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SCMP Reporter

THE central London property market is entering a much healthier period of sustainable growth following the boom years of the 1980s.

  Increased activity in the market has confirmed that the British property industry is again beginning to grow.

  But, unlike the mid-to late-1980s, when prices soared by as much as 50 per cent in a year, the current growth will be more modest.

  Commentators have been divided over the outlook for the British housing market this year.

  Last year, the general prediction was a recovery - a prediction which was proved quite wrong, with many prices falling a further nine per cent.

  This year, predictions have been more cautious.

  However, for the first time, there is evidence that the start of the recovery, so long heralded by the British Government, might have occurred.

  The British property market has always attracted overseas investors, with property showing more attractive returns than other European cities.

  Recently, more foreign investors have focused their attentions on the London market, because the extended property slump has caused average central London prices to drop by 25 per cent since June 1989.

  This, coupled with the weak pound and low mortgage rates, has created highly attractive investment returns.

  Long-term recovery of the property market obviously cannot continue solely on the strength of overseas investment. However, even for the local investor, the property market has never been cheaper.

  Central London prices now stand at about January 1987 prices, but average incomes have increased by 40 per cent since then and mortgage rates, which were standing at 12 per cent in 1987, are now available at less than eight per cent.

  Despite these attractions, and while there have been some very early signs of activity in the first-time buyers' market, it will be some time before local investors return to the market and trade up as they did in the 1980s.

  Before confidence returns to the local housing market, confidence in the economy has to be restored.

  For the overseas investor, particular attention has to be given to the yields achieved from property investments and the rental market is one sector which has strengthened over the past three years, as this is counter-cyclical to the sales market.

  There is continuing demand for quality rental property to meet the requirements of the increasing numbers of American and European tenants who withdrew so conspicuously from the market in the late 1980s.

  While gross rental receipts have not increased substantially from previous levels, there is a continued demand for high quality rental accommodation in London.

  This has underpinned investments and raised annual yields, due to the reduction in capital values, to between eight and 11 per cent, compared with four to six per cent in 1987.

  There are now investment opportunities in central London which were not present in the 1980s.

  For example, one large two-bedroom apartment in Eaton Place, Belgravia, was sold in 1987 for GBP310,000 (about HK$3.6 million).

  At the time, the property was let to an American company and was achieving a weekly rental of GBP400.

  Today, the property is back on the market, having been totally refurbished, at an asking price of GBP218,000, just over 26 per cent less than it was sold for in 1987.

        A recent rental valuation estimated GBP425 per week could be achieved, showing a little more than a 10 per cent yield.

  Although the property has a short lease, London's leasehold form of tenure is now under review and the Leasehold Reform Act is expected to come into operation by the end of this year.

  This will give leaseholders the right to buy their own freehold - something which in the past has deterred people from coming into the prime short-lease areas of London.



London shows early signs of growth