Long term growth trends in London Central expected to return in 2011

LONDON: Although residential property prices across the UK were predicted to decline by up to 30%, industry experts see a return to long-term growth trends caused by robust market fundamentals, said London Central Portfolio Ltd (LCP).

High levels of international interest in London Central were noted in the past 18 months, with investors seeing London Central as a safe haven for their monies, capitalising on weak sterling and low borrowing cost. Investors were also spurred into action by the banks' low deposit rates.

These factors, coupled with the usual shortage of stock in prime areas, have helped the prices to bounce back, said LCP in a press release on Nov 9.

It noted that average prices in London Central have returned to pre-credit crunch levels.

LCP believes that it was the wholesale withdrawal of investor sentiment from all asset classes globally that led to a decline in prices rather than a correction as a result of over-inflation.

Average values in prime London Central have increased by 18.1% and 19.1% in two prime boroughs, The Royal Borough of Kensington & Chelsea and the City of Westminiter respectively since spring 2009. The figures are ahead of average long-term growth trends of 8.5% per annum.

LCP said that a period of re-balancing is inevitable, with period of consolidation expected until the end of 2012. A return to growth is expected in 1Q 2011, which will be further stimulated by international investor interest in the run-up to the 2012 Olympics in London.

According to LCP, international real estate consultants, Knight Frank and Jones Lang LaSalle have also predicted a similar scenario with a forecasted capital appreciation of between 20% and 30% for the central London market over the next four years.

Meanwhile, rents have hardened by 10% to 15% when properties are re-let, bringing gross yields to around 4.5% to 4.75% and net yields to almost 3.5% during 2010. However, LCP said that the increases seen thus far have been a reaction to the recovery in capital values.

In view of this, gross yields in excess of 5% are not expected to return until base rates shift from its current historic lows, added LCP.

The London Central market is deemed as highly responsive to investor sentiment and negative press comments can reduce its demand due to its small size, which is estimated to be 100 transactions per week.

However, LCP expects the market to harden rapidly in the new year as soon as positivity returns.