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Home > News > Brexit: The Opportunity for London Property Investment now

Brexit: The Opportunity for London Property Investment now

Thursday, February 13, 2020

Four years of Brexit dominated headlines has smashed the pound to a 30-year low. In February 2016 the pound stood at 1.4434 USD. Now in February 2020 it stands at 1.2887 USD, a drop of 11 percent.

The uncertainty of the past four years not only caused a plummet in the £ Sterling, it also made a buoyant residential property market in Central London slide on the uncertainty. New building stopped dead in it’s tracks and the residential market stagnated while endless Brexit arguments dominated the political landscape.

This bleak and indecisive period came to a sudden halt when Boris Johnson got re-elected as Prime Minister with a landslide majority in late 2019. His platform was a firm and clear UK exit from Europe. He won with a powerful 80-seat majority.

Clearly there are many issues still to be resolved as the United Kingdom edges out of Europe over the next 12 months, however there is an obvious new determination to get things done and move on. This has reflected in an improved £ Sterling and UK stock market.

The London residential property market is now poised at an interesting level. On one hand, there remains older “new build” stock in the market that did not sell off during the doldrums of Brexit negotiations and on the other hand, new building really stopped dead in its tracks so supply in the new build sector is very limited.

With a Brexit “bounce” now occurring the residual stock is quickly being taken up. Tom Bill head of Knight Frank residential research said “In the 10 working days following the general election, Knight Frank carried out more exchanges in prime central London than any ten-day period since December 2016. Furthermore the number of new prospective buyers registering with Knight Frank in London rose to its highest weekly total in more than 15 years in the second week of January.”

Any negative Brexit impact has largely been absorbed in the residential market, the extra stock left residually from the lack of transactions is now rapidly being taken up and we are now left with three fundamentals that will dictate the market over the next 3 to 4 years.

 

Critical lack of supply

For the last 10 years residential supply has been constrained in the Greater London area. London required 40,000 new homes every year. For the past 10 years less than half that number have been built.

The 33 local London Authorities represented by the “Local Councils” have calculated that to clear the shortage backlog and meet growing demand London will require 100,000 new homes per annum, a target currently impossible to achieve.

Lucian Cook of Savills recently commented “London faces a massive challenge in delivering more new homes across a range of price points and tenures. That challenge has become substantially harder in the much weaker underlying market conditions of the past two to three years”.

What building has taken place, interestingly, has been concentrated on the East of London. Nearly a quarter of new housing has been delivered in regeneration areas in the East, three boroughs have seen this, Tower Hamlets, Greenwich and Newham.

For those of us interested in London residential investment opportunities the next few months offer a window to enter the market whilst prices remain relatively low and before the shortage of new stock becomes acute. After three to four years of inactively on building starts, it will take the system a year to 18 months just to rebuild supply chains. With the substantial shortfall in residential build numbers in the background, this has to lead to price rises across the board.

Problems impacting on new build programme

Taking a “broad brush” look at available sites for New Build, history has shown us that land shortage in the City is getting more acute. The massive sites available in the past are now fully built – Canary, Battersea Power Station and a long list of decentralised markets from Covent Garden to Smithfield Market. Army barracks and hospitals have been moved to the outskirts and the land they previously occupied, used to build tower blocks. Concentration over the past 10 years has been on re-generation but again areas to be targeted for this are becoming as rare as “Hen’s teeth”.


To compound the shortage of sites, planning restrictions have become more severe. On older buildings which are commonly listed Grade II, it is quite an achievement to even get one more floor.

As sites become less available, the City is forced to spread out wider requiring the government to invest in new high-speed rail systems to counter travel distances.

This makes investments in Zones II and III become a lot more attractive as the areas are so Central with travel times to workplaces under 20 minutes.

Strengthening Positive Sentiment

Four years of Brexit stranglehold and a collapse in the £ Sterling caused investors to lose interest in London recently but now the crucial fundamentals are quickly coming together and changing sentiment to “buy”.

UK has for many years been blessed with the marriage of stable government and “rule of law” so with negative sentiment removed the impact of a strong new government, an acute housing shortage in the capital and low prices, has created the perfect buyers’ environment.

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