London Prime Property Prospects Remain Strong

by David Redmond on 1 Aug, 2012

Property investment has long been viewed as one of the safest ways to invest money, with ‘bricks and mortar’ investments providing strong returns in the build-up to the financial crisis that began in 2007. Since the crash, the property market has rebounded – although it is still yet to reach the highs seen five years ago. Yet the whole global economy was impacted by the downturn, and compared to other traditional areas of investment property is now performing quite strongly. Confidence in government bonds has been hit by the on-going Eurozone debt crisis, while the equities market remains unpredictable – not an adjective favoured by long-term investors.

Property meanwhile has made steady gains in many areas, but in the UK, London is where the best returns have come, and properties in the capital continue to offer opportunities for investors.

In the second quarter of 2012, London’s prime residential property values rose by an average of 0.9 per cent, leaving annual growth at a rate of six per cent, according to London based real estate adviser Savills. This latter figure is the lowest 12-month growth rate observed since 2009, as Savills suggests the “heat” has come out of the market. Yet Lucian Cook, director of Savills research, says this is part of the natural market cycle, following a period of strong growth.

“It is now three years since the markets bottomed out and we’ve seen a period of intense activity and price growth, but it now seems unlikely that the market will have the capacity for further price growth in the short term,” he said.

Savills expected a slowdown, with a variety of external factors prompting the group to forecast growth of three per cent for the whole of 2012. Savills still fully expects London to achieve this target and, underpinned by strong fundamentals, remain in positive growth territory.

“Volatility is an expected feature of the early state of a housing market cycle. As such, our forecasts assumed a pause in price growth in prime central London, and it now looks as if stamp duty changes could be the trigger for a period of static prices, but the longer term fundamentals for this market – constrained stock and global wealth generation – look sound,” Mr Cook added.

For investors, a predicted period of slow growth provides an opportunity to make a well-researched and considered decision over the options available, confident in the knowledge that there are further long-term returns available.

Of course, some areas of London have been performing better than others, and many of the core central housing markets continue to benefit from overseas interest. Foreign investors helped the districts of Chelsea, Mayfair, Belgravia and Knightsbridge each enjoy growth of 1.2 per cent or more in the second quarter of the year. However, areas traditionally serving the business services sector, such as South Kensington, Notting Hill, Kensington and Holland Park saw modest falls in house values.

Changes to stamp duty regulations on properties valued at over £2 million are also having an impact. Overseas accounted for 58 per cent of buyers in the first half of 2012 and they are now finding it more difficult to structure transactions in a way that protects their wider tax position. Mr Cook is now calling for a further change to the regulations.

“As currently proposed, the new stamp duty regime would put investment funds and some of London’s landed estates at a disadvantage to the rest of the private landlord market, while the proposed annual levy would impinge on net income yields that are critical to the investment credentials of this sector,” he said.

So while questions remain about how to make the most of the London prime property market in future, investors can remain assured that there will be opportunities within it for some time to come.

About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.