London property prices just keep on mushrooming – but how long can the boom-times last?
Should you be casting your investment net further afield? And are you better off investing in local residential buy-to-lets, or taking a stake in big-scale commercial property projects outside of London?
It’s time to find out. Whether you’re looking for a new home, building your portfolio, or just a property gossip-hound (aren’t we all?), we’ve asked Graham McKean, Head of Property at Lloyds TSB Commercial, about his views.
Hi Graham, thanks for speaking with us about property investment. How’s the property market generally looking at the moment?
Wider economic uncertainty has had a broad and far-reaching effect on property transactions during 2012. Confidence in most areas of the property sector remains largely flat – but there are pockets of the market that are not so much bucking the trend, but certainly seeing opportunities realised. These include all aspects of property within London, which continues to attract foreign investment.
Going forward, activity and confidence has the potential to be buoyed by planning policy reforms, although we will have to wait to see what measures the government introduce and what kind of effect this will have.
What about the buy-to-let market, which many of our readers are interested or invested in?
Residential market rental yields have continued to hold up well in the last 12 months. We’ve seen prices maintain an upward momentum, driven by high demand in all areas of the UK, particularly London. Landlords are benefitting from low interest rates, plus a further decline in property prices, in order to fund the purchase of new properties. This activity is likely to continue for the rest of 2012 and into 2013
We would expect the rental market to continue to do well for the next three to six months, on the back of falling property prices, lack of housing stock and consistent demand particularly in London. However, there are likely to be, as always, strong local variations.
Are there any advantages, from a purely financial perspective, in investing in buy-to-let rather than upgrading your own home?
This very much depends on location and whether desire is for income generation or capital growth. Both can offer the potential for good returns in the long term. It really depends on the objectives and requirements of individual business owners.
How is UK and London property residential property performing as an asset class compared with other common asset classes?
Very similar to other areas of the property market, the UK residential property market is a mixed bag depending on region.
Sustainability has become an important factor within property. All new build opportunities should include an element of sustainability in their blue print, while existing buildings, in order to attract quality tenants, should offer cost efficiency, a central location and good amenities.
What about specific parts of London? Where’s hot in 2013 and beyond?
Following the success of the summer games, it will be interesting to see how the area around the Olympic Park is managed – whether it can maintain an upward momentum and attract investors for buy-to-let, and also owner occupiers, going forward.
Investment opportunities are likely to emerge in areas of the city that are subject to regeneration, but this market is limited at the moment due to a slow appetite among private businesses getting involved in speculative development. That said, we are expecting to see an increase in enquiries as we move into 2013.
Within the secondary market, investors are always attracted by good quality accommodation.
Can the London residential property boom really continue? Is there a risk it will burst?
It is difficult to see price increases abating in London, due to the consistent demand from UK and overseas, aligned to limited housing stock and the cost of purchasing. Rental yield compression and capital growth is spreading to out-lying boroughs as a ripple effect from traditional hot beds.
Any other niches of UK property set to do well in the next year or so?
We may see the secondary mortgage market return, as people invest in their homes, borrowing to fund expansion of properties that will eventually provide long term returns, and also to suit growing requirements.
Where would investors be wise to look for longer returns (5/10 years)?
Investors should always look to make financial decisions based on long-term objectives. There are very few quick wins, especially when it comes to property, which is a cyclical market.
How is the UK property market comparing with Europe?
Further instability in the Eurozone is certainly not helping confidence amongst investors. In general terms, the proportion of SMEs investing in property in Europe remains constant, with no significant evidence that this will change in the next six months.
In the past, one of the biggest perceived differentiators between the UK and the European property market has been the number of owner occupiers. However, a Eurostat report published in 2009 revealed that the UK actually had a lower rate of owner occupation, at 70%, than the Eurozone, which averaged 72%.
Since then, a report by English Housing reported owner occupancy in the UK had fallen to 66%. The cultural movement away from owner occupation, combined with economic factors, could be a contributory factor to this decline. It has the potential to open up new opportunities for investors and those operating in the buy-to-let property market, across disciplines.
It will be interesting to see how the government’s planned pension reforms develop over the next two or three years, and whether this will impact on appetite to purchase property as a long-term investment.
How is UK and London commercial property performing as an asset class compared with other common asset classes?
With the value of the stock market still compressed and confidence subdued, the property market is still seen as a strong investment option.
What segments of the UK commercial property market look set to thrive?
Prime is always strong but we are seeing some activity in the secondary commercial property market. This may be as a result of more forced sales, although appetite is returning.
How can Lloyds TSB Commercial help our readers looking to invest in property?
Lloyds TSB Commercial is committed to providing guidance and support to meet the needs of our customers.
The £80m Funding for Lending Scheme, which was launched earlier in the year, is just one of the ways that we have committed to supporting businesses through access to finance. The scheme aims to reduce the cost of borrowing for small to medium sized businesses and will benefit some operators within the property sector. We look forward to working with business owners to explore funding opportunities.
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