London market calling SA investors

There are further signs that London’s housing market is returning to pre-credit-crunch boom times with central London house prices rising 3,2% in February – the strongest growth in almost three years.

Prices have soared by almost a fifth in the last 10 months, and are now only 10% below the market peak in March 2008, the latest Knight Frank Prime Central London Residential Index shows.

The average asking price in London has reached a new high twice in the space of five months, as sellers coming to market attempt to cash in on the lack of available stock. February’s sellers asked an average of 5% more than the month before – an increase of over £20,000 and a new highest ever average asking price in London of £427,987, according to the property portal Rightmove.

And it would seem that it's foreign buyers who are leading the stampede to snap up central London property, with 45% of £2m-plus purchases going to non-UK buyers over the past 12 months.

“Since around June last year there has been a definite feeling among our clients that the price falls in 2008 along with low interest rates and the strong Rand had created good value in London," said Mike Smuts of Smuts & Taylor, a South African investment firm based in London.

He puts the sharp price rises down to a dramatic shortage of homes on the market – around 22% fewer than this time last year – but cautions against South African investors only focusing on the very top of the market.

“While it’s true that top-end property is usually the first segment of the market to experience significant growth, it’s also the first to see large slumps when the market turns as we’ve seen in a 24% drop in prices over the last downturn. It’s important for investors to focus on the rental income generated by their offshore investment rather than the possibility of large capital appreciation in the future and to achieve this South African investors are far better off focusing on one- and two-bedroom units between £185k and £400k.”

Despite a recent resurgence in housing stats there is still a significant shortage of good quality London property in this price bracket and completions of new homes are forecast to sink to about 108,000 units in 2011. Demand is set to increase significantly, leading to a shortfall of as much as 95,000 in 2011.

“While entry into the housing market remains difficult for those without the cash for a large deposit, growth in the private rented sector will continue,” said Mike Smuts.

“And given the relatively low returns on cash and investors disillusionment with the stock market, it seems likely that competition from equity-rich investors for London property will continue.”

Scott Picken, CEO of International Property solutions (IPS), echoes the sentiment that the London residential property market is recovering strongly. “Although the economic picture is far from certain, with the UK being the last country in the G20 to come out of recession and with a paltry growth of 0,1%, the residential property market is into a full-swing recovery,” he said.

Picken says according to all the residential property indicators the London market reached a trough in March and April of 2009. “Since then there has been growth consecutively every month for the past nine months. While it grew 5,4% during the past 12 calendar months, it is still roughly down 7% from its peak of February 2008.”

Picken believes South Africans are in a similar position to Eastern investors with regards to entering the residential property market in London.

“Although the South African economy is taking longer to recover, the Rand is strong against the Pound and there are great asset value opportunities in London,” says Picken.

“The UK, excluding the London market, is still in trouble, so now is certainly the time to be investigating a residential property investment in London,” notes Picken. – Eugene Brink

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