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
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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