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Property: Opportunities in prime central London property market


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Amid global volatility in terms of equities, prime located residential real estate in central London remains a sound investment and a key destination for property investors, including Gauteng,South African buyers, says Dr Andrew Golding, CE of the Pam Golding Property group, which is associated with global property giant Savills of London. "In the current market, with prime central London house prices down, there are certainly opportunities which offer good value for money - particularly for cash investors taking a medium to long term view," he says.

According to Savills Research, house prices in prime central London are expected to reduce 10-15 percent this year and then a further 10 percent in 2009 from the highs of 2007. The driving factors of this are the credit crunch and slowdown in the UK economy, ie affordability issues which have affected buyer confidence. Depending on the area, current gross rental yields are hovering around the five percent mark and are expected to increase to above six percent towards the end of 2009. As the market bottoms out in 2009, demand from investors and developers will probably accentuate the upturn and prime central London will lead the recovery in the market.

Savills go on to say that the British government has set itself a target to create three million new homes by 2020 to cater for the housing shortage. The 200 000 units coming onto the market in 2007 is set to drop due to the current market conditions and with a 27 percent drop in new private housing developments this year from last year, the number of units coming onto the market in 2010 is expected to be 130 000, which is 35 percent down on the high of 2007. While prices are expected to recover during 2009, the time for developers to respond to the change in the market will take longer and as a result a scenario of under-supply will fuel the speed of recovery. Historically, prime central London property has doubled in value every 10 years since the Second World War.

Simon Gibb, GM of PGP's International Division comments: "With this knowledge and with developers aware of buyer confidence, affordability, relative rates per square foot and rental yield issues, there are good opportunities to be found in central London. Through our close association with Savills we are able to select the correct product, provide authoritative comment on pricing and rental returns and able to assist our clients in terms of a mortgage - for those who require funding - and finding a tenant. The advantage that our clients have over UK investors is their ability to secure mortgages based on their higher cash portion, which should be at 40-45 percent of the purchase price. The focus should be on managing the asset, ie ensuring that rental income covers mortgage repayments and running costs, while viewing the capital appreciation as a long term objective."

Gibb says most of the enquiries currently received for the London market are from South Africans looking to diversify their portfolios. "They seek a property investment where they can inject cash from their offshore allowance, obtain a mortgage for the balance of the purchase price and then secure a tenant to cover costs. In most instances the properties we recommend are in new build developments which usually take from 6-12 months before completion, thereby affording the South African investor a window between signing for the purchase of the unit and taking transfer (on completion). With the existing climate there are many developers nearing completion of their products who are offering significant discounts on their list prices. This being said, the important factors to consider when selecting such an investment are the location, type of property, ratio of equity to finance, availability of suitable tenants and long term capital appreciation," says Gibb.

PGP is currently marketing a development called The Forge, well situated on the Isle of Dogs in Westferry Road on Canary Wharf, E14 - just a mile from prime central Canary Wharf and Central Docklands and one road back from the Thames. This project comprises contemporary style one, two and three bedroom apartments in three new buildings flanking a restored, converted 19th Century forge. Currently under construction and due for completion in January 2009, the one bedroom units are priced from GBP250 000 and two bedroom units from GBP340 000. At a very competitive GBP485-515 per square foot this represents good value for a scheme so well positioned, with sound rental returns from GBP370-410 per week. This translates into gross yields ranging between 5.5 and 6.2 percent.

"The South African offshore allowance is R2 million for individuals and R4 million for a family, so for those South African investors able to inject sufficient cash leaving say a 55 percent mortgage, the rental yield will then service mortgage repayments and other running costs. In other words the intention is to gear the financing sufficiently to enable the asset to pay for itself, with the long term objective being to ride out the low point in the London property market in 2009 and enjoy capital appreciation into 2012. With the 45 percent cash portion of the property purchase, a furniture pack costing around GBP8000 and an additional five percent of purchase price allowed for purchase costs such as stamp duty and bank and legal fees, the buyer will need GBP183 000, which at an exchange rate of R15 to the pound equates to R2.75 million," says Gibb.


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