A report this week has highlighted the inflated value of London real estate with statistics showing that London property is twice as expensive as that in some areas of New York. While this will not surprise many people it is worth noting that interest in London property has reduced slightly over the last few months. So, what does the future hold for London property and will investors start to look elsewhere?
Similarities between London and Manhattan
When you bear in mind that London has a population of 8.6 million and Manhattan a population of 8.5 million there are many similarities between these two property markets. If you asked investors about the actual difference in property prices between these two markets how many would have guessed the difference was so large?
In many ways London’s prominence as a financial centre of not only Europe but the world has led to enormous interest in London real estate for many years. Despite numerous attempts by European politicians to de-throne London as the financial centre of Europe their regulatory changes have had little impact.
Will investors switch interest?
There are already signs that some London investors are looking elsewhere for their future property purchases with the likes of New York featuring more prominently of late. Whether this will continue in the longer term remains to be seen because the financial difference between New York and London property takes in so many different factors. At one point over the last couple of years the rental yield on some of London’s more luxurious properties fell below that of government bonds which reflected the “must have” aspect to London property.
It is worth noting that London property has been stagnating over the last few months although some of this will be due to regulatory changes and tax issues. We have seen this all before with regards to London real estate but in the end investors will digest the regulatory and tax changes and more often than not they will come flooding back for more.
Is there better value in other areas of the UK?
The vast majority of international real estate investors looking towards the UK only have eyes for London. Many are completely unaware of the perceived value in other areas of the UK with regions like the North of England never discussed. However, while rental yields and perceived “value for money” in other areas of the UK may compare favourably to the London real estate market in many ways we are comparing apples and pears.
While the London property market is a major element, indeed the leading element, of the UK real estate market in many ways it is a different market in itself. Even in the midst of the 2008 worldwide economic downturn there was still significant interest in London property and many investors took advantage of short-term concerns to pick up “cheap” long-term property assets.
The London real estate market is to a certain extent a “one-off” because while on paper much of the real estate appears expensive, investor still keep coming back for more. The revelation that London property is twice the cost of some areas of New York will surprise many but there is more to London than meets the eye. Indeed, as we mentioned above, the vast majority of international real estate investors looking towards the UK only have eyes for the capital.