The London property market has long been a beacon of potential for investors. However, like any investment, it requires a nuanced understanding of recent trends to make informed decisions. The last few years have seen significant shifts in London’s property landscape, from the impact of the global pandemic to the UK’s departure from the EU. So, the question for property investors is whether London is currently an intelligent choice for investment. The answer lies in the details: where and what to buy.
Understanding the London Property Market
London, known for its sky-high house prices, has always been a top destination for investors. However, it’s essential to note that while capital appreciation is robust, rental yields can be average. Yet, London continues to attract overseas investors, tourists, and UK-based property developers, and recent developments have made it an even more enticing prospect.
The Post-Pandemic Transformation
The COVID-19 pandemic has reshaped how people live and work, and London is no exception. With remote work becoming the norm, a growing demand for housing accommodates this new work-from-home (WFH) lifestyle. Consequently, the focus is shifting from office investments to residential properties.
Foreign Investment Flourishes
Official data from the Office for National Statistics (ONS) reveals that London is the UK’s primary destination for foreign investors. In 2019, foreign direct investment (FDI) in London accounted for nearly half of the total FDI in the UK, reaching £661 billion. Certain London areas even saw a staggering 65% increase in FDI.
London’s Economic Resilience
London boasts the UK’s most robust economy in the post-COVID era. This stability and liquidity have made it one of the top cities for real estate investment in 2021. Investors view London as a long-term haven for peace and profit.
Navigating London’s House Prices
While London’s house prices may appear intimidating, they rarely deter investors. The city’s consistent rental income and capital appreciation performance make it an attractive prospect. In August 2021, the average house price in London stood at £525,893. However, it’s essential to remember that London also hosts some of the UK’s most affluent neighbourhoods, with properties in Chelsea and Kensington fetching over £2 million.
Emerging Investment Opportunities
For investors looking for more affordable options, up-and-coming areas like Canary Wharf, Poplar, and Whitechapel in East London are undergoing extensive regeneration. These areas offer the potential for appreciable growth in line with the rest of the country.
Predicted Property Price Growth
Estimates suggest that London’s property prices are poised to grow by 12.6%. This growth, combined with London’s inherent stability, makes it an attractive choice for investors.
Rental Yields in London
Rental yield and return on investment (ROI) depend on property type and location. Investing in flats or houses for renting typically yields strong property appreciation and a healthy rental income. Approximately 30% of London properties for sale fall within the £500,000 to £700,000 price range. For instance, consider a property costing £544,000, the average for a profitable London flat. After accounting for expenses and taxes, a UK investor might expect an annual profit of around £12,840, resulting in a rental yield of 4.85%. Over five years, this translates to a £64,200 profit and an estimated capital gain of £86,645, assuming an annual appreciation rate of 3%.
Considering Ongoing Costs
Investors should be aware of London’s high service charges, which can soar as high as £19.39 per sq. ft. Ground rents in London can also be steep, with some reaching £1,000 per annum, significantly higher than the UK average of £400. The length of the lease is another critical factor. Short leases, typically between 20 and 80 years, can make it challenging to sell a property and affect its value. Lease extensions can be costly; shorter leases often result in higher extension expenses.
When calculating ROI, it’s crucial to include these ongoing fees to assess the viability of an investment.
Why Invest in London Property Now?
Investing in London property in 2021 and 2022 offers several compelling advantages. First, London has effectively weathered the global pandemic and navigated the complexities of its EU exit. Its economy remains strong and resilient, making it a safe bet for investors.
Second, London’s status as a global financial centre ensures a consistent influx of international investors and workers, bolstering its economy.
Lastly, London’s allure extends beyond investment potential. It’s a vibrant melting pot of cultures, offering world-class amenities, including hotels, office spaces, restaurants, and transportation networks.
The Best Areas for Investment
Selecting the right area is pivotal to making wise property investment in London. The city boasts neighbourhoods ranging from astronomically expensive to surprisingly affordable. For the most promising returns, look to East London, particularly the areas around the Docklands (postcode E14), Whitechapel, Blackwall, and Poplar in Tower Hamlets. These areas are undergoing regeneration and are conveniently close to Canary Wharf, London’s financial hub.
Other London neighbourhoods with attractive investment yields include Olympic Park and Stratford (E20), Chingford and Highams Park (E4), Southwark (SE1), and the SE28 area along the Thames, stretching from Woolwich to Belvedere.
Find Out the Best property investment in London Opportunities
If you’re considering investing in London’s property market, contact Hastings International. Our team of property specialists possesses in-depth knowledge of London’s best investment areas and can guide you through your investment journey.
London remains a prime destination for property investment in London. Recent shifts in the market, combined with the city’s economic resilience and cultural appeal, make it an attractive prospect for both seasoned and novice investors. While house prices may seem daunting, the potential for substantial rental income and capital appreciation, especially in emerging areas, makes London an enticing choice for those looking to expand their property portfolios.
Find the global investment opportunities with Legacy Citizenship. Schedule a free consultation today and start your journey towards securing a brighter future through our investment programs.