PETALING JAYA: Asian investors have benefited from new-build residential investments in London as private tenancies in the city have increased significantly over the last decade, according to a research published by UK property consultant Cluttons.
For the last decade, there has been an 80% increase in private tenancies in London and buy-to-let investors are capitalising on the rapidly expanding private rental sector, which made up 15% of total residential sales last year, according to Cluttons' report entitled, One size does not fit all: Diverse opportunities in London’s rental market.
More people rent privately in London than anywhere else in the UK and Cluttons expects the rental market trend to gain further momentum as growing demand from affluent tenants delivers new avenues for long-term investment opportunities.
The report added that last year, two of the largest international investments were new-build development opportunities outside the traditional prime core of Central London. Malaysian buyers, for instance, accounted for 4% of the buyers of new-build residential properties. The most notable residential investment was the Battersea Power Station site near the River Thames.
Hong Kong investor Knight Dragon invested over £500 million (RM2.38 billion) in a joint venture with Quintain in East London’s Greenwich peninsula for a scheme adjacent to the 02 Arena that will include 10,000 new homes. The relative weakness of the sterling, which has lost 7% against the Singapore dollar and 5.5% against the yuan so far this year, is further boosting London investments.
The report noted that new-build housing offers strategic opportunities for international and domestic residential investors. These homes are more efficient, often have lower management costs and can be tailored to match different tenant profiles.
New-build accommodation can achieve a rental premium due to location and quality that attract professionals to the British capital, particularly those in median to upper income groups.
Bill Siegle, senior partner at Cluttons, said the average price of apartments in prime Central London has breached £1 million for the first time. There have been forecasts of a 25% surge in capital values over the next five years. As home ownership in London continues to be out of reach for most, the new-build residences will cater to the growing pool of tenants.
“Outside the prime core, higher returns are available. Our research shows that gross yields in these areas are more favourable. Buyers are already looking at locations previously perceived to be more secondary as improved transport links, better value for money and burgeoning demand ripple outward from Central London,” Siegle said.
He added that robust capital value growth has impacted gross residential yields in prime central London as yields dropped to 3.69% in the first quarter of 2013, the sixth consecutive quarter of decline, according to Cluttons’ Residential Investment Monitor.
“Despite this, the research predicts that rental value growth in London will outpace capital value growth over the next decade due to the imbalance between supply and demand, particularly from growing affluent tenant groups,” Siegle said.
The report said since 2000, 400,000 additional jobs have been created and as a result, there are now more people employed in London. Demand has not been matched by supply, pushing house prices up and forcing would-be home owners out of the market into a rapidly expanding pool of tenants.
Cluttons LLP is an independent partnership of chartered surveyors founded in 1765. It has a network of offices in the UK, Europe, the Middle East and South Africa offering a wide range of professional property management, agency and consultancy services in the commercial and residential sectors for investors and occupiers. — by Haziq Hamid
This article first appeared in The Edge Financial Daily, on June 7, 2013.
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