Prime London Demand Driving Outer London Potential

5 August 2014

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The regeneration of well-connected parts of the city offer the best value to investors.

Property investors around the world know all about London. A reliably strong and consistent market, investment from across the globe has historically been attracted to its traditionally prime areas such as Kensington, Chelsea and Mayfair. Even during the financial crisis, these areas continued to perform, earning the market an investment safe haven status only shared by New York.

While this central growth continues, it is now increasingly fuelled by a wealthy elite who are still willing to meet its high price premiums, with domestic homebuyers now largely priced out of this part of the market.

But this domestic demographic still makes the vast majority of London property purchases. Don’t believe the hype about overseas buyers who leave apartments empty dominating the city’s property market – only 6% of purchases across Greater London are non-domestic and the vast majority of overseas investors are not willing to forgo rental yields while they hold on for capital appreciation.

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The already high rate of domestic purchasing is on the up right now – the Greater London population is approaching ten million, and its potential buyers are coming back to the market in droves as the UK economy continues its recovery.

A few factors are driving this domestic demand, not least of which is the rising availability of financing generated by the government’s Help to Buy mortgage scheme. This is directly impacting low-to-mid end buyers, but also spreading much needed liquidity through the rest of the market.

Also important are increasing confidence in the stability of lower-price, non-central areas, and of course the long-held tradition of British homeownership.

All this adds up to swathes of potential buyers in London who have for the last few years chosen to stick with their current property or rent, but are now ready to resume their ascent of the property ladder.

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But when demand rises end central prices remain high, what we see is that demand being pushed into previously less popular parts of the city. This was the case over the last decade as prices rose in places such as Islington, Shoreditch, Fulham and the Southbank. These areas have now effectively become part of London’s central “high-price zone”, meaning new demand is being pushed even further afield.

The question for investors to answer is: where exactly will this demand go? With the majority of buyers more focused on finding a long-term home than an investment asset, investors need to remember that demand trends are driven by real people making real choices about where they want to base their lives.

A range of factors can impact on this reasoning, from the nature of local communities, environments and amenities, to nearby employment opportunities and where the right type of homes are available.

In a city such as London, with a huge business community at its centre, transport infrastructure is particularly important. Much demand is from people who would otherwise be choosing to live more centrally, generally because this is where they work, so any area with quick and reliable connections into central areas will feature prominently in the considerations of buyers.

But investors need to take a wide-angle view of these considerations – the homebuyer is looking for the best area; the investor is looking for the next area.

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Government backed regeneration programmes can be vital in this. It’s no coincidence that some of London’s key regeneration areas over the last decade have been those we mentioned earlier as comprising the first wave of districts to benefit from demand moving out of Central London.

Looking forward, the most widespread area of regeneration work currently underway in the city is throughout the Southeast Quarter – the boroughs of Greenwich and Lewisham on the southern bank of the Thames and Bromley and Croydon further south. With excellent transport connections into Central London, swathes of amenity investment entering its town centres and a number of attractively cohesive local communities, this is a part of London that is now ripe with potential for investors.

Another key focus of regeneration work across the city over the coming years will be the station sites along the route of the new Crossrail line, which will begin operations in 2018. Places such as Ilford, Woolwich, Tottenham Court Road, West Drayton and Slough are already seeing a raft of improvements centred around the site of their forthcoming station.

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You can find out more about the impact Crossrail is expected to have on London property investment in our recent Market Updates, including the areas it will affect.

London’s prime and inner districts still have their pockets of value to offer, but these are becoming rarer. The city’s most successful investors over the next decade will be those best able to keep ahead of local demand trends and pack their portfolio with opportunities that take advantage of the regeneration of well-connected parts of the city, as the capital growth already underway in the Southeast Quarter clearly demonstrates.


A version of this post was originally published in the South China Morning Post on Monday 21 July 2014.

Selina McFall

Written by Selina McFall

Selina McFall is Associate Director – Investment Management at international property investment company IP Global. A Member of the Royal Institution of Chartered Surveyors, Selina has a wealth of experience and expertise on the London real estate market, and in the past four years has sourced investments with a capital value of over USD600 million on behalf of IP Global’s worldwide client base.

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