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Eternal City
London continues to be a prime investors market for the long term
| Text : Elizabeth Kerr | | Photo : www.thinkstockphotos.com |
Very often when we hear phrases like “This is the time to buy property,” or “It’s a buyer’s market,” one of two things happens: We act on the subtle nudge that it actually is and we buy, or we roll our collective eyes and brush off the comments as easily as we would those from a proverbial used car salesman. But occasionally a nugget of truth can be found in those words. Such is the case right now with London.
London is a perpetually wise investment, and a number of factors have aligned to make it an even better one right now. Coming out of recession, the United Kingdom’s economy is recovering relatively well, GDP is growing and the pound sterling is at a low point that bodes well for overseas investors. More importantly, however, is a fundamental chink in the armour that makes 2010 and ’11 the time to buy, say Jones Lang LaSalle’s Michael Glancy, international properties manager in Hong Kong and Jack Simmons, director of residential development and investment in London.
Currently, “The fundamentals of the London market — the immediate supply and demand [relationship], buyer and seller activity — are in balance. In the future we’ve got a real problem in terms of the number of properties being built [and of] properties in the market versus the number of buyers. We’ve got a supply and demand issue going forward,” explains Simmons. It’s a scenario that’s all too familiar to Hongkongers. At the luxury end of the market the same principles apply. “If I’m a high net worth individual in Hong Kong looking for a residence in Kensington, Chelsea, Mayfair … there’s not much product,” Glancy chips in.
Oddly, population growth is irrelevant. Household numbers, however, are projected to grow at a level where an excess of 1 million new households will exist by 2031. “Kids are moving out, people are not getting married, they’re getting divorced, etc, and you get more households,” Glancy points out. Development that should provide all these homes for the most part is stagnant. Major developers have been “pretty much bust over the last two years. They’re much more stabilised now… but if [a developer] buys a piece of land they need planning permission for 100 flats. That can take the best part of 18 months to two years. Then it takes another 18 months to build it … They haven’t been building for the last two years so now they’re five years behind,” Simmons adds.
Supply and demand economics dictate that this formula should send prices up. Though Jones Lang LaSalle forecasts prices in prime central London to creep up just about 1 percent for 2010, the expected residential crunch could send them skyrocketing 13 percent in 2013; 12 percent in Greater London.
Politics is also playing a role. On May 11, the UK welcomed (in some circles) its first coalition government in about six decades. The UK’s residential planning system is unique, and average citizens have a powerful voice. Rapid building will be that much harder with David Cameron’s new administration keen on strengthening how much sway the average resident has. Add to that London mayor Boris Johnson’s lofty goals to build 33,000 news homes per year — up from the current 60 percent shortfall of 12,000 — and you’ve got a recipe for continued undersupply.
Financing is always a consideration, and banks are skittish about loose lending, making it difficult for first-time buyers to get financing and interest-only mortgages, which results in stifling the bottom end of the market. Is that a response to the US’s sub-prime disaster? That’s difficult to say, but banking systems everywhere and individuals “have to take responsibility for jumping on the bandwagon. The world is a very different place now and a lot of banks simply don’t have the money to lend out,” Glancy states. “Conversely, they need to make money and they make it buy lending out mortgages. They are, rightly so, undertaking more due diligence … but they are incentivising people to lower the loan. That will continue for quite some time.”
Combine all those factors together and what comes out is a market that lends itself to buying now — if you can find product. For Hong Kong investors, Glancy asks, “What are the other options? I would look at a country’s supply/demand fundamentals. So London: Very strong. Spain [has] a major oversupply of residential product. Greece, Turkey … the list goes on around Europe. The fundamentals of property don’t work for the medium to long-term. And that’s the key.” Investing now also makes sense due to the UK’s benign capital appreciation and a favourable exchange rate — but not at the expense of and investor’s own due diligence. “Whatever market you’re in, it’s got to be the best in class regardless of price,” Glancy stresses.
One of London’s defining features is its long-term personality. The hit and run buyers of 2006 and ’07 have made way for investors with an eye to the future regardless of their goals. Whether the purchase is for income, capital appreciation or a primary home a few years down the road, London is still a strong bet to meet most investors’ needs.
Which leads to the final $64,000 question. Glancy and Simmons glance at each other and let loose a knowing laugh before Glancy finally answers. “How long is this window going to be open? If I knew that I’d be a very rich man.”
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