Until the pandemic hit the UK and caused a recession, the London property market had been on a flat growth trajectory for a few years. As the world and the UK fully emerge from lockdowns and pandemic related restrictions, should you still invest in London property?
Unlike previous recessions, which saw property prices crash, the UK property market had displayed positive response, in fact, reporting a boom in activity post-lockdown. What made this recent recession different were the measures put in place to help restart the housing market, in addition to supporting affected businesses and individuals.
Read to find out if investing in the London property market is still a good idea in 2022:
What This Article Covers:
- Investment in London: Crossrail
- Positive House Predictions for London Property Investment
- Tight Vacancy Rates due to Housing Shortage
- Employment Growth Benefits Investment in London
- Excellent Reputation for Investment
- Regeneration Benefits for London Property Investment
- London Property Market Predictions 2022
The London property market has since been spurred into action with prices accelerating as a result of supply shortage and increased demand, as people flock back to the office and social attractions of the capital. In the first quarter of 2022, London property prices grew at an annual rate of 7.4%, an increase from 4.8% in the same period last year—the fastest growth rate since 2016 for the capital, according to Nationwide. Hence, the popularity of London property has not diminished among investors.
Here’s why investing in the London Property Market is still a good idea in 2022
Investment in London: Crossrail
The investments in London’s infrastructure, particularly in transport schemes such as the Crossrail, will dramatically improve the city’s connectivity and help to increase property prices around the capital. One of London’s biggest regeneration projects besides Stratford and the Royal Docks, the Crossrail is billed as the capital’s biggest and most important transport upgrade since the expansion of the Tube network over 100 years ago. Properties on the Crossrail route have already doubled in price despite delays. In Nov 2019, the average house on the route stood at £665,103, compared to £330,770 in 2008, in the midst of the financial crash when the new railway route was given the green light! Market observers expect house prices surrounding the majority of Crossrail stations to continue to outperform the wider London market.
Positive House Predictions for London Property Investment
In the last decade, London property prices have risen at a faster rate than any other UK region. The Covid-19 impact had clearly driven an interest in London property and with job growth and more people returning to work at the office (vs working from home) as the economy revives post-lockdown, property prices are slated to increase further. A 5-year prediction shows that UK house prices are forecast to grow 20% from 2022 to 2026, with London property prices hitting a 23.5% growth rate in the same period, driven by sentiment and housing undersupply combined.
High Demand for Rental Property due to Housing Undersupply
Overall, London’s vacancy rates are at a tight 2.2% as the capital faces a shortage of homes, and rents increase to its highest since 1999. London is among the most sought-after cities for young professionals to work and live. More young professionals are looking to rent as London property prices continue to rise, offering many opportunities for investors in the rental market. London rents (excluding brand new homes) are predicted to increase by 19% between 2020 and 2025 as housing construction struggles to meet the 90,000 – 100,000 new homes needed yearly to meet demand (only 41,718 completions were recorded in London in the 2019/20 period) and rental demand escalates as the job market in the city improves.
Employment Growth Benefits Investment in London
The UK labour market has certainly staged a comeback from Covid in 2021 as demand for workers increases on the back of labour shortage as a result of Brexit. Following a period of working from home, major London offices are back in action and more people are returning back to the city with more employment opportunities. Financial job vacancies in London, especially, have surged beyond pre-pandemic levels to around twice that in 2020. Approximately 400,000 employees work in the City of London, which is also home to the headquarters of several big companies, such as some of the biggest financial institutions like Lloyds Banking Group and Standard Chartered.
Excellent Reputation for Investment in London Property
A key contributor of the UK economy, London has held the position of #1 City in the World’s Best Cities rankings for 6 consecutive years based on several criteria including human capital, infrastructure, 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 2022/23. Also ranked the best city in the world for property investment out of 900 cities in Schroders Global Cities 30 Index 2021, it is no wonder that London has a worldwide reputation as a safe haven for property investment.
Regeneration Benefits for London Property Investment
Regeneration helps create jobs, benefits the local economy and also drives the value of property within and in the surrounding areas. New jobs created through regeneration will draw in a greater population, which will drive demand for homes. An area set to benefit from regeneration in London is Poplar. Poplar is part of the Thames Estuary Growth Corridor with potential for 9000 new homes and 3000 new jobs by 2041. Another area that is being spruced up as part of regeneration is Aberfeldy Village. More investors are investing in property in neighbourhoods that stand to benefit, including Oxbow or luxury residential property like Poplar Riverside, built by renowned developers.
7. London Property Market Predictions 2022
Although behind the rest of the UK in price growth in more recent years, London remains a popular property investment choice for many investors. London property price is predicted to achieve 23.5% growth rate from 2022 to 2026, driven by positive sentiment and housing undersupply, combined. Meanwhile, London rents (excluding brand new homes) are predicted to increase by 19% between 2020 and 2025 as housing construction struggles to meet the 90,000 – 100,000 new homes needed yearly to meet demand (only 41,718 completions were recorded in London in the 2019/20 period).
Although London’s average yield is not as high as that of cities like Manchester (high house price growth over the decade has made it difficult to command a huge rental from the average tenant to be able to cover costs), a big reason why investors choose to invest in London is because of capital appreciation. Statistics show that London chalked the highest cumulative price growth over a 25-year period compared to stocks, gold and property in other cities, second only to the S&P 500 (Figure 7). Although the S&P5 500 has done very well, a difference between stocks and property is that investors would be comfortable taking property loans given that stable rents can cover the cost of interest. Hence, the actual returns from investing in property would be significantly higher given the multiplier effect of leverage.
The key is the right property choice in the right location. While there is still room for price growth in areas like prime central London which is below its 2014 price peak, affordability is a key fundamental investors should focus on. Thus, investing in the more affordable outer zones instead of prime central London would be more rewarding and lucrative. What’s clear is that London property prices are starting to grow again following a period of flat growth, and if you are looking at investing in the capital, East is certainly best when it comes to better value for money.
With interest rates having risen to 1%, some investors are taking advantage of the current London property price and investing now before it rises further.
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