Following our mid-2021 UK Property Outlook, here is our mid 2021 London Property Outlook.
A key contributor of the UK economy, London has held the pole position of #1 City in the World’s Best Cities 2021 rankings for 5 consecutive years based on a number of criteria including human capital, infrastructure and culture, experience and prosperity. It has also held on to its title as the overall European City of the Future in the Financial Times’ fDI rankings for 2020/21. London is the best city in the world for property investment, second only to Los Angeles in the Global Cities 30 Index rankings.
How will London negotiate the challenges of COVID-19 and the uncharted terrain of a post-Brexit world? Will the UK’s main city, continue to be known as the “capital of capitals”?
CSI PROP looks at the price growth performance of the residential property market in selected key countries from 1995 – 2020. How has property investment stacked up compared to other investments like the stock market?
With Brexit, a Cabinet reshuffle and COVID-19 in the mix, the UK has gone through a seismic series of unfortunate events that would make Lemony Snickett proud. We take a quick look at how the UK property market has performed based on latest released figures and the market outlook in the near term.
Here are 5 things that property investors need to know about the London property market now.
UPDATED JAN 2020
Boris Johnson is now the Prime Minister and he sure has gotten his way to get Brexit done. Talks are going back and forth between the UK and EU, but back in London, it’s pretty much business as usual. Investors are getting off that fence that they were sitting on over the past two years. Looking into London property? Read on.
Manchester recorded a 7.0% increase in house price growth compared to London’s dismal 0.4%.
Manchester is England’s top performing city for house price growth, the latest data from Hometrack shows, while London remains on a flatline.
The data comes from the property research firm’s UK Cities House Price index, which tracks housing data across 20 UK cities and regionally.
For house price growth over the last 12 months, Manchester obtained top spot at a cool 7.0% increase followed by Birmingham at 6.5% and Liverpool at 5.9%.
Price growth in London showed no signs of recovery, staying at a stagnant 0.4%.
Across the UK as a whole, prices have gone up by 4.3% over the last 12 months.
Many cities in the Northwest have posted high capital gains over the average for the last 12 months. Yet, there is still much room for growth, as prices remain low, well under the national average.
The average price in Manchester was at £163,200, Birmingham is at a slightly lower £159,800, and Liverpool, at £118,800.
Comparatively, the average price of a home in Britain is £217,400.
Although price growth in London is stagnant, housing in the capital costs more than double the national average, at a whopping £491,200!
Richard Donnell, Insight Director at Hometrack says that the London market is going through a period of price alignment, having posted some very large gains over the past 8 years.
“Over the last 12 months, average prices in London have grown by just under 1%. This is much lower than the annual average growth of 9% over the last 5 years. These averages mask a wide range of house price growth at a sub market level. Actually, house prices are falling across a third of London’s local authority areas.”
Homes in the capital have become unaffordable for many people after years of surging prices, while wage growth remains meagre and lenders apply tougher mortgage criteria.
However, the price gap between regional cities and the capital is narrowing.
Hometrack expects the gap in prices between London and other UK cities to close further over the next two years. This follows a similar pattern from 2002 to 2005 when London house price growth was relatively weak compared with the rest of the country, after a period of surging prices from 1996 to 2000.
Richard says, “We expect house prices to keep rising across regional cities such as Birmingham, Manchester and Edinburgh over the next two to three years. During this time house price growth in London will remain flat, with annual price rises of approximately 0-2%. As a result, the gap between house prices in cities outside of the south-east and house prices in London will continue to contract.”
Manchester and Birmingham are expected to be the first cities to move closer to London prices, with demand for housing likely to be boosted by strong job growth. They are forecast to return towards average prices being around half of those in the capital compared to a third today.
“The level of house price inflation seen in large regional cities during the last peak, between 2000 and 2003, gives a good indication of how much prices may rise this time around. If history is to repeat itself and these cities are to get back to where they were, then prices could increase by as much as 20-25%,” Richard adds.
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A bullish property market ahead for Birmingham (Img source: BirminghamLive)
Birmingham was once called ‘the first manufacturing town in the world’ and was the strategic heart of manufacturing Britain in the 20th century.
The rise of the city in the immediate years after World War 2 led to fears at the top that it was becoming too powerful at the expense of the rest of the country. The government moved some 200 industrial firms and projects out of the region to other parts of the country, which dealt a devastating blow to the Brummie economy.
The once-great city fell into a steep decline in the 1970s, and unemployment rose from zero to close to 20%. In just a couple of decades, Birmingham transformed from the manufacturing powerhouse of a fast-growing Britain to a symbol of failure.
Today, however, paints a very different picture.
All Eyes on Birmingham
The city is currently enjoying a burst of economic success, owing its change in fortune to a pro-development attitude by the Labour-run council and a well-judged government decision to press ahead with important transport infrastructure.
Birmingham’s Big City Plan, announced in 2010, sets out a development masterplan that aims to expand the city core by 25%. This will add £2.1bn yearly to the city’s economy.
As part of the plan, £4bn in transport improvements have been announced to transform road and rail links in the city. Birmingham is the first stop on the High Speed Rail (HS2) coming from London, which will put the city’s more than 1.1 million people within under an hour’s journey of the capital, when it is ready in 2026.
As it is, Birmingham is the most popular destination for people moving from London. More than 6,000 people left London for Birmingham last year, according to the Office for National Statistics (ONS), and it looks like the HS2 will continue to inspire this exodus in the coming years. The second, third and fourth most popular destinations were all within 80km of London.
Businesses are also relocating from London to Birmingham. HSBC’s new head office for its retail and business lending operation, is due to open in July 2018. The bank’s move brings with it more than 1,000 of its existing London staff, and will employ some 2,000 people when it opens.
Deutsche Bank has also expanded its operations in Birmingham, with a total of 1,500 employees in front and back office capacities.
Property Market Outlook for Birmingham
The average house in Birmingham costs £162,701, just over a third of London’s average at £478,853. Office rents in Birmingham are also about a third of those in the capital.
Little wonder, then, that many Londoners and businesses operating in the capital are choosing to move to Birmingham.
Nevertheless, as with other parts of Britain, the supply of housing in this Brummie city hasn’t quite kept pace with demand, charting a potential shortfall of some 30,000 homes.
The deputy leader of Birmingham City Council, Ian Ward said: “Our expanding population means that we need to provide around 80,000 new homes by 2031 and our urban area does not have enough space. If we don’t explore other options we will have a shortfall of 30,000 homes.”
Supply of land is scarce and constrained by the greenbelt, which is a legally protected green area surrounding the city, and not allowed to be used for development.
With the shortfall in housing, rental demand is growing due to an ever-increasing affordability gap for the city’s young population trying to get on the ladder.
JLL predicts an increase in build-to-rent housing with a shift of focus from price towards quality and location. They forecast prime values to hit £500 p.s.f. by 2020 with performance being strongest in the city centre.
Compared to London, Birmingham is still currently 60% cheaper for a new-build project, suggesting significant upside potential.
Investors can look at new-build apartments like Arden Gate in the city centre as a great option for investment. This development has an attractive location, being only a few minutes’ walk from the central transport hub of New Street Station, which has just undergone a £600m renovation. It is close to entertainment and shopping centres and major businesses, including the HSBC head office.
In a 2017 survey, PwC ranked Birmingham as the highest performing UK city, ahead of Manchester, Edinburgh and London.
Regional chairman of PwC in the Midlands, Matt Hammond said, “This may be, in part, due to the big improvements in the city’s infrastructure, including the continuing development of HS2, the extended tram lines and the halo effect created by the redevelopment of New Street Station and the opening of Grand Central.”
Real estate consultancy Knight Frank predicts 19.7% rental growth by 2021, and 23.5% house price growth by 2022, further building investors’ confidence that Birmingham is a high growth market with a promising potential for high returns.
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Increasingly, statistics reveal that growth is expanding outside London. The focus — be it for housing, jobs, resources, or investment — has moved to buzzing regional cities where business is booming on the back of lower costs and a higher quality of living.
The London housing market is struggling. Nationwide reports that London house prices have fallen for the first time in 8 years, and, at a record drop of 0.6% in September this year, London is the weakest performing region in the UK for the first time since 2005.
Outside London and across the UK, however — despite Brexit and concerns about the economy — prices are still rising, albeit at a slower pace than in recent years. And yet, while London’s house prices may have dropped, they remain unapproachable compared to the cities beyond.
To date, house prices charting the most significant increases in England and Wales are the Midlands* and Northwestern cities of Manchester and Liverpool, as well as in some pockets off central London like Luton and Guildford, and Northern Ireland.
Greener Investment Pastures Beyond London
Years of rapid price increases have made London and the south unaffordable to many buyers, prompting them to buy further away and commute. After all, it takes less than an hour to travel from Bedford or Luton to central London by train, while cities like Birmingham, Manchester and Liverpool have a buzzing business scene.
The signs have been there for a while now, says Virata Thaivasigamony of CSI Prop, an active property investment consultancy in Kuala Lumpur, Malaysia that promotes investments in UK and Australian property.
“The writing has been on the wall for some time and we’ve said that prices in London will flatline this year. London has always been regarded as the business capital and startup central of the UK, but the fact is that businesses and investments are moving outside of London and into the regional cities. It would be remiss of us to ignore that the best places to invest in are now in those cities,” he elaborates.
Manchester, popularly assumed as UK’s second city and the Silicon Valley of Britain, is fast earning a reputation as the hotbed of tech and startup talent in the UK, thus pushing property prices up. The city is also a recipient of billions in investment dollars, thanks, in part, to the government’s push for the Northern Powerhouse, propelling the rise in investment returns across central and Greater Manchester, including Salford as well as other Northern Powerhouse core cities like Liverpool.
Corporations are decentralising from London to the regional cities, too. BBC, ITV and HSBC come to mind, having set up home in Greater Manchester; airlines such as Hong Kong’s Cathay Pacific have since 2014 provided direct flights between Manchester and Hong Kong, while China’s Hainan Airlines launched a direct flight service in 2016, making Manchester Airport the only British hub outside London to have non-stop flights to Beijing.
Meanwhile, Berkeley, one of Britain’s best-known luxury housebuilders has broken out of London to build a business in Birmingham to cater to housing demand in the city.
Javad Marandi, a British businessman with investments in commercial and residential real estate says, “Regional markets including the North East, the South West and Yorkshire and Humber have shown growth in commercial property activity, a sure sign of a growing business environment with an increasingly positive outlook, making them one of the best regions to invest in. Building a workforce, free of soaring London living costs, will in turn be cheaper to employ – and no doubt happier with the favourable cost of living outside the capital.”
That Britain is plagued by a serious undersupply in housing is an understatement. Opportunities in these cities have expanded the population, further underscoring the acute demand and need for housing. From a property investment standpoint, this is a good thing.
Meanwhile, a number of university cities are showing a spike in house prices. Towns that are home to a large student population such as Guildford and Liverpool, are seeing a surge in prices. The biggest 3-year percentage house price rise was near the University of Bedfordshire, which has its main campus in Luton, charting a 42% increase in prices over the period of an undergraduate degree.
“The best regions to invest in lie outside the capital – it’s no longer all about London,” Marandi concludes.
Growth Outside London
The UK is still seen as a good and safe place to invest your money due to a weakened pound, and, in spite of uncertainties arising from Brexit.
House prices will continue to rise as demand increases and Britain grapples with a chronic housing undersupply, but it appears — for now — that the best investment opportunities lie in regional cities like Manchester and Liverpool, and the outer boroughs of London.
That said, it is crucial to note that London is a market within a market, with characteristics of its own, and that it will bounce back — just as the housing market in the Midlands* bounced back from a low in 2015 to become one of Britain’s fast-growing housing markets today. On a positive note, it is during these low-market times that savvy investors invest in order to reap the most luscious of fruits when the market bounces back.
Article by Vivienne Pal
— CSI Prop proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts.
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