London has some of the most expensive property in the world, being ranked fourth most expensive globally for prime property and third for ultra-prime property. It is also highly popular with overseas property investors, with research previously having shown that more than half of properties sold in London’s most exclusive postcodes were snapped up by foreign buyers.
However, many people fear the London property market is stalling, with house prices in the capital falling 1.6% in the year to January 2019 according to data from the UK House Price Index. This was the largest annual drop in house prices since September 2009. The number of property transactions taking place in prime central London locations has also decreased, falling by 20% over 4 years.
For anyone thinking of investing in London property, understanding what is going on with the market and what the future is likely to bring is critical to establishing whether now is still a good time to buy in the capital.
The impact of Brexit on the London property market
For anyone thinking of investing in the UK, the effects of Brexit can’t be ignored. Uncertainty over the UK’s future relationship with the EU has the potential to put off both buyers and sellers who have no way of knowing how the value of UK property might change depending on what the ultimate outcome of Brexit is.
This uncertainty has widely been blamed for the fall in average property prices and the reduction in turnover of properties in London and the UK more generally. Meanwhile, the Governor of the Bank of England, Mark Carney, has warned that a no deal Brexit could cause UK house prices to fall by as much as 35% over three years.
However, this doesn’t mean that now is a bad time to invest in London property. In fact, uncertainty over Brexit and future house prices can present a good opportunity for those looking to buy as an investment.
Why now could be a great time to invest in UK property
For those with funds to invest in UK property, uncertainty over the future of the London property market can actually be a good thing. This is because the unpredictability of the house market means buyers can often negotiate more attractive prices from sellers who are keen to offload their property now before any potential future drop in property prices.
While this carries the risk of the buyer’s investment losing value, it also presents the possibility to acquire property at below market rates with the potential for significant growth in value over the longer term.
Once Brexit is resolved, demand for property in London is likely to increase significantly, with some data suggesting that this is already happening for the prime property in the capital. Underlying demand for UK property is still strong, with research showing that the country is nearly 4 million homes short of meeting the requirements of the country’s growing population.
While there are no guarantees, this does strongly suggest that, in the long-term, property in the capital will continue to increase in value, so any short-term drop in prices should be off-set over the coming years.
What property is worth buying in London right now?
While residential property prices and rental yields for investors are relatively flat or falling, property in other sectors is still showing positive growth. Average yields for investors in high street retail property increased 0.5% from 4% to 4.5% in the year to February 2019. Yields for shopping centres also increased 0.5% over the same period, rising from 4.75% to 5.25%.
However, the biggest growth was in retail warehouse yields, which grew by 1% between February 2018 and February 2019. For open A1 warehouses, this was a rise from 5% to 6% and for restricted warehouses, yields grew to 6.25% up from 5.25% the previous year.
There are also various areas in London where residential property still offers very attractive yields. A number of areas such as Battersea, Brixton, Peckham and Bermondsey all offer average rental yields of over 4% on residential property.
Get expert legal advice for investing in London property
HPLP is a boutique law firm specialising in property law and with extensive experience with the London property market. We are able to offer bespoke advice to help you make a successful investment in this competitive market, whatever your goals.
To discuss your property investment requirements, please call now on 020 7553 9000 to speak to a member of our team.