Real Estate Investor Magazine South Africa Dec/Jan 2016/17 | Page 50

LONDON London Residential Five-Year Forecast BY JAMES GLEW London house price outlook Firstly, I do not expect the consequences of Brexit on London property prices to be anything like as severe as the financial crisis of 2007/2008. London remains a great long term investment destination and I still expect housing price growth of around 20% over the next 5 years. However, it would be naïve to think that the current climate of uncertainty created by Brexit will not have some effect on the London house prices in the short term. Brexit negotiations are expected to start in 2017 and conclude in early 2019, bringing to an end the period of greatest uncertainty. I expect that buyer confidence will then improve and this coupled with low interest rates and the ongoing shortage of housing, will cause house prices to rise again. The rate of growth will be more in line with historic trends, not the double digit growth we have seen in recent years. For London in the long run, much depends on the extent to which the UK capital retains its status as a global financial and business capital. The loss of some jobs to other European cities is inevitable, though this should be limited. The British Government will undoubtedly seek to develop both the British economy and maintain London as one of the leading financial capitals of the world. You can be sure the British government will do all it can to attract and keep big business in Britain. Already they have announced that the Corporation tax rate will drop to 17% - the lowest in the G20. This will certainly help to keep big business headquartered in the capital. Taking all of this into account I expect London house prices to outperform the UK as a whole and grow somewhere in the region of 20% over the next 5 years. In the next 5 years, Buy-to-let volumes are expected to drop back a bit from the recent peaks, driven down by the Brexit uncertainty and the effects of tighter mortgage regulation and higher stamp duties that 48 DEC/JAN 2017 SA Real Estate Investor were introduced in April 2016. The recent devaluation of the Pound against other hard currencies such as the US Dollar, does offer foreign investors coming into the London market something of a Brexit discount. The factors that will fuel buy-to-let investors’ interest in London residential will be the strong rental demand, low interest rates, low returns on alternative investments and the proven track record of London residential property as a top quality investment. On top of this London residential property remains a very strong long term ZAR hedge. Rental growth outlook The outlook for rents is positive over the next five years. We expect London rents to grow around 20% over the next five years. Annual UK inflation over the same period is expected to be around 2%. Rental growth is closely linked with people’s income rather than movements in interest rates and mortgage availability. Brexit uncertainty, the weaker pound and higher inflation will put pressure on how much tenants can spend on rent. However the barriers to home ownership remain high and therefore like it or not, demand for rental properties will remain high. How to best to take advantage of a market like this: There are still great opportunities to be had in this period of uncertainty. My advice would be, look at one-bedroom flats with high rental demand, close to good rail links into London. Target property which is best in class as this is the most resilient and where rental demand will stay strong in the long run. Gear sensibly, so your operating cash flow can handle interest rate hikes. Look in the vicinity of significant infrastructure developments, such as the Crossrail project, as often these projects offer higher than average capital growth opportunities. Finally, seek advice from someone who specialises in the London market. RESOURCES www.inventureprop.com www.reimag.co.za