Owning a pied-à-terre in a posh central London borough such as Kensington or Chelsea has in recent years been out of reach for most SA investors, given the ever-weakening rand.
But property buyers from across the globe are starting to re-enter the London housing market, albeit slowly, on the back of a weaker British pound and a Covid-related slump in house prices.
Frances McDonald, associate director of residential research at estate agency Savills UK, says it appears London is regaining its mojo as an international property investment destination after being in the doldrums for much of the pandemic.
Still, while the city’s property values are showing signs of recovery as things return to normal, McDonald says prices in prime central London are still down about 17% from their 2014-2015 peaks. “That means there is still plenty of opportunity for buyers — especially those buying in foreign currencies,” she says.
The British pound has lost about 15%-20% of its value against the dollar and euro this year. While the change in the pound/rand rate has been less pronounced, SA buyers are also getting more bang for their buck in the UK at present, given an exchange rate below R20/£ against more than R23/£ in 2020.
Judging by the strong rebound in £5m-plus sales across London in the first half of 2022, McDonald says some international buyers are making the most of this relative value. But fewer than expected are taking the leap, she says, delaying a more noteworthy recovery.
McDonald believes the Ukraine-Russia war in particular has tempered London’s traditional “safe haven” effect. It’s “caused a degree of caution and, in some cases, buyers and sellers have adopted a wait-and-see approach”, she says.
The rebound in London’s prime housing market has been further constrained by the slower than expected return of international travellers. International arrivals in the UK are, McDonald says, still about 15% below 2019 levels.
As a result, the values of prime central London properties have increased by only 0.7% quarter on quarter in the second quarter, and 3.3% year on year. However, McDonald expects the city to regain its status as one of the world’s prime real estate hot spots when the return of international buyers gathers pace.
The rebound in the UK property market has been slowed by a dearth of international buyers. Though prices are now rising steadily, investors can still get value for money
— What it means:
Andrew Golding, CEO of the Pam Golding Property (PGP) group — Savills’s real estate partner in Africa — says there are plenty of reasons why London should be on SA investors’ buy lists.
Despite Brexit- and pandemic-induced pressure on house prices, Golding says London’s property market has proved its resilience over decades. “London remains a leading global financial hub. And demand for residential accommodation continues to exceed supply,” he says.
While an estimated 66,000 new homes are needed annually to house London’s population, Golding says fewer than 40,000 are built each year.
As a result of this housing shortage, residential rentals increased by more than 10% last year. The trend is expected to continue, which Golding believes underlines the attraction of London as a buy-to-let investment destination.
PGP is promoting a number of UK buying opportunities to SA investors, among them the new £7bn Brent Cross Town project in north London. The development offers an entry price of £400,000 (about R8m).
That’s significantly more affordable than the average £800,000-plus (R16m and up) that buyers have to fork out in central London neighbourhoods (see graph). Rental yields in prime outer areas are typically 3%-5%, while in central London they tend to be closer to 2%-3%.
Brian Gradner, sales manager for Pam Golding International, says the large-scale regeneration project offers South Africans the opportunity to get in on the ground floor of what is expected to become one of outer London’s most sought-after mixed-use precincts.
Brent Cross Town, which is a 12-minute commute from central London, will bring a total of 6,700 new homes to the market, as well as 50 shops and restaurants and workspace for more than 25,000 people. It’s all set amid about 20ha of landscaped parks, squares and playing fields.
Gradner says Brent Cross Town will create a “new generation” mixed-use environment, where people can live, work, learn, play, shop and dine — all within a 15-minute walk or cycle trip.
The development sits between two train stations, the northern line and the new Brent Cross West station on the Thameslink line, which will connect the precinct directly to central London as well as to Luton and Gatwick airports.
Gradner says the development is proving popular among SA buy-to-let investors looking for currency diversification as well as among those in search of accommodation for children who plan to study in the UK.
SA buyers can qualify for mortgage lending in the UK of typically 50%-60% of the purchase price.
The first two residential buildings — The Ashbee and The Delamarre — will comprise 277 studio, one-, two- and three-bedroom apartments, many including balconies or terraces, with completion set for late 2024.
Residents will have access to state-of-the-art health, leisure and workspace facilities on the ground floors of both buildings.
London remains a leading global financial hub. And demand for residential accommodation continues to exceed supply
— Andrew Golding
SA investors who plan to enter the London property market can expect healthy capital and income growth over the next few years. In fact, UK property players have recently revised their London house price and rental growth forecasts upwards — despite rising interest rates and recessionary fears on the back of Europe’s looming energy crisis.
Savills has forecast that prime central London house prices will rise by a compounded 21.6% in the five years to the end of 2026, while prices in outer London should increase by 13.6% over the same period.
UK-based real estate group Knight Frank expects average house prices to rise by 4% in prime central London this year (up from an initial forecast of 3.5%), which will likely accelerate to 6% next year as more international buyers return to the British capital.
According to Knight Frank’s latest quarterly London residential review, the number of new buyers in prime areas was already 56% up on the city’s five-year average in the second quarter.
“That underlines the strength of demand that exists despite the cooling UK economy,” says Tom Bill, head of Knight Frank’s UK residential research division.
Rental demand in London has firmed in recent months as workers return to the office and students to university campuses. Though new housing supply has been added to the market this year, upwards pressure on rents remains surprisingly strong, says Bill.
“We now expect rental value growth of 11% in prime central London and 9% in prime outer London this year, up from 8% and 5% respectively,” he says.
Meanwhile, Knightsbridge is singled out in Knight Frank’s 2022 “Wealth Report” as central London’s best buy. The area is home to iconic department store Harrods and boasts some of London’s most exclusive shops, hotels, museums and Michelin-star restaurants.
Bill believes the district offers good value and is likely to outperform other prime London areas over the next five years. He says the area was overlooked during the pandemic because of its high proportion of flats and the general shift towards larger properties with more outdoor space.
According to Knight Frank, a two-bedroom flat in Knightsbridge will set you back a cool £2m, rising to £3.5m for an in-demand property on a garden square. Family houses go from £5m to £15m.
In high-end developments, one-bedroom flats range from £2.5m to £7m, with larger apartments selling for more than £20m.
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