Property Investment: Why London Isn’t Paved With Gold

London is the heart of the UK economy, and one of the biggest economic centres in Europe if not the world. For this reason, property investors – both domestic and international – flock to the UK’s capital in droves, and prime London property is often talked about as if it’s the gold standard.

For wealthy owner-occupiers who want to be close to the action, this might be true. However, for those buying property as an investment, London is not as great as many people seem to think. While London is still the biggest draw, at least internationally, UK and overseas investors are increasingly heading to other regions instead. This is because London is flawed in two simple, surprisingly basic, yet very important ways:

It’s Expensive

London properties are expensive. In fact they are very expensive. So much so that the market is only even accessible to the wealthiest of individual investors. Even flats in London averaged at a cost of £456,323 last year according to online property portal Rightmove. In June last year, meanwhile, it was reported that the average residential property price (not just flats but houses too) for the UK excluding London and the surrounding South East region was less than half that – £201,000. For the majority of investors, price alone blocks London off entirely as an investment destination. Even if you can afford it, it means tying up a much larger sum in your property, and most likely taking on a considerably larger mortgage debt as well. If nothing else, this prevents the kind of diversification you could achieve from investing the same amount elsewhere.

It’s Not Profitable

It’s often assumed by those who can afford to invest in London that these higher prices will at least get a more profitable investment. After all, London is bursting with demand and is almost certainly the UK’s single biggest and most concentrated market. However, when you look at the figures, London is actually very disappointing in terms of yields – with the exception of some specific areas (and these are sometimes short-lived). High prices are not in proportion to rents or growth potential and are therefore compressing yields. Research by various companies and organisations regularly shows that, in terms of cold, hard returns, London underperforms compared to many of the UK’s other urban markets. Most recently, a report from HSBC has showed that London’s yields are decidedly lacklustre and fall below 3% in some areas, while alternative cities such as Manchester and Blackpool are approaching the 8% mark.

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