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Investor
interest booming
Tuesday, March 03, 2009
Increasing investor
interest in new build stock in prime London
suggests that this market may be flattening
out, according to Knight Frank's latest
London residential development review...
With
prices for some new properties falling by as
much as 40 per cent, yields of over 10 per
cent are possible. Considering that returns
for rental property have rarely topped three
to four per cent over recent years, rents
that amount to a tenth of purchase price per
annum are proving very attractive.
Low savings rates make returns of this level
seem even more appealing, particularly as
many landlords have seen their financing
costs fall dramatically as a result of
recent base rate cuts.
Jon Neale, Head of Development Research at
Knight Frank,
said, "Over recent
years, investors in rental property have
relied on increases in house prices to
justify their purchases. Now, however, it is
beginning to make more sense to invest in
housing for the rental returns alone -
particularly as so many other investments
are performing so poorly.
" Unsurprisingly,
there is increasing interest from investors
in smaller stock, particularly well-located
one and two bedroom flats. Although rents
have fallen across the capital, the drop has
been less pronounced for the lower end of
the prime London market."
The land market is also beginning to appear
good value, particularly for those with
access to finance. In some locations, prices
have fallen by up to 70 per cent, although
30 per cent-50 per cent is more typical.
Given the problems in the mortgage market,
many developers are considering the option
of ‘build-to-let' - developing homes which
they hold and let out - given the potential
returns available.
Meanwhile, supply in the prime and
particularly super-prime sectors remains
highly constrained. Lower prices and the
falling pound have prompted interest from
foreign buyers, some of whom are seeing 50
per cent reductions on some of London's best
houses if priced in their own currency.
Neale added, "Clearly, reduced bonus levels
among City employees will dampen demand in
this market. However, supply in super-prime
London is highly constrained, and remains
popular among international buyers.
" Consequently,
this market is likely to escape the worst of
the falls and will be the first market to
recover, returning to recent peak levels in
2013." Source: Knight Frank
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Valerio Rossi, Real Estate Broker
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