It was only a matter of time before the extremely low rental yields across London’s more luxurious real estate markets turned the heads of investors to the provincial sectors. This is something which has been rumoured time and time again over the last few years but there are definite signs that since the general election investors believe rental yields in some areas of London are far too low. As we have mentioned on numerous occasions, demand for London property has pushed prices to levels which are unsustainable from a pure investment point of view.
Which areas of the UK are benefiting?
There is evidence that the likes of Manchester and other northern cities are benefiting from the switch in funds from London to more provincial markets. Indeed there is also evidence that Glasgow and other areas of Scotland are benefiting now that the independence referendum is over. It is interesting that investors look at regional situations in the cold light of day using cold hard facts rather than any emotional connection.
If you read the newspapers you would be forgiven for expecting the next independence referendum to be just around the corner. The SNP may well have won 56 of Scotland’s 59 seats in the Houses of Parliament but it is highly unlikely we will go through another independence referendum before the end of this current Parliament.
Will London property prices fall?
Over the last few months there has been reduced activity in the London property market, ahead of the general election, indeed property prices fell during the month of April due to political uncertainty. There was also the possibility of a mansion tax if the Labour Party was installed as the next government but this was not to be. May is likely to see a slight rebound in London property prices, seen by many estate agents as a relief rally, although there is a growing expectation that property investors will switch from London to provincial markets where there is “better value”.
London is an exceptional real estate market and it is highly likely that overseas investors will reignite their appetite for the luxury end of the market now that the political situation is settled for at least the next five years. The UK economic situation is slightly different with the latest inflation figures showing a fall of 0.1% (deflation) and while not wholly unexpected these are exceptional economic times.
Investors more focused on value
There are a number of factors which have come into play over the last few months including the potential decentralisation of public services across the UK as well as greater budget powers for local authorities. These should help to improve the performance of local economies and create new employment opportunities which will obviously benefit local property markets. Whether or not we are looking at a sea change in the UK property market remains to be seen because the reality is that London has been and always will be head and shoulders above any other property market across the UK.
London’s appeal to overseas investors has been growing since the election and the fact it is seen as something of a safe haven is a further positive.