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The population of London continues to grow year on year, and, due to historically fragmented ownership and restrictive planning, the supply of residential property in London is unable to keep up with domestic or international demand.
From a global investor’s point of view, London residential still has great potential. There is an increasing demand for rental accommodation in London, especially from younger people as UK mortgage providers often require a deposit in the region of 25 per cent. Rising values continue to push younger, first-time buyers out of the market and into rented accommodation, and this is becoming a more established way of living and working in London.
The chart below compares one of the more exclusive boroughs in London, Kensington and Chelsea’s House Price Index, against the Greater London House Price Index and the FTSE 100 Index. It is easy to see that over the past 12 years returns on residential property have outperformed the FTSE 100 dramatically.
There remains a high percentage of foreign money being invested in to the London residential market with two distinct sectors. The prime, top-end sector where houses and apartments are worth many millions of pounds is where Russian and Middle Eastern investors are particularly active. The more general residential market attracts investors from all around the world.
We have latterly witnessed an influx of money from western Europe, mainly due to the uncertainty of the euro. Interestingly, European family buyers, who have historically focussed on London houses, are now showing an increasing interest in buying, and also renting, apartments as they broaden their remit; for example, we recently sold 50 apartments in Canary Wharf to individual buyers, with the majority of those purchasers coming from Italy.
However, it is Asian investors who appear to be the most dynamic and astute. Chinese, Singaporean, Malaysian and Korean investors traditionally like apartments because they are comfortable with the apartment concept and also because they are often buying for personal and family use. Apartments do make attractive investments due to the predominantly lower cost of maintenance and the ease of renting on a short-term and flexible basis, at a time when demand for renting in most parts of London exceeds supply.
With the ongoing lack of housing stock across London and the trend for more mixed-use developments, where apartments are favoured over houses, there will continue to be significant investment opportunities in London. More importantly for the investor, the trend for people living and working in London, who want to rent, is set to grow.