Economist John Maynard Keynes may have had a point when he said that “the long run is a misleading guide to current affairs”. When it comes to investing in property, however, it’s long-run performance that really matters.
Take the London market. Our Prime Property research shows values in the capital have softened in the past couple of years under the combined impact of Brexit-driven uncertainty, over-ambitious asking prices and tax reform.
“International buyers of prime, especially new-build prime, have been hit,” says Peter Izard, business development manager at Investec. Although this has partly been tempered by the currency play – sterling’s weakness has boosted affordability for many foreign buyers – there’s no doubt that “stamp duty changes have pushed up the cost of entering the market and Brexit has hit overall sentiment”.
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But if you look at London’s longer-term prospects, the perspective changes. Based on our forecast for 2018, the total value of deals in one of London’s top boroughs, Kensington & Chelsea, is expected to rise by 14%. Neighbouring Hammersmith & Fulham shows a similar rise.
These gains look set to be even higher in central areas that have not previously seen investments from the top end of the market, such as parts of Lewisham and Lambeth (where values are expected to go up by 49% and 47% respectively).
The total value of £1 million-plus transactions in England and Wales has risen by almost £2 billion since 2016, reaching £32 billion in total. It shows that whatever the short-term indicators, property remains a critical asset class for any long-term wealth-building strategy. After all, says Izard, “HNWIs want to ensure their assets are diversified. Even with the disincentives around stamp duty and changes to income tax, property remains a key part of their portfolios.”
That said, buying the right property remains the key to making the most of your investment. According to our research with HNWIs, unique features that make a property stand out are hugely important.
But the definition of ‘quality’ has moved with the times, widening from Jacobean staircases, Georgian plasterwork and statement fireplaces. For example, says Izard, “connectivity is now a big factor – having access to fast broadband is increasingly a must-have. Changing working patterns and a desire for work-life balance mean space for a home office is also high on the list.”
This helps to explain the popularity of new- builds, where properties are typically designed for space, modern lifestyles and all the technologies – from wiring to energy saving, and even power generation – that HNWIs are coming to expect.
Of course ‘location, location, location’ is still the rule. But our research suggests the market is moving into new locales – especially when it comes to ‘upgrade’ properties. And investors looking for long-term capital growth, in particular, need to keep abreast of planned infrastructure and civic developments, as well as looking at the postcode.
“We’re seeing the emergence of prime hotspots in London boroughs that 15 years ago were almost no-go zones,” says Izard. “Single professionals and young couples have gentrified areas. They work hard and play hard, and there’s a real demand now for modern properties in areas such as Tower Hamlets and Lewisham.”
Landmark office new-builds such as the Google headquarters in King’s Cross for example, are also driving gentrification. “It’s encouraging new prime residential to serve incoming talent,” notes Izard. “Cities in the North and Midlands could benefit from company relocations out of the capital, too.”
Similarly, new transport links that open up previously under-served areas have a massive effect on local property values, both in and outside London. The Northern Line extension to Battersea and the upcoming Elizabeth Line linking Reading in the west to Abbey Wood and Shenfield in the east; as well as the proposed Oxford-to-Cambridge expressway and East-to-West train routes in the North, have all been game-changers for local markets.
So where the golden rule of property investment used to be ‘follow the money’ into established affluent locations, today’s buyers may prefer to ‘follow the cranes’ instead.