 (HK$470,000) tax on non-domeciled foreign residents will not deter overseas buyers.
Developments with investor appeal
If you do decide to make the leap and invest in a buy to let, what sort of property should you look to purchase? Here again, perhaps the past will dictate the future.
Looking back at 2007, there were two distinct types of landlord behaviour. While some with converted properties were more inclined to sell, landlords with new builds seem to have been more intent on retaining and even adding to their investments.
The reasons for this variation in landlord behaviour is less obvious, but one certainty is that investment in London property will continue unabated. Perhaps this is because people recognise that a softening residential sales market normally points towards a booming rental market.
Landlords have been busily snapping up property in London developments like the 25-acre Beaufort Park, St George’s in Hendon where 2,800 units are being built. There is also a lot of interest from investors in developments such as Imperial Wharf where, out of the 500 apartments that have been built so far, over 200 units have already been rented out.
The top end of the market appears to be just as busy: in The Knightsbridge, a ritzy development just around the corner from Harrods, a one-bedroom apartment recently sold for just under £2M, and was rented out within 48 hours. Here, one-bedroom apartments rent for £1,500 per week, while a four-bedroom apartment overlooking Hyde Park rents for £6,500 per week. The success at The Knightsbridge, and at other developments throughout the capital, demonstrates that tenants are still willing to pay high prices if a property is in the right location.
*Anita Mehra is managing director of Benham and Reeves Residential Lettings
Click here for international property listings and reference articles