Steady recovery for London property, investment opportunities arise

Steady recovery for London property, investment opportunities arise
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PETALING JAYA (Oct 28): In Knight Frank’s webinar on “Investing in London Property — A step by step guide” held on Thursday, the panellists talked about what the sentiments of international buyers are towards London property, and some of the aspects that buyers should be aware of in investing in London.

Hosted by Knight Frank head of residential Asia-Pacific Victoria Garrett, the panellists were Knight Frank head of London international project sales partner Seb Warner, Knight Frank finance head of new homes David Hall, Knight Frank residential research partner Oliver Knight, Knight Frank Singapore head of residential international project marketing (IPM) Nicholas Keong, Knight Frank Chinese mainland head of IPM Samantha Yu, Knight Frank Malaysia head of IPM Dominic Heaton-Watson, and Knight Frank Hong Kong head of international residential sales Daniel Anderson.

Knight noted that over the last few months, the average value of houses increased by 2.3% for the year to September and that happened on the back of the search space trend as a result of the Covid-19 pandemic, among homeowners and comparatively a flat growth in the apartment market.

“When we look at what is currently happening in prices in prime central London, however, the numbers suggest that the area is continuing on the road to recovery, which highlights the underlying strength of the prime central London market, despite what has been an incredibly uncertain backdrop.”

Prices in London have remained robust and in demand through the pandemic. Knight reckoned that 2021 has been an extremely strong year in terms of transacting numbers and to some extent, those numbers may have been flattened by the stamp duty holiday that was introduced at the end of last year.

“A record number of transactions were completed across the prime central London market in June, as buyers intend to beat the initial statutory holiday deadline and save that maximum £15,000. Inevitably, the spike was followed by a bit of attractivity in July and August, which we have seen sales volume since, settling pretty much, in line with where they were pre-pandemic,” said Knight.

Knight highlighted that there has been an increased demand for new-built products, particularly from investors and second homebuyers who are looking for a property in the capital. 

“The demand is also supported by the return of international buyers and the lifting of travel restrictions, albeit in a fairly erratic manner. As such, the recovery of overseas demand and international buyers in London is expected to be a fairly gradual process. We also expect the first wave of demand coming back from overseas buyers to be focused on the new built market and there is an obvious appeal for properties that are ready to move in, which require no work or can be purchased off-plan.”

As for the rental market in prime London, Knight reckoned that there has been a shift in recent months from a tenant’s market to landlord’s market, due to extremely strong demand from tenants, which does not match the supply side.

“We are seeing upwards pressure returns that are being put on the rental value. This is where rents across prime central London increased by 2.8% in 3Q2021, which was the strongest quarterly growth we have seen in the prime central London rental market in more than 10 years. This is because tenants are chasing for a fairly finite pool of stock and it is something that has been replicated across the market.”

He added that the average prices across prime central London rose by less than 1% for the year to September, but the general direction of travel has been for more positive growth, so prices in central London are expected to end this year up by about 2%. 

“Next year, we are forecasting a really strong bounce back in central London with 7% growth, as a result of pent-up demand from international buyers flowing back to the market in a much more meaningful way that we have seen over the last 18 months or so,” said Knight.

The outlooks on prospects for wealth generation give us confidence in the medium and long term across central London, and prices are anticipated to increase by about 25% over the next five years, making it the strongest performing market across the UK. In the rental market, we will see similar strong levels of growth in rental values, driven by the expectation of acute shortage and rental stock relative to demand.”

Meanwhile, Keong stated that Singaporean investors have taken a more cautious approach in becoming increasingly more selective over this period. We continue to see healthy underlying demand, especially from first time buyers looking to diversify their portfolios out of Singapore, as well as savvy investors who have witnessed price consolidation since Brexit, whilst also benefiting from higher purchasing power due to the suppressed sterling pound against the Singapore dollar, certainly by historical standards.

He advised investors to focus on location and connectivity when purchasing properties in London. 

“Look at the locations that are served by existing transport links, but also have upcoming improvements to its infrastructure such as Crossrail, or extensions to its existing train lines. These locations often come alongside new exciting regeneration projects which bring about new opportunities in residential, commercial, retail and public realm, that create long term value to the area. Bring in new amenities such as restaurants, cafés and social spaces, and together with brand new contemporary homes, these projects are desirable when you think about the modern and evolving lifestyle needs of people for years to come.”

In China, Yu revealed that buyers have shown a great number of interests for property investment in the UK, especially London. “The average purchasing price has increased about 20% to 30% over the last eight months and we have also received enquiries from parents seeking to purchase properties in the UK for their children to study abroad.”

Hu observed that the UK market remains strong and developers are already reducing the discount level due to the increasing number of buyers’ interest. For buyers who are interested to invest in the UK, it is important to get into the market as soon as possible. 

Whereas for those who are considering purchasing completed projects or projects that are closer to completion, it is a good way to get in as the rental market has been very active.

According to Heaton-Watson, owner-occupiers and tenants nowadays are looking for an additional space in the property to have more flexibility, whether it is work from home or just an extra space for a second bedroom. 

“My advice to buyers would be to look at public transports and connectivity. If you have a station within a 10-minute walk from your property, it not only serves as a protection to the property investment value, but will also drive and be a catalyst for price growth, moving forward.”

Anderson stated that there is also a huge amount of people looking to move to the UK, which allowed lots of agents in Hong Kong to sell overseas property. “Hence, it is important to make sure that you are buying with an agent who will be there throughout the entire sales process, as well as after sales service. There is much to consider when moving to the UK, so ensure there is an agent who can look after you on all accounts.”

When asked about the landscape for an international resident buying into London during the Q&A session, Hall revealed that there has been a huge uptick in international investor purchases coming into London over the last six months, particularly from the US and Australia. 

“One of the UK's biggest markets has always been Hong Kong. The restriction of travel in the country has made the market to be slightly lower than we would expect normally, but we can see signs of transaction levels that are rising fast,” he said.

“Criteria varies, depending on how you are buying properties, whether it is for your own stay or to rent. There are solutions that are in play for international purchases that are lower or equal to the pricing that you get as a UK resident.”

In terms of the future growth hotspots in London over the next to three years, Warner opined that the Royal Docks in the eastern part of London is a very strong investment area. It has a more tranquil setting than being in the hustle and bustle of the city, and there is good connectivity, with an upcoming Crossrail opening up soon in the area.

In the western part of London, properties in Ealing and Chiswick have been traditionally much lower in values. With the new Crossrail stations, however, they are expected to benefit strongly from it, which can lead to growth, said Warner, adding that a good balance of green spaces can also add value to properties in the area.

Racheal Lee