London Residential ''Outperforming Wider Property Sector''

The London residential property market has continued to outperform not only the rest of the UK's housing sector, but also commercial real estate assets in the country...

The London residential property market has continued to outperform not only the rest of the UK's housing sector, but also commercial real estate assets in the country. According to the latest IPD UK Biannual Residential Market Indicator, the total return on residential property across the country stood at 3.1 per cent at the end of the first six months of this year, significantly higher than the 1.2 per cent generated by commercial assets. However, when house price growth is examined, there is a significant disparity between London and the UK's regions.

Data from IPD revealed the value of homes in the capital were up by 4.1 per cent between January and June, while outside of the south-east of the UK, property prices dropped by over four per cent. However, there are signs of a slowdown in the nation's housing sector. Earlier this month, the National Association of Estate Agents (NAEA) published its July Housing Market Survey, which revealed both the average number of potential buyers and vendors decreased during the month, although the volume of sales agreed per branch remained constant at seven.

Usually in the summer months, the housing market slows down due to the school holidays, one factor that the NAEA has cited as a reason for the reduction in buyers and sellers. However, the Olympic Games has also played a part in cutting activity in property markets, the organisation suggested. President of the NAEA Mark Hayward commented: "As anticipated, the build-up and opening few days of the main Olympic events in July had a negative impact on activity in the UK housing market. Particularly in the London regions, our agents found that many buyers and sellers were opting to postpone viewings and completions on properties until late August and into early September."

This sentiment was echoed by Patrick Bullick, NAEA regional executive for central London, who stated that the decline in activity in the capital was "particularly acute" due to the volume of Olympic activities going on in the city. Last month, Ed Mead, director at Douglas & Gordon, suggested a reduction in the number of European buyers in the London market as a result of the exchange rate between the euro and sterling may also have contributed to the flatter price growth being experienced in the London market at present.

Indeed, the most recent Knight Frank Prime Central London Sales Index found that, in the three months to August, property values in the city had climbed by 1.8 per cent - the lowest three-monthly rate since November 2010. The real estate firm also made the observation that the Olympics had kept some prospective buyers and sellers from the market this summer.

Head of alternative investments at IPD Mark Weedon suggested investors need to turn away from the London property market and take a wider look at the sector if they want to find suitable investment opportunities. "It is worth taking a more balanced view of the returns offered in the sector, because many of the new investors looking at residential property, if they want to achieve returns less weighted towards capital value growth, and find larger amounts of stock, will need to look outside prime central London," he asserted.

Mr Weedon said that, provided investors opt for "prudently selected and well-managed assets", they can expect to receive a relatively secure income from their real estate investment, with the UK's regions offering the advantage of requiring lower capital expenditure to enter the market and generating "higher income yields". However, he acknowledged that the housing industry outside London is more greatly affected by the downturn in the UK's economy, particularly where capital growth is concerned.

- Friday 14 September 2012

*This page is provided for information purposes only and should not be construed as offering advice. Flex Profit Hub is not licensed to give financial advice and all information provided by Flex Profit Hub regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.