The residential property buy-to-let market has proven to be a solid investment asset class over the years. However, since 2014, the real estate market has been very turbulent. Many buy-to-let landlords have seen fit to sell up as capital growth has stalled and yields have stagnated. Also, the government has increased taxation and reduced tax relief incentives for property investors. So the BIG question on every investor’s lips at the moment is “Is this the right time to buy investment property?”
So what is happening to house prices?
We begin 2019 in a time of tremendous uncertainty. Most property market commentators are predicting that house prices will continue to fall for the next year/18 months as Brexit plays out and the economy stagnates. Prospective clients are increasingly uncertain about the direction that house prices are taking. We are increasingly being asked for advice on buying property for investment during these turbulent times. It is our view that whilst house prices are presently on a downward trend, this trend is likely to be reversed within the next 2/3 years.
So, would we buy an investment property in 2019?
A resounding Yes if the property was good enough and the deal was right. You have to be extremely clever or very very lucky to time perfectly your entry into the property investment market to maximise your chances of strong capital growth. It is unrealistic to expect to get the timing of buying your investment property exactly right, entering the market just as prices begin to rise again. And, in our opinion, they inevitably will. We have seen over the years, for clients who are pragmatic and take a long term view of the investment market (5-10 years) is that it is possible to make great investment purchases during all phases of the market provided you follow certain fundamental principals.
Is property a good investment in 2019?
We believe that buying investment property in any year can be highly successful if you
- buy wisely,
- take your time,
- have clear criteria,
- negotiate hard on the purchase price,
- and take a long term view of the investment.
Previous cycles have shown that amongst all the peaks and troughs of the property market, the long term trend in Central London has always been slow and steady growth. In fact, the indisputable historical trend of property prices since the end of the Second World War has seen property prices doubling every 10 years.
In more recent decades, the massive influx of foreign investment buyers looking to London as the great property investment opportunity skewed this trend. This has created great volatility in the market. Also, it has fuelled a property boom which has slowly been unravelling over the last few years. Our Government’s creation of new measures to curtail this investment frenzy with higher and higher levels of taxation for buyers coming to invest in London from overseas has been instrumental in causing this boom to unravel.
Foreign investment buyers have priced domestic buyers out of the market in recent times. This is particularly prevalent in relation to new developments. We have seen some badly located new build schemes achieving incredible prices simply due to being dramatically oversold in overseas property exhibitions. Investing in these types of oversold schemes can be a recipe for disaster and we generally advise our investment clients to steer clear.
Where you choose to make your investment is key!
Capital growth has become the most important aspect of owning an investment property in London. Rental yields over the past 10 or 15 years have been pitifully low. Low yielding investment property only really makes sense in a market fuelled by low-interest rates and rising prices. So as interest rates begin to rise, it becomes ever more important to maximise your prospects for strong capital growth.
Our advice to clients has always been to choose areas which have the best potential for capital growth. We believe that this is not necessarily in highly touted “Up and coming” areas of London. We usually avoid secondary areas and schemes where there is too much hype and interest from overseas investors. In our experience, the best capital appreciation potential is to be found in the central, more established, postcodes of London. The up and coming areas are simply much slower to evolve and improve in times of economic stress.
The importance of location:
The Battersea Power Station Development is a hugely exciting one for the area and will be a great hub for locals. New transport facilities will ease the present difficulties of crossing the river during the rush hours. However, it is our view that this scheme was far too oversold during the off-plan sales phase. Also, prices to get into this scheme bear no relation at all to what is achievable elsewhere in the local area for a similar quality of property. In other words, clever marketing sucked in foreign investors and property speculators to an area which has never been desirable to experienced property investors. This is a scheme where we see some investors losing a good deal of money.
You can never change the location of Battersea Power Station to the more desirable “North of the River“. It is our view that this fundamental point will curtail future capital growth prospects in this development.
So is property a good investment in 2019?
Property is always a good investment if you choose wisely, negotiate your entry price well and take a long term view of the investment. Take good advice from buying agents who know the market well and your property investment has the best potential to do well in the long run. Do not expect miracles in the short term and look after your tenants with continual “investment” in the property. Choose your investment location well and you will maximise your prospects for strong capital growth.
Understand the process of working with a Property Buying Agent.