With Brexit postponed yet again, here are 5 things that property investors need to know about the London property market now.
Another Brexit postponement is on the horizon.
Last night, for the very first time, the House of Commons voted in favour of the Withdrawal Agreement Bill (the main Brexit legislation), after rejecting PM Boris Johnson’s second attempt to push through his new Brexit deal vote on Monday. However, MPs rejected the Parliamentary timetable to scrutinise the Bill in 3 days. A colossal Bill such as this typically takes weeks to pass Parliament, thus Mr Johnson’s plan to have Brexit done and dusted by 31 October was always a tough ask, to say the least.
The Bill has now been paused and the EU has indicated that its acceptance of the UK’s request for another Brexit delay.
Over the past decade, the UK’s economy has remained robust and is forecasted to continue growing at a rate of 1.5%-2.0% each year until 2023. Source: Trading EconomicsThe uncertainty surrounding Brexit seems to have somewhat abated in recent months. Though house prices and the value of the pound have fallen as expected, the UK economy has stayed resilient, having expanded continuously (albeit at a more subdued pace) in the past 10 years. The economy is expected to continue growing at a rate of 1.5% to 2.0% each year until 2023.
The combination of low interest rates and the lower pound have boosted domestic exports, attracted tourists to the UK and spurred interest in the property market from overseas investors.
SPOTLIGHT: LONDON PROPERTY
The uncertainty of the property market seems to have abated with many having finally made the decision on whether to hold or buy/sell over the course of the last 2 years.
Recent data shows the London property market to be more bullish than expected, with prime property picking up and attracting strong attention from international real estate investors.
Asian buyers were the largest overseas investors in 2017, transacting £3.2bil in capital in London’s office property market alone. Lee Kum Kee Group’s purchase of the Walkie-Talkie building (£1.3bil), Cheung Kei Group’s purchases of Canary Wharf office buildings (£680mil), and CC Land’s purchase of the Cheesegrater (£1.15bil) come to mind.
In terms of rental property, Asians dominate overseas investment, making up 68% of all landlords.
With the Brexit postponed yet again, here are the top 5 things you need to know about the London property market now:
1. Strong Business Confidence & Job Growth
Business confidence remains healthy in London and core regional cities. In Central London, particularly, banking and finance, business services and creative industries have been the top three business groups for leasing office space in the last 10 years.
Research shows that job vacancies across London has increased by 23% year-on-year, revealing a thriving job market, with the highest demand in the technology sector. The UK government had previously indicated that it will continue to welcome high-skilled migrants and London will remain the employment nucleus of the country.
2. Critical Housing Undersupply
Statistics show that 65,878 homes were needed in London in as recent as 2017/18 while only 31,723 were built — this is the first time the gap has widened in 5 years. London, like the rest of the UK has been facing an undersupply of housing, prompting Mayor Sadiq Khan to set a target to build 65,000 homes per year to keep up with property demand. Whether this target will be met successfully, is up in the air, and it looks like demand will continue to drive prices and rental demand for a long time yet.
3. Tight Vacancy Rates
The tighter the vacancy rate, the greater the demand for housing. An analysis of the latest data from the Office for National Statistics (ONS, 2018) reveals that London has one of the tightest vacancy rates of all major English cities surveyed, with only 1 in 50 houses (1.9%) available for rent.
4. Average Asking Rents at Record High
London has always been a favourite offshore destination for property investment. The city continues to hold a reputation as a safe haven and the cultural and financial centre of Europe, and demand will continue to fuel the property market. Case in point: despite Brexit, London’s average asking rents have increased by 8.2% in the last year — the highest annual rise in London since 2012 — with average rental property in the capital now averaging a record £2,093 per month. Will there be a dip once Brexit happens? Yes, but will it recover? Based on historical evidence, it looks like the answer is yes.
5. Crossrail fuels demand for West London homes
Demand and price growth are expected to speed up in London following the opening of the Crossrail high-speed rail link, now scheduled in 2020. By 2017, house prices along the Crossrail route had outperformed the wider local markets by an average of 7%. Research is forecasting Central London’s residential price growth to increase from 1.5% in 2019 to 5% in 2021, buoyed by the Crossrail effect. Rents in Central London are expected to grow from 2% to 3.5% during the same period. Some of the most ambitious new stations serving Crossrail will be in West London, including London Paddington and Acton Main Line Station, just 9 minutes way.
Brexit, at the heart of it all, speaks volumes that the spirit of democracy is alive and well in the UK. The road ahead will be bumpy for a spell, but in the long term, the UK and London will right itself around. The pound will rise again and smart investors will take advantage of the lower currency now while they still can. Once the dust settles, the property markets will regain its momentum and by then, prices will skyrocket again. Opportunity does not knock twice.
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-- By Vivienne Pal
UK Residential Forecasts, London focus, UK Residential Research, October 2018, JLL
United Kingdom Real Esate Market Outlook 2019, CBRE
2019 UK Property Predictions Full Report, JLL