In the UK, the buy-to-let market is booming. According to research from estate agent Savills, the number of UK households privately renting property jumped by 50% in the five years to the end of 2011, reaching 4.8m in the London property market.
Furthermore, the group expects this figure to rise to 5.9m. In order to meet this demand, Savills believes the sector needs an extra £200bn of investment, but with lending criteria as it is, only a quarter of this is expected to come from buy-to-let loans. This presents a significant opportunity for investors in the London property market; those with the capital and the ability to take a long-term approach are well-placed to take advantage of an average 5.8% yield across the country.
Not surprisingly, however, it is London which is set to produce the strongest returns. Properties in Westminster, as well as those in Kensington and Chelsea, are thought likely to provide returns of up to 8.5% in the next ten years.
The London property market operates in a completely different sphere to the rest of the UK, as the scale of overseas investment skews the data considerably. A shortage of prime central London properties, combined with the interest from overseas investors, has pushed house prices in the area to a level 20% cent higher than the 2007 peak, Savills notes.
Furthermore, in the first quarter of 2012, overseas buyers accounted for 62% of purchases in Central London, up seven percentage points on the same period last year. While Savills expects that the recent end to the stamp duty holiday will act as a catalyst to a period of relatively flat house prices, it expects growth to return for prime properties in 2013 and continue long term.
Along with the attractiveness of London as a location, it is the make-up of London’s housing market which makes it such an interesting prospect for investors. With large-scale social housing provision for those on lower incomes, the private rental paid as a percentage of average local earnings is much higher in the capital; at 53% cent, it is 18% higher than anywhere else in the UK.
But how does the London market stand up against other cities around the globe ? The Savills World Cities Report paints a picture of London as a stable and strong place for property investment. Values grew by 1% in the six months to December 2011, while up and coming cities such as Shanghai, which saw values grow by just 0.1% in the second half of 2011, struggle with the global economic slowdown.
Prices in London are second only to Hong Kong and also benefit from low transaction and occupancy costs compared to the likes of Singapore, Paris and Mumbai. New York’s relatively low price growth means that rental values, as a percentage of property value, are high at nearly 7%, but again London is a competitive place, coming in third place on the Savills list with around 5%.
Source: HTC bussines