Real Estate Investor Magazine South Africa December - January 2014 | Page 71

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climb, not only throughout 2014 but possibly up
until 2018, with figures ranging from 24% – 28%
being quoted.
Finally, and perhaps the most interesting, is
the opinion across the board that Prime Central
London (PCL) will show weaker growth,
admittedly from a very healthy 30.1% since 2007,
to a more modest 23.1% over the next five years.
But at a time when even Google boss Eric
Schmidt, who is willing to splash out £30 million
for a London pad, is struggling to find himself a
home, where can savvy South African investors
look for 2014 hotspots?

Look for the ripple
‘Prime Central London’, or PCL, is a familiar
phrase in the market for high-end residential
property in the finer parts of the London including
places like Belgravia, Chelsea, Marylebone,
Mayfair and St John’s Wood. Others have
expanded the definition to include parts of the
South Bank, and the City of London. Expansion to
the East means that Canary Wharf and Docklands
are now also considered prime by many. That would
not have been the case 20 years ago.
What distinguishes prime from non-prime is,
of course to a degree, subjective and today’s prime
is often tomorrow’s super prime.
Twenty years ago there were only four addresses
- Mayfair, Knightsbridge, Belgravia and St
James’s — in a premier division of property
compiled by Savills. Today there are ten, with
Holland Park, Notting Hill, The Boltons, Chelsea
(SW3), Regent’s Park and Kensington all moving
into this elite group.
Primrose Hill, Mar ylebone, Dulwich,
Blackheath and Canary Wharf have moved up
the scale in great strides, going from fifth to first
division. Spitalfields and King’s Cross have been
big movers, too. And St John’s Wood has raced
ahead of Hampstead.
A value map of London drawn up by Jones Lang
LaSalle shows prices exceeds £4 000 a square
foot for the best central addresses, under £2 000
is more typical for prime, as opposed to so-called
“super-prime” properties. And the average price
across the wider central London area (which
would include Pimlico and Paddington, Earl’s
Court and the South Bank) is nearer £1 200 a
square foot.
www.reimag.co.za

Studying square foot values is a good way for
investors of identifying hotspots and also more
affordable “opportunity areas”. Buyers can see
whether a high price tag is justified by a home’s
spaciousness, or if a small property carries an
inflated price for its grand postcode. There are
some striking differences in values between
central London areas, and savvy investors will
be wise to note that the phenomenon of wealthy
international buyers fuelling the market for ultraexpensive homes in central London is causing
ripples way beyond the gold-plated streets of
Knightsbridge, Belgravia, Mayfair, Kensington
and Chelsea.
In short, the “ripple effect” in property
investments is the way in which property booms
begin in a central location and radiate outwards
to influence surrounding areas, much like the
concentric, ever increasing circles when you drop
a pebble into the water.
With values at a record high, even moderately
rich buyers are finding they cannot afford to live
in the best postcodes. Others are simply seizing
the opportunity to pocket a profit by selling their
homes to foreign buyers well above market value
and invest in another up-and-coming area.
As these buyers move in to better-value areas
where they can get more for their money, the
ripple effect will soon see this price increase spread
to the nearby neighbourhoods.
Figures released by the Office for National
Statistics (ONS) in September help to illustrate
this ripple effect, with price growth in Greater
London now outstripping prime central London.
House prices in Greater London have risen by
9.7% over the last 12 months. In prime central
London annual price growth stands at 7%, down
from 10% in September 2012.
Prices have grown by over 11% in Wandsworth
on an annual basis, the strongest growth of all
London boroughs, far outperforming prime
central London.
Elsewhere, property prices in Camden and
Hackney have risen by 11% over the same period,
while in Merton residential property prices are up
by 10% on an annual basis.
The traditional ripple effect of strong demand
spilling over to neighbouring areas and resulting
in proportionate price increases is more

pronounced than in the past because of the sheer
weight of money emanating from central London.

Smart-buy areas in 2014
There are pockets of London where the
opportunity for development, and other factors
such as improved transport infrastructure,
gentrification or regeneration, combine to
produce real opportunities for house builders and
ultimately for investors who get in early.
Of these, London’s new Crossrail project
(remember that steam train?), which will open in
2018, will be the most significant and have a strong
impact on development in London over the next
decade.
The Crossrail will make a significant contribution
to the transport needs and economic development
of London and the South East region. The project
comprises new tunnels running west-east through
central London connecting directly with existing
surface rail routes to Maidenhead and Heathrow
in the west, and to Shenfield and Abbey Wood in
the east.
By connecting the major London rail terminals
of Paddington, Liverpool Street and Canary
Wharf, the fast Crossrail train service will further
enhance the desirability of the areas around its
stations in central London.
Such trends have been evident in the past residential prices in Canary Wharf and Tower
Hamlets around the time of the Jubilee line
extension in 1999 rose by more than 60% in
the four years running up to the opening of the
extension. While other factors, such as the wider
rise in London prices and large-scale regeneration
of the area clearly played a part, more than twothirds of estate agents questioned in 2001 said
that the extension had the biggest impact on the
property market in the area since 1991.
For property investors one of the key advantages
of property, over other asset classes, is the ability
to bolster returns through careful area and stock
selection. In 2014, investors would be well-heeled
to put their postcode-prejudice aside and focus
on London neighbourhoods showing significant
improvements to connectivity and accessibility,
which ought to feed into enhanced investment
returns over time.

RESOURCES
Smuts and Taylor

December January 2013/4 SA Real Estate Investor

71