London: Traditionally you would expect Middle East buyers to invest in prime central London areas such as Belgravia and Knightsbridge and not to stray much further into other London locations. However, the “golden” postcodes are no longer the only areas of interest for Middle East investors as they are becoming increasingly educated on the benefits of buying further out.
There are a number of factors influencing this. Firstly, the recent alterations to the UK’s Stamp Duty Land Tax are expected to have a significant impact on the investment geography across London, alerting Middle East investors to the city’s more fringe locations. This as the lower end domestic market stands to benefit from the new banding system for stamp duty, which has reduced the tax payable on transactions at this level of the market. (See accompanying table.)
We are also seeing the younger generations being educated on alternative areas to the golden postcodes, because they have lived and studied in London. As a result they are looking at the more edgy and trendy areas such as Shoreditch and Notting Hill. And those looking to work in the City scout locations in Greenwich and East London due to the transport links and the up and coming areas there.
Previously, it had been fear of the unknown that saw a reluctance among Middle East buyers to venture out into new zones. But with the next generation already experiencing new locations while living and studying in the city, the fear of safety and being close enough to central locations is being overcome.
While there is no doubt that prime Central London will always see demand, it offers low rental yields for those looking at buy-to-let investments. The growth in terms of capital appreciation in the fringe areas is arguably stronger with the new infrastructure and therefore desirability pushing up prices.
Investment opportunities
The gross residential yield in prime Central London stands at just over 3 per cent, compared to East London and areas around Canary Wharf and Woolwich where average yields are 4-4.5 per cent.
The attractions of investment opportunities just outside of the core prime Central London areas is not something new. Yields have always been slightly higher further out and with the changes to the Stamp Duty, Capital Gains and ATED rates it further highlights areas that may have been previously overlooked by the international investment community.
An area of London which is seeing huge regeneration and interest from developers and investors is East London, which is already benefiting from the highly anticipated Crossrail line currently being built linking Reading across London to Shenfield. Crossrail is Europe’s largest infrastructure project which will increase London’s rail capacity by 10 per cent.
With transport links being a key driver of prices and rental yields, especially in the capital, it is a hot topic. Residential property prices within a 15-minute walk of Crossrail stations on the western line have on average outperformed the wider market by 6 per cent.
Transport links
For investors looking to secure a tenant for a good price it is worth noting that 91 per cent of London tenants want to live within 1 kilometre of transport links. The old Royal Artillery in Woolwich is a development in East London that is actually going to have a Crossrail station set within it.
The site which was acquired by Berkeley Homes in 2001 and the area around it has been undergoing a radical transformation and redevelopment and is one of London’s most exciting regeneration projects. The predicted growth for this area is set to increase to an average to £950 per square by 2018 when the Crossrail line comes on line, offering investors’ great potential capital growth over the next three years.
The writer is Associate Partner, London International Project Marketing, at Knight Frank.
