The growth of foreign investment in London real estate

New buildings in London have become more attractive to foreign investors, it shows the unprecedented growth of demand for new apartments in London with buyers from Asia and the Middle East.

In particular, the dividends paid to a number of investors from the Middle East, reached 80% over the past 10 years – such data are published by the Agency of the real estate of Cluttons working with the Middle East since 1976.

Recent independent research suggests that the popularity of the new residential construction in London is extremely high among foreign investors and this only fuels the already high appetite of investors, who are in anticipation of high profits. Cluttons notes that a large part of this international appetite to invest in residential property in London comes from the Asia-Pacific region and Persian Gulf customers, which saw an additional incentive to reduced the rate of the British pound relative to other world currencies.

The study of the real estate market of London in new buildings, made on behalf of Cluttons, notes that the construction of houses in London offers a unique strategic opportunity for international residential investors. New properties are created in advance of a sound investment prospect. They have low management costs, they can successfully be used for rent. Also apartments in new buildings have a great potential rental return because of the convenient location and superior quality, which determines the demand for such housing by many highly skilled workers from around the world flock to the British capital. Since 2000 in London was an additional 400000 jobs, as a result, people are now employed in various areas of London, more than in 2007 – during the economic peak. The influx of professionals has led to huge pressure on the capital’s housing stock. However, the demand for residential property in London were not supported by supply and housing prices were growing. Thus, economic conditions do not allow new buyers to get their own housing, and it is obvious that they were added to the already growing army of tenants.

Given that the average price of new apartment in a prestigious Central London starts from £1 million, it becomes increasingly important to meet the needs of tenants for whom the prospect of having your own apartment in London is becoming less likely. According to forecasts of experts of company Cluttons, bill Seigle, capital growth will reach 25% over the next five years.

If you compare with the peak, which was the market in 2007, thanks to the influence of the weak pound, caused in part by the recession, buyers in the Euro may benefit about 15%, and customers in Singapore dollars – 33,5%.

Also the British Pound Sterling has lost 6.6 percent relative to the value of the UAE Dirham from the beginning of the year, which strengthens the attractiveness of property investments in London. As at the end of the first quarter of 2013, residential property in London is trading 18.5 per cent lower than at its peak in 2007, if prices are measured in Dirhams.

Investment from the Middle East are not new to the London property market. Among last year’s biggest residential investment deals was a joint transaction of the Corporation “Abu Dhabi investment” and “London and Stamford”, which purchased the Moore house in Chelsea for £147 million.

And since in the short and medium term is not expected a significant strengthening of the Pound Sterling, is expected to lead to further increase of investment appeal of London, especially for investors from the Gulf countries.

The steady growth of capitalization, respectively, has seriously affected the growth in rental yield in Central London, it dropped to 3.69% during the first quarter of 2013 and the sixth consecutive month of growth.

However, it is clear that rental growth will outpace capital values in London over the next decade due to the influence of imbalance between supply and demand, and largely due to the increase in the number of rich groups of tenants.

® Alice Morgan. 03.06.2013