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Prime London property still a good long term investment but could be volatile in 2010

A lack of supply and a strengthening US dollar is likely to spur a fresh influx of investment into UK property from dollar-based investors, according to Camilla Dell of Black Brick Property Solutions.
‘With overseas investors a major influence we believe currency is likely to remain an important supporting factor for prime Central London over the wider UK property market, she says in the company’s latest market update report.
However, uncertainty over banking reform, UK tax rises and the imminent general election suggests a degree of caution, she adds.
For investment landlords the outlook for the prime central London rental market has improved dramatically over the last 12 months, the report also indicates. ‘On the supply side, the swathe of forced landlords who swamped the rental market in late 2008 and early 2009 has now evaporated. On the demand side the improvement in corporate profitability in general and in the financial services sector in particular has seen a 20% uplift in corporate demand year-on-year, according to Knight Frank,’ Dell said.
‘Unsurprisingly given this backdrop prime central London rents have begun to rise again. With no obvious reason why the supply shortage of high quality rental properties should change materially in the coming months we believe further rises in rents in 2010 are all but inevitable,’ she added.
Longer term, the wider private rental sector also looks well underpinned with the dearth of properties for sale boosting the rental market as buyers wait for their perfect property. ‘With wages stagnating and house prices rising, the affordability of property for sale becomes an even greater issue for many prospective buyers. At a time when banks are already tightening their lending standards the increase in demand for rented property looks set to continue,’ the report says.
Dell believes, however, that the sheer scale of the global economic downturn means that the real estate recovery is still in its infancy. That is not to say that these obstacles are insurmountable or that we expect a sharp reversal in price behaviour. Rather, we believe that expectations for a full year of monthly gains of the same order as we have witnessed since April 2009, may prove overly optimistic,’ she explained.
‘We have a general election to come in the UK that is likely to lead to some uncertainty. It is also likely to be swiftly followed by tax rises affecting even higher earners. Meanwhile, political intervention in Western banking may yet have further to run and the shortage of supply which has been a major support to property at all price points may yet temper as the year progresses,’ she continued.
But she is confident that the bottom of the market in prime central London has been reached and that the continued weakness in sterling makes London property an attractive long term proposition for many foreign buyers seeking diversification from the volatility of equity markets and other asset classes.
‘Indeed, recent developments in currency markets may well provide on-going support to prime central London property. In the wake of Greece’s well publicised fiscal problems, worries about sovereign credit risk are growing. Greece, Spain and Portugal have been the focus of investors’ attention and the euro has weakened accordingly with stock markets enduring their first major setback in many months,’ said Dell.
The report concludes that longer term investment in prime central London property remains compelling as long as investors are realistic about their time frame – a minimum 5 to 10 year view.