Real Estate Investor Magazine South Africa Real Estate Investor Magazine - May 2017 | Page 53

this large group of potential buyers
provides a great deal of support for
current price levels.
One point to note is that,
in central London, there is
an oversupply of high price
apartments. These high end
developments in central London
may struggle to sell at current
asking prices as they were not
what the capital needed in the
midst of a housing crisis, and there
isn’t enough market for them.
These developers are likely to be
forced to reduce their prices. More
affordable stock, however, will
continue to be in demand.
For the rest of London, prices
should stay fairly stable, with
some levels of growth, particularly
around Crossrail stations and in
areas of re-generation. Beyond
this, mainstream areas such as
Clapham, Balham, Wimbledon
and Kingston should stay strong
because of their continued
popularity,
and
‘relative’
affordability. Overall, prices have
remained resilient in London.
Pressure on developers will
slow supply further
For most of the last five years,
new-build sales and starts have
outpaced completions in London
due to a very strong off-plan sales
market. However, in 2016 new-
build sales slowed – much in line
with the second hand London
market.
The serious shortage of housing supply
isn’t going to disappear anytime soon
and the historically low interest rate
levels should mean that the market
continues to grow.
This slowing in new-build
sales will slow income flows for
developers. This, in turn, will lead
to slower completion programmes
and reduced starts on new building
projects. Already in 2016 there
was some evidence of a slowing in
construction.
The result is a situation in
which, even though there aren’t
enough houses to meet demand,
developers are unlikely to build
many more homes given the
current economic outlook.
So what does the future
hold for London buy-to-let
investors?
The Private rented sector was once
the largest tenure in London but
shrank from 46% of households
in 1961 to 14% in 1991, before
growing back up to 26% in 2011,
making it the second largest
tenure. The Private rented sector
looks set to continue its upward
trend, eventually b eing on a par
with Owner occupied households.
This is a very encouraging,
demand side indicator for buy-to-
let owners.
According to the ‘Housing in London:
2017 Report’, it would appear that
Londoners will increasingly rely on
private rented accommodation to
satisfy their housing needs.
For buy-to-let investors, the
market presents the opportunity
to either benefit from capital
gains, as prices increase, or receive
greater rental yields in the event
of weakening prices ‒ driven by
local demand shifting to the rental
market as opposed to the owner
occupier market.
SOURCE: HOUSING IN LONDON: 2017 REPORT. GREATER LONDON AUTHORITY (PWC)
RESOURCES
www.inventureprop.com
www.reimag.co.za
MAY 2017 SA Real Estate Investor
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