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Demand for residential space in London bodes well for long-term investors

Monday, August 7, 2006

The two negative fundamentals for a market collapse – unemployment and rising interest rates – need not concern potential investors in property in London, Scott Picken, MD of International Property Solutions, assured delegates at the recent Rode Conferences.

Unemployment in the UK is at an all-time low and the average 10-year moving interest rate is 5,2%. The critical housing shortage in London also contributes to making residential property in the city an attractive long-term investment option.

Picken quoted data released by the Royal Institute of Chartered Surveyors indicating that the number of houses on the market dropped by 11% from November 2005 to February 2006, while demand stayed strong.

With the current shortage of housing and the increase in the divorce rate, 208.000 houses per year are needed in London. Until now UK Housebuilding has been delivering only 170.000 per year, which means that there is an annual shortfall of about 15%.

Apart from the housing shortage, the London rental market is also strengthened in certain areas by the high number of foreigners working in London for a year or two, and usually wanting to rent rather than buy.

Picken pointed out that property prices in London have doubled over the past six years and says that in the long term London offers good value, as it remains one of the most popular cities in the world. Over the past 30 years, London property has outperformed all areas in the UK (see graph).

With a ¾ million of the 1,3 million South Africans in the UK living in London, you could do well if you bought in an area popular with South Africans, such as the Wimbledon area, and break up a house into several apartments which you can then let out to several individuals.

“Compared with other asset classes, London property is still an attractive investment. Done properly and seen over the long term it should be a low risk investment. Staying out can be as costly as going in.”

 

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