The majority of housing markets in the UK present opportunities for residential property investment, while the number of new homes being constructed is expected to remain well below the level of demand across the country. In a report into the best locations in which to develop and invest in real estate, Savills noted there are few places in the UK where investors will fail to find attractive options. The key is to choose assets with a relatively high yield, but where "growth prospects are not priced into the market", the organisation revealed.
The firm cited the example of buying stock that has a net initial yield of 5.5 per cent, which, when capital appreciation and rental income are considered, offers a prospective un-geared investment return of more than ten per cent over the course of a decade. Jim Ward, of Savills Research, commented: "The most common opportunity is to buy lower-grade property in a strong market." An alternative approach is to select assets in "micro-markets of different strength in close proximity".
Using London as an indication of how this strategy may work, the organisation pointed out in central areas of the capital, gross yields on vacant possession values are often lower than five per cent. However, districts in zone 2 - including Hackney, Islington, Tower Hamlets and Lewisham - offer much more attractive returns of 5.5 per cent or higher, while development sites in these boroughs "contain large swathes of hidden value that can be unlocked by regeneration and investment". According to the firm, there are substantial areas of the city, particularly in the east, that it considers are undervalued when the quality of transport links and the overall neighbourhood are taken into account.
Meanwhile, Savills recently reported there are indications that housing markets outside London are beginning to recover. The firm highlighted the south-eastern counties where prices have bottomed out and, in certain areas, are starting to climb. The organisation noted the value of prime regional properties is, on average, 17 per cent below its peak recorded in 2007, which presents opportunities for those seeking a real estate investment.
- Tuesday 03 April 2012