London real estate market prime for investment

KUALA LUMPUR: Foreign investors looking for safe and stable real estate investments in the medium term should consider investing in London property, said Savills UK director of research Yolande Barnes.

In her talk on “Is London still among the world-class cities?” hosted by Savills Rahim & Co at the Royal Selangor Golf Club, in Kuala Lumpur yesterday, Barnes said price growth for prime London homes rose 32% between December 2005 and June 2011 partly due to overseas equity. However, there is still a lot of room for growth, she said.

According to Savills’ five-year forecast leading to 2016, prime central London prices which have risen 15.6% from September 2007 are expected to reach 23% by 2016.

“Overseas equity is focused on prime central London areas. Foreign investors don’t really know London and are too cautious to venture further than prime central London,” she added.

The fact is that middle-class suburban areas are experiencing a spillover transforming them into high-end areas with potential for higher yields. The expansion of prime locations like Chelsea and Kensington is turning suburban places like Dockland, Stratford and Hammersmith into more prime areas of higher yields with considerably low capital value, she said.

Barnes giving her talk at the Royal Selangor Golf Club in KL yesterday.

As yields are likely to be higher in the surrounding prime central London area, Barnes said investors should take advantage of this situation.

“The general rule with yield is that the cheaper the capital value, the higher the yield,” she added. “So prime central London has lower yields because investors have invested in capital growth making it an equity-driven capital market and the values are high compared to yields,” she said, adding that East London areas like Stratford and places like Acton and Southall to the west could be hot spots for high yields.

“It’s basically where capital values are lower and you would probably find certain areas of Hammersmith higher yielding than Kensington and Chelsea located next door,” she explained.

Barnes said London is seeing a surge in Asian investors and despite the fact that more Chinese are buying properties overseas, investors from China only make up a small percentage of foreign property investors in London.

As for Malaysian investors, she said, they make up a significant portion of Asian buyers and they are especially crucial to the new-build market. China and Asian investors make up 30% or nearly a third of the investors in that market segment, she added.

In terms of property types, Asian investors prefer new-build apartments. “The Chinese in particular really favoured newer properties and apartments in the Docklands.”

Amid uncertain global economic conditions, the London riots and the recent public sector strikes, Barnes still remains bullish on the London market.

“There were stories about people pulling out of investment schemes when the riots happened and there is less activity from investors, but people who know London tend not to be put off by that because they are all part of London and it often looks worse on the news than it usually is in real life.”

She believes that the London property market will remain positive with the coming Olympics playing a role in boosting market demand, adding that the Games have accelerated the regeneration of certain areas like King’s Cross and Stratford amid unprecedented economic conditions.

This article appeared on the Property page, The Edge Financial Daily, December 2, 2011.