Although, past performance has shown steady growth in property investment activity during economic downturns. When coupled with the sustained low interest rate situation and the positive effect that has on mortgage financing possibilities, this can mean good prospects for investment returns.
Taking London as an example, while property prices did fall back to levels from two years previously following the 2008 global financial crisis, they quickly regained their value and have continued to grow steadily ever since.
This record of delivering steady returns in the face of international economic volatility is what marks the UK apart as a secure investment space despite the potential uncertainty of the years ahead.
According to RICS, current market conditions “unsurprisingly show (UK) house prices continuing to rise, and at an accelerating pace.” Knight Frank is similarly forecasting residential price growth in the UK between 2016 and 2020 to reach 20.5%, and Savills expects growth of 17% over the same period, with up to 22.2% estimated in prime areas of regional cities.
But even within a safe-haven market such as the UK, not all postcodes or price points are equal. Prime Central London property for example has become less attractive recently, with investors turning their attention to the better value and higher yields on offer in outer London, particularly across sites close to future Crossrail stations.
In November 2015 the average London home outside of the centre of the city sold for GBP506,724, reflecting an 11.2% increase from the previous year, according to Land Registry data. Even further afield, Manchester and Birmingham also offer investor potential; in the past 20 years Manchester has experienced price growth of 127% and Birmingham 133%. Meanwhile prices in prime real estate areas in Central London fell 1.4% during 2015 according to Lonres.
This all comes back to the unequal impact of economic volatility, with certain areas and sectors – particularly higher price-point luxury real estate for example – most susceptible. The prospect of even a modest drying up of investment from Russia and the oil-producing countries of the Middle East will only compound this trend. As investment resources become constrained, more and more buyers will begin looking outside the prime real estate areas of historic Central London in search of secure and steady price growth.
These factors are at the heart of our UK regional cities investment strategy, as well as our focus on the property markets of outer London. In the capital, areas such as Croydon, Ilford and Woolwich have become key locations for investors, while other cities such as Manchester and Birmingham are now important markets in which investors can find the combination of growth and stability that was offered by prime Central London five years ago.
Elizabeth Chu, Head of Investment, IP Global