Concrete Analysis

London’s less central areas will be next hot spots

Domestic buyers buoyed by mortgage schemes are driving demand outside prime central areas

PUBLISHED : Monday, 21 July, 2014, 4:00pm
UPDATED : Wednesday, 23 July, 2014, 1:49am

Property investors around the world know London as a reliably strong and consistent market.

Investment from across the globe has historically been attracted to its traditionally prime areas, such as Kensington, Chelsea and Mayfair.

Even during the financial crisis, these areas continued to perform, earning the market an investment safe haven status shared only by New York.

While this central growth continues, it is now increasingly fuelled by a wealthy elite who are still willing to meet high price premiums, with domestic homebuyers now largely priced out. But this domestic demographic still makes the vast majority of London property purchases.

Do not believe the hype about overseas buyers who leave flats empty dominating the city's property market - only 6 per cent of purchases across Greater London are non-domestic, and the majority of overseas investors are not willing to forgo rental yields while they hold on for capital appreciation.

The already high rate of domestic purchasing is on an uptrend right now - Greater London's population is approaching 10 million, and potential buyers are coming back to the market in droves as the British economy continues its recovery.

A few factors are driving domestic demand, including the rising availability of financing generated by the government's Help to Buy mortgage scheme.

This is directly affecting low-end to mid-range buyers but also spreading much needed liquidity through the rest of the market.

The homebuyer is looking for the best area, but the investor is looking for the next area

Also important are increasing confidence in the stability of lower-price, non-central areas, and the long-held tradition of British homeownership.

All this adds up to swathes of potential buyers in London who have for the last few years chosen to stick with their current property or rent but are now ready to resume their ascent of the property ladder.

But as demand rises while central prices remain high, that demand is being pushed into less popular parts of the city.

This was the case over the last decade as prices rose in places such as Islington, Shoreditch, Fulham and the South Bank. They are now part of the central "high-price zone", as demand is pushed even further afield.

The question for investors is: where will this demand go?

With most buyers more focused on finding a long-term home than an investment asset, investors must remember that demand trends are driven by people making choices about where they base their lives.

A range of factors are key, from local communities, environments and amenities, to job opportunities and where the right type of homes are available.

With London's huge business community at its centre, transport infrastructure is particularly important. Much demand is from people who would otherwise be choosing to live more centrally near where they work, so areas with quick connections into central areas will feature highly in buyers' considerations.

Investors need to take a wide-angle view and remember the homebuyer is looking for the best area, but the investor is looking for the next area.

It is no coincidence that some of London's key regeneration areas over the last decade have been those mentioned above as comprising the first wave of districts to benefit from demand moving from central London.

Looking forward, the most widespread area of regeneration work currently under way is in the Southeast - Greenwich and Lewisham, the southern bank of the Thames, and Bromley and Croydon farther south.

With excellent transport connections into central London, amenity investment and cohesive local communities, this is a part of London now ripe with potential for investors.

London's prime and inner districts still have value to offer, but these are becoming rarer.

The city's most successful investors over the next decade will be those that keep ahead of local demand trends and take advantage of the regeneration of well-connected parts of the city.

Selina McFall is an investment director at international property investment company IP Global