What Brexit means for Prime Central London property investment
With a favorable Brexit deal likely, London's residential markets are set for steady recovery and price growth
Uncertainty over the United Kingdom's exit from the European Union has clouded the country's investment markets since the historic vote was cast in June 2016, but the forecast is now looking sunnier. With a deal most likely to be reached before the planned Brexit date arrives on 29 March 2019, greater political certainty is expected to see a resurgence in confidence for businesses and consumers alike that will result in positive growth in the UK property markets, particularly in the capital.
London's housing markets have weathered the Brexit uncertainty better than many feared, especially at the higher end. After a difficult 18 months of falling values and transactions, Prime Central London property prices started to recover in Q1 2018, according to residential research by Jones Lang LaSalle (JLL).
Foreign interest in London property has remained strong throughout the period, particularly from Chinese and Hong Kong investors among others, thanks to favorable exchange rates against the pound and faith in the long-term prospects of the popular international city. Despite additional obstacles including the increase in stamp duty at the end of last year, the outlook for the next few years post-Brexit remains optimistic – especially for investors who can get their feet on the ladder before the anticipated price growth reaches its full momentum.
Accelerating price growth
If the UK and EU reach an agreement by March, as is expected, the UK's exit will not be delayed and this will restore much confidence in the property markets overnight. JLL predicts immediate boosts in price growth and demand from domestic and overseas property buyers, although the largest gains will likely be seen after the initial transition period that's expected to last until the end of 2020.
JLL forecasts steady price growth in Prime Central London districts over the next two years, from 1% price growth per annum in 2019 to 2.5% p.a. in 2020 and 4% p.a. in 2021 – above the Greater London and UK averages. Rental prices are also set for steady growth, from 0.5% in 2019 to 2.5% in 2021.
Transaction volumes will take longer to recover due to the limited supply of new properties entering the market during the period. This scarcity will support the surge in demand and prices, which is good news for landlords, but it also means that properties in sought-after locations may be harder to come by.
Reasons to be cheerful
The next two years won't be without their challenges as the UK and London property markets slowly get back on their feet, but by 2021 the UK's economic recovery is expected to be in full swing. Even during the last two years of uncertainty and falling prices, London's residential markets were far from complacent.
The number of residential new builds in London increased by 30% in 2016-17, although this is not expected to increase significantly again until 2023 due to factors such as stamp duty hikes and affordable housing quotas hindering private construction. The supply shortage has been eased through initiatives such as the British Government's Homes England campaign and increasing adoption of 'fourth industrial revolution' technologies such as digital construction and Building Information Modeling (BIM) helping to shorten construction timeframes.
Finding the gap
London is a huge and diverse city, and even in the central districts there can be significant differences in performance between neighboring locations. Investors need to research these opportunities in detail to find the gap where their investment will offer the greatest returns in the time frame they want.
Some of the most promising growth prospects are for areas around Crossrail stations. London's new high-capacity rail service was scheduled to open by the end of 2018 but has been delayed until autumn 2019, giving investors more time to secure properties in station areas that are set for huge gains in the coming years, some already experiencing double-digit price growth.
For longer-term prospects, prestigious Zone 1 addresses in the heart of Central London have timeless appeal for buyers and renters, putting the famous sights and experiences of the UK capital within close reach. A number of large-scale residential projects are opening up new opportunities in these desirable locations, among them the new Southbank Place development adjacent to Westminster and the London Eye on the banks of the River Thames.