Property Investment London – A Guide by Aspen Woolf
London has long had a reputation as a ‘safe haven’ in the international property market and the city remains one of the most coveted worldwide due to being relatively stable and secure, not to mention offering strong capital appreciation and consistent rental yields.
A world-class city with plenty of investment appeal, London definitely deserves the attention of property investors. Its 32 boroughs offer properties at a range of price points and of every conceivable type.
Read on to find out why property investment in London might be right for you and why it continues to catch the eye of investors.
Why Consider Property Investment in London?
London remains one of the best markets worldwide amongst property investors. For national and international property investors, owning a house in the UK capital is a major asset.
It’s no secret that in the past couple of decades, property investment in London has seen some ups and downs – particularly after the 2009 financial crash. However, investors still made major gains and the property market continued to grow in the 2000s, despite at a slower rate.
While more recently Brexit caused plenty of uncertainty and many expected property prices to plummet, the market actually remained robust during Brexit negotiations and following the exit from the EU. Similarly, the COVID-19 pandemic and subsequent national lockdowns threw the London property market another curveball as it slowed to a standstill. However, the stamp duty holiday at the start of the year saw the market pick up again and the flurry of activity from buyers and sellers continues.
Despite adversity over the years, the London property market remains resilient and offers an exit strategy. Even in the worst of market conditions, property owners can always find a buyer for a property. Today, demand for housing still exceeds supply, making London a robust and popular property investment destination.
Is Property Investment in London a Good Avenue for International Investors?
For international investors, London remains an attractive investment option. With the devaluation of the pound, investing into Sterling from other currencies has become popular due to its lower rate against the US Dollar. This has drawn a lot of interest from investors with US Dollar pegged currencies in particular, who can get more for their money and benefit from the city’s capital appreciation and a rising exchange rate.
Another benefit to overseas investors looking into property investment in London is that the buying process is more or less the same as for UK nationals and features few restrictions. For foreign investors in London property, buyers do not need to be a UK resident or plan to live in the UK. Overall, the regulations and tax measures remain relatively simple. An additional stamp duty tax does now apply to foreign investors. This 2% stamp duty charge is on top of the existing rate of tax and calculated on the value of the property. If the overseas investor is a first-time buyer in the UK, they can qualify for a first-time buyer tax rate for properties less than £300,000. Read more about being a foreign investor in the UK property market.
What Makes London a Good Property Investment Destination?
While the COVID-19 pandemic and restrictions on movement and economic activity have put a hit on the London economy, it’s not all doom and gloom. While London’s real Gross Value Added (GVA) growth rate is forecast to be 5.4% in 2021 due to COVID-19 crisis recovery, this rate is expected to increase slightly to 6.9% in 2022.
Significant, ongoing investment in public infrastructure, homes and office buildings points to optimism that growth will continue in future decades. The City of London’s economy is expected to increase in employment productivity and output and generate an additional £16 billion by 2025.
Population Growth is Driving London’s Housing Demand
One of the reasons property investors look to London is because it benefits from high demand for homes with a shortage due to a growing population and shortfall in housing development. In the last decade, the city’s population increased by 800,000 but just 200,000 new homes were built. In the next decade the population is set to increase by more than 1 million to reach 10 million in 2031, and the housing supply/ demand imbalance means high potential for property price growth and plenty of opportunities for buy-to-let investors.
London is an International Business Centre
London is a financial and business hub offering some of the best transport links to every corner of the globe, making it one of the world’s most competitive cities. International businesses in diverse sectors have their headquarters in London, and benefit from its talent ecosystem. The UK capital offers offers low corporation tax, a stable and secure legal structure and is a highly competitive compared to European cities.
At the same time, London benefits from great transport links. With 5 international airports, the famous underground network and new developments such Crossrail linking the capital, London’s connectivity is unrivalled.
London’s Housing Market is Robust
Property prices in London vary depending on location. Properties in Central London are significantly higher than elsewhere in the capital and outside it. Something most areas have in common is that London is a buoyant property market and wherever you invest, it’s likely you’ll see capital growth, even in a short period of time.
The COVID-19 pandemic brought about major life changes and shifted some trends in buyer behaviour which can be seen in the London property market.
Demand for space post-lockdown has meant that London’s suburban boroughs like Ealing, Redbrige, Richmond and Haringey have become increasingly popular and performed better than some central options. Many buyers are looking to the surrounding London villages and places like Wimbledon and Dulwich are thriving. Property prices have accelerated between 2.5 – 6% in the first half of 2021 in many of these surrounding villages as buyers move out of the city centre to further afield to get more for their money. Preference for property type has also undergone a slight shift. Houses are in greater demand and experiencing stronger price growth than flats, although it remains a buyers market for flats.
Certain areas are also worth watching due to ongoing regeneration. Earls Court and Canary Wharf in particular are undergoing plenty of development. House prices around the Crossrail area and those close to stations are expected to see a bump in value upon completion of the scheme as the railway becomes a major commuter line.
Current and Future Projections for the London Housing Market
Savills predicts London property price growth of 6% in 2021 and for activity and price growth to remain. While this 6% growth may be lower than other areas in the UK, particularly in the North, it still makes London a highly sought-after and attractive destination that is expected to see growth in the coming years. By 2025, Savills predicts that prices will be 12.6% higher than today.
So while other regions of the UK are experiencing faster growth than the capital (read more about our guide to the best places to invest in UK property), because prices in London are that much higher than elsewhere in the UK, property owners will still find themselves in a strong position should they come to sell and buy elsewhere.
How Much Do You Have to Spend on a London Property?
In May 2021, the average price for a London property was £497,948. London is the most expensive place to buy property in the UK and prices increase around 5.2% year on year.
In addition to the property cost, other fees will apply for investors, including valuation and survey fees, stamp duty land tax, VAT and legal costs.
How is London’s Buy-to-Let Market Performing?
During the pandemic, while the sales market drew to a halt, the London rental market remained buoyant as it continued to operate in later lockdowns. This trend also aligned with renters seeking out different types of properties that aligned with new priorities for more space.
In London, rental yields vary widely depending on the property type and location. Currently, East London is showing the greatest returns on property investment, sitting at around 6% or higher across many neighbourhoods. Commuter hotspots also draw high yields, and areas with Crossrail stations in the future will be areas to watch. For example, the Abbey Wood area offers average yields of 6.7% and has become increasingly appealing with the coming arrival of the new railway. House prices always increase faster with infrastructure improvements and regeneration, too, so investors can expect to achieve the greatest rental yields by investing in these areas.
Property Investment in London: Where Should you Consider Investing?
London is always changing and as different areas of the capital become more popular or fall out of favour with homebuyers and investors, the price of property can change. Investing in the right place at the right time can result in significant profits and it’s important to keep an eye on changing trends.
That said, some areas stand out as being particularly attractive for property investors. If your only concern is purchasing a property that is likely to increase in value, one area not to miss is South London’s Croyon.
Leon House, Croydon
If you’re considering buying an apartment in London, Croydon is undergoing rapid transformation thanks to new retail, dining and development getting underway. One of London’s fastest-growing economies, Croydon is not only home to a diverse range of tech and startup businesses but boasts good transportation networks with road, rail and tram connections to central and south East London. The reinvention of Croydon with the likes of Tech City and Ruskin Square has caught the eye of many property investors looking to make good returns.
Leon House is a transformed office building built in 1965, reinvented into 263 luxury one and two-bedroom residential apartments. Designed for changing lifestyles, it offers a focus on work-life balance with features such as a resident’s coworking space, private dining room and roof garden.
Located in a prime commuter corridor, 13 minutes from Central London, it makes a good long-term investment for those considering a London property. Prices start at £335,000 and with Croydon’s location and regeneration, the property could generate great yields for investors.
Despite some ups and downs over the years, the London property market always remains relatively robust and is considered a safe haven, continually attracting investors from at home and abroad. Investors know they will always be able to make an exit and as a business hub with a growing population, there is always strong demand for rental properties. With plenty of apartments to buy in London, there’s much opportunity for investors to make decent rental yields. Investors should consider changing trends in the new normal, such as more integrated work-life balance, priority on extra space and location. To find out more about property investment in London, get in touch with our experts today.