Why Prime London real estate will be the most profitable asset class in 2014

Residential property in Prime London will outperform other major asset types and record double digit growth this year, according to a leading international property consultancy.

A report by Chesterton Humberts forecasts capital values to rise 10.1 per cent, compared with the FTSE 100 Index (7.8 per cent, gold (1.4 per cent) and Brent Crude (-3 per cent), which will encourage investors to gravitate towards property over the next twelve months.

As the number of properties on the market remains low, house prices are expected to be driven up by sustained demand from foreign and domestic buyers. Overseas investors will continue to predominantly target apartments within new developments to add to their investment portfolios, whilst growing confidence that the economic recovery has taken hold will bring more domestic buyers to market.

In comparison, equities are expected to rise as corporate prospects begin to improve, but at a slower pace. Meanwhile, the ultimate safe haven gold faces greater uncertainty as global economies appear to stabilise, whilst oil prices are predicted to fall as demand declines from major importers.

Chesterton Humberts’ Prime London Residential Sales Report 2013 Q4 demonstrates just how strong the property market became in 2013. According to the company’s Index, prime capital values rose just over 11 per cent in 2013 as a whole, slightly higher than the previous year as the level of demand remained strong from buy-to-let investors and owner occupiers – both foreign and domestic.
Meanwhile, appraisals, viewings and exchanges all recorded double digit growth compared to 2012. Chesterton Humberts is forecasting that residential property values will grow at a rate of 9.7 per cent p.a in 2014, and 48.5 per cent over the next five years.

Nick Barnes, head of research highlights the advantages of investing in residential property in Prime London: “There is certainly a compelling case for investing in residential property in Prime London. Its long term track record is impressive, having delivered strong capital growth together with low volatility compared to equities and commodities whilst displaying low correlation with other mainstream asset classes. This has already attracted a wide range of prospective buyers.”

Knightsbridge and Isle of Dogs ahead of the pack for rental returns in London

London’s Isle of Dogs has emerged as one of the strongest rental performers over the last 12 months, according to a leading property consultancy.

These findings are a result of an increase in City recruitment and an upturn in demand from tenants seeking out affordable locations, said Cluttons in its latest Residential Investment Monitor published in February.

Along with the Isle of Dogs, Knightsbridge is also performing well, boasting average weekly rents of £1,840, representing a 21 per cent increase on 12 months ago.

During Q3 2013, the Isle of Dogs (13.6 per cent) and Knightsbridge (21 per cent) recorded the highest volume of annual rental value growth across prime Central London on the same period the previous year.

Single households now represent over three quarter of new lettings in the Capital, with tenants in their twenties representing 42 per cent of all lettings. Average weekly rents across prime Central London have reached £1,022 – £2 shy of Q3 2011 record.

Sue Foxley, head of research, Cluttons commented: “We have seen rents on the Isle of Dogs rise by 10 per cent following a fillip in City recruitment as the finance sector reports a rise in new recruits. This heightened demand will begin absorbing some of the increased levels of supply we have been recording, which has capped rental value growth elsewhere throughout the summer…

“In Knightsbridge, demand is coming from a different rental group with growth being underpinned by dwindling supply and a lack of movement in the market. For prime areas we have seen a significant increase in tenants with the volume of lettings activity in August over 30 per cent higher on the same month last year. Although the Olympics clearly created a market anomaly in 2012, there is clear evidence of increased interest, with activity in the usual quiet summer months sitting ahead of the previous three months. This trend looks set to continue into autumn with initial figures suggesting buoyant market conditions.”

The UK’s ‘rental revolution’ is here and the sector is set to grow, says leading property consultancy

A sixth of the UK population currently lives in privately rented housing, according to a new index launched by property consultancy Knight Frank, which also predicts that the number of households in the sector is forecast to rise from 3.9 million in 2010 to 5.3 million by the end of 2018.

Other findings of the index were that in 2013, the average rental growth in six key UK cities was 2.9 per cent, ranging from 0.4 per cent in London Zone 1 to 5.3 per cent in Manchester, while the average yield across all six city markets was 6.6 per cent.

The index tracks rental performance in six cities: London (Zone 1, Zones 2-3, Zones 3-6), Bristol, Birmingham, Leeds, Manchester, and Glasgow. Within these cities markets, it follows rental and capital growth, as well as discounts, of buildings ranging from ‘economic’, at the lower end of the rental scale, to ‘prime’, for buildings with the highest specification in the best locations – which usually also have the highest rental value. Also noteworthy was that Leeds and Manchester had the highest average initial gross yields in Q4 2013, at 8.2 per cent.

Gráinne Gilmore, head of UK Residential Research at Knight Frank commented: “The rental revolution is here. The dynamics in the housing market in the UK mean that the private rented sector is set to continue growing in the years to come, boosted not only by the difficulties many face in climbing onto the housing ladder, but also the need for flexible tenure among workers who are increasingly concentrated in the key cities around the UK. Investors keen to tap into the market are starting to move their attention beyond London to the regions, where, as our index shows, yields are higher.”

Sub-£2million flat market spearheading increased activity in London in 2014

Competition is strong for investment property priced under £2million in London, with demand for flats in this price bracket showing considerable growth in 2013, according to a leading property consultancy.

Richard Barber, partner at prime Central London estate agency W.A. Ellis said in January: “We have agreed some very encouraging sales in January and sentiment remains strong. Soon after launching an unmodernised one-bedroom flat priced at £625,000, we had 30 viewings and the property attracted 8 sealed bids. It’s also interesting to note that we’re seeing a variety of potential buyers, including investors, owner-occupiers and buy-to-let purchasers. Competition is strong with a mixture of cash buyers and those requiring finance.”

According to W.A. Ellis, the volume of transactions in the prime SW postcodes shows a consistent house sales market within the core market of £1,500,000 to £7,000,000. In 2012, 211 houses were sold in this price bracket and in 2013, 221. The flat market, however, shows an increase from 2012 of 270 flats to 359 in 2013 (Lonres.) The demand for flats can only be a good sign for the development stock coming on to the market this year.

Added Richard Barber: “We have recently been instructed on two extremely well-located houses. Firstly, an unusual ‘coach’ house in the heart of Chelsea, which is arranged on only two floors and would suit an older couple extremely well. Alternatively, planning consent could be applied for to create a mansard extension on the second floor and a basement, providing a further 1,150 square feet of accommodation. We are asking £3,950,000 for the freehold which includes attractive views over St Luke’s churchyard.

“Meanwhile, 20 Yeomans Row is also an unusual house, being wider than average, arranged on three floors only and enjoying attractive views over Egerton Place gardens. The house has been immaculately refurbished by its current owners and also offers scope for further extension into the basement if required. We are certain that two such high quality houses will sell quickly.”