April 20, 2018

In the shadow of Brexit and the falling property prices in London over the last year, should Singaporeans be looking elsewhere to park their money and pad their overseas investment portfolio?

We spoke to James Nicolson, Sales and Marketing Director with St George, a Berkeley Group developer, to hear an insider’s view on just how lucrative the London market remains.

On the impact of Brexit:

JAMES: I think Brexit hasn’t been the driver of the issues currently facing the market. The uncertainty in the market has more been due to legislative introductions like stamp duty changes. Yes, Brexit had an impact, but people are becoming accustomed to that, especially with how the arena of global politics has been shaping up. Brexit is quickly becoming the new normal because of that.

London has traditionally been an investor’s choice, because of the education system offered, the strength of its economy, transparency of its legal system, and ease of access to the property markets, visa and investment system. That’s not going to change. Those strengths will always remain and I believe that’s how London will remain a popular global city. What changes will be the ebb and flow of international politics. We can only amplify and talk about the attributes that make it strong, and how we as developers create organic markets for it, locally and internationally.

London-Property-Market-Art-2

The London property market now:

JAMES: The rental market has been good for the last 2 to 3 years, obviously the capital market is quiet. London prices have softened since there’s been a period of adjustment in the market, especially when you see what in the headlines and reports from CBRE, Knight Frank, etc. Prices have certainly softened slightly, and I think the expectation over this year and the next 4 or 5 years is going to be measured.

If we’re comparing the rate of growth to those in the rest of U.K., as mentioned, the last couple of years have been a period of correction in London. Hence, in comparison, areas outside of it have flourished. So when you look at reports and the news, they say that the average U.K. house price grew between 2 and 5%, while London was zero to a minus. But there are also differing points of growth within different regions of London itself. But it really is simply a correction of the market, and a movement towards a more stable and normalised one. The market mechanisms aren’t there for flipping houses; the capital growth isn’t there.

Current trends in the London property market:

JAMES: Yes, there are people who can get out before completion and avoid paying stamp duties and taxation at the point of completion, but the strength of new builds still comes through. I think people are moving away from the mentality where they buy today and make money as soon as possible by selling. I think that’s what people see as well—it’s brand-new and in move-in condition with warranties, and there’s a premium to be had on the rental front as well. All the benefits of why to buy new are still prevalent, and our current rental yields on London Dock and Cashmere Wharf are around 3.5 to 4%, which is on the better side of London at the moment.

Investors are buying with a medium to long-term view on the property: buying to keep for rental yields, before wondering what to do with the property in 10 years time when the capital has been paid off. They’re more interested in finding a good quality tenant who will rent for 5 years, by which time they can look at a disposal route in 2024 or 2025. That’s a solid, organic buyer market.

The London property market future:

JAMES: When you look at all the major property analyst reports, the projected growth for the London property market are all between 8 and 12%. CBRE was predicting a 10-14% growth in the market until 2022. The opinion is: yes, prices have softened and we’ve probably reached a plateau in terms of correction; so the outlook is a little bit more positive over the next 3 or 4 years.

I think the market is going to remain steady for the next 2 to 3 years. Because we’re moving towards a normal market, and I suspect differentiation in terms of factors like quality of product, and strength of brand which will come to the fore when buyers are making their decisions.

Where to invest in London:

JAMES: From an investment perspective, an area like Wapping for example, the mainstream agents are predicting with a bit of a weighted average in terms of growth forecast, because of the regeneration effect and the benefits that come with some of these bigger schemes.

The general thinking is that the London market over the next 4 years will grow by 10% according to CBRE, and they’ve put a figure of an additional 4% on the Wapping effect. It’s the added benefit of gentrification, the generation of commercial benefits that come in. It’s not particular to Wapping or London, there are other pockets of London that might benefit from the same, but that research was interesting to understand the added value and the uplift that these schemes do bring.

What to invest in London:

JAMES: There is strong demand in the local London property market for good quality product. For St. George, it’s the details and the quality that our customers ultimately want. London Dock offers not only great architecture, but resident facilities and commercial benefits to the surrounding community. There’s certainly a demand from both local and foreign buyers.

It’s not just a residential scheme, it’s a proper mixed-use development. It’s intended to bring the local community to life and has generated a lot of interest in the local community. We have these thoroughfares that break up what used to make up “Fortress Wapping”—the row of closed-off printing presses from when Rupert Murdoch ran News International here—and allowed people to walk off the street into the estate and out to the other side that opens up towards the docks. The local residents will have access from every direction, and of our 15 acres, 7.5 will be landscaped areas and private gardens. It’s not just about the architecture or the amenities but the depth of lifestyle offered.

We’ve regenerated large pockets of London, and if you look at them today, they are thriving local communities. With our Imperial Wharf development, we introduced a train station to the vicinity, and added a pier and pontoon for rowing at Fulham Ridge. We’re focused on where we can add value to the community, and the benefits are tangible as the estates unveil themselves. Demand will keep growing: people will say that they want to be in London Dock specifically, which means there will also be a strong rental demand from the commercial perspective as well. We’ve seen a number of repeat purchasers from our earlier London Dock launches who invest in Cashmere Wharf as well.