Affordability drives capital growth to London commuter towns

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How about London – is it still worth investing in?

The average price for property in London is £640,000 Zoopla = ZAR 12m @ 18.75. The average earnings in London fall way below that, and even with a mortgage London property is unaffordable for many. Capital growth in London is stumbling slightly as the market which can afford property is diminishing.

Based on five times earnings.

More people are moving to commuter towns surrounding London. Over the past decade, 550,000 more British people moved from London than into it. With improving transport links outside the city, it sometimes makes sense.

Wimbledon in south west London takes 30 minutes to get to Paddington in zone 1 and 32 minutes to get to King’s Cross. The average price for property in Wimbledon is R15.2m. Comparatively, it takes around 25 minutes to get to King’s Cross from Luton, and the average house price is R4.9m.

Reading – London commuter town

Reading is within close range of London and has a highly skilled workforce. Many residents commute into London as by train it’s under thirty minutes. Reading itself also offers fantastic employment opportunities as new businesses relocate and set up in the town. Global companies such as Microsoft and Procter and Gamble have offices in the town, and it is home to twenty companies which have been voted the best places to work. Reading is also attracting young talent, revealing itself to be the UK’s third largest digital technology city – a sector which is dominated by younger generations. Reading has so many employment opportunities that it has been named the 7th best place to earn a living.

Reading is a quickly evolving town with plenty of work opportunities. It’s close to London and a pleasant place to live. Its location in the country means that many parts of England are easy to access, such as the North Wessex Downs, the Cotswolds and the South Downs. Not only is the town surrounded by beautiful countryside, but other major cities such as Bristol and Oxford are easy to access. It’s an ideal place to stay for those looking to explore the UK countryside and visit cities such as Bristol, London and Oxford. Property such as The Residence can be used as a service apartment, and investors can even enjoy personal usage of the flat. This makes it an ideal investment opportunity for those wanting somewhere familiar to stay whilst they make the most of their stay in the UK and can be rented out for the remaining period to generate income.

It’s no wonder that Reading is becoming such as desirable place to live and buy property. Since 2012, HouseSimple has shown a 54% rise in property prices in Reading. This can allow for good capital growth prospects for those looking to invest in the town.

The Residence investment property in Reading. It is a contemporary refurbishment of a landmark site and comprises 33 luxury finished one-and-two-bedroom apartments. The development is due to complete in Q4 of 2020, units start from R5.4m for a one-bedroom apartment and R7.2m for a two-bedroom apartment. A 20% deposit is required.

Serviced apartments work in a similar way to hotels, in that you rent out the apartment on a short to medium-term basis to tourists or people who arrive in the area on business. The serviced apartment would generally be managed, and the management company would organise bookings, maintenance and cleaning of the apartment. This means it is hands-off, and ideal for people purchasing from overseas.

Due to the short to medium-term nature of the rentals, yields tend to work out higher for serviced apartments as people are willing to spend more on their accommodation. There would also be the opportunity to occupy the serviced apartment for personal use from time-to-time, which makes it ideal for those looking to spend a few weeks a year in the UK and need accommodation. City centre apartments rented as serviced apartments generate around R627K gross income and when a 20% management fee plus cleaning costs are accounted for, the net income is still 6.3%.

Luton

Although not technically in the midlands (although sometimes classed as being in the south east midlands), the east midlands line does connect Luton with London, and by train it takes as little as 25 minutes to commute between the two places. Trains from Luton arrive at London’s King’s Cross station, which is home to Google’s new headquarters along with other global corporations such as Facebook and Expedia.

According to LendInvest’s Buy-to-Let annual index, Luton is the fourth best area to invest in the country. Luton offers itself as a viable alternative for those finding themselves priced out of the London housing market or for those who need to travel across Europe as London Luton Airport is conveniently on their doorstep.

Property prices in Luton

Luton has an overall average house price of R4.9m making it one of the most affordable commuter towns for London, the affordability has increased its appeal as house prices have increased by 13% since 2016.

Comparing that to London where the average is R13.7m and prices have only increased by 5% since 2016 and you can understand why people are choosing to invest in Luton where prices are lower but rising at a more rapid pace.

Luton’s population is also increasing at a faster rate than they are building houses in the town; with approximately 430 houses being built a year yet needs 1417 houses to be built to meet demand.

Luton’s improving economy

Although its history of hat making (Luton produced 70 million per year, and Luton Town are often nicknamed The Hatters) is almost forgotten, there have been efforts to stimulate employment opportunities in the town. The Luton Airport Enterprise Zone is just one example of this. The Enterprise Zone will consist of three linked sites over 395 acres of land. The total number of jobs created by the Enterprise Zone is expected to exceed 10,000, and this will add to the housing demand in the city.

At present the train station for Luton airport is not situated conveniently for the airport, however plans are in place for a new £200m Luton Airport Parkway station that will connect the airport terminal to London from 2020. Improved transport links will further put Luton on the map.

Luton Property Investment Opportunities

The Orion is a new development in Luton that comprises 67 high end one-and-two-bedroom apartments. The apartments are purchased on a 999-year virtual freehold and no ground rent is applicable. The development is close to the mainline train station in Luton and commuters can reach London easily. Prices start from R3.27m for a one-bedroom apartment or R4.2m for a two-bedroom apartment. A deposit of 35% is required, which can make these sorts of investments accessible to South African investors.

Two-bedroom apartments are similar to Atlantic Seaboard, but the net yields are 5.6% and net income is R236K. Unlike in South Africa, interest only mortgages are available at 4.5% which will help positively affect cash flow.

Capital growth prospects

Seeff quote “The low to mid-market to R1.8m (R3m in some areas) has performed well despite perceptions. In contrast, the R10m-plus upper-end market is almost dead compared to three years ago”.

Whilst Britain is benefitting from the “Boris Bounce” and the Conservative majority win in December 2019 which will bring around some political stability, things are looking more challenging in South Africa. The South African Reserve Bank has revised down its forecast in GDP growth for 2020 from 1.4% to 1.2%, and the growth for 2021 from 1.7% to 1.6%.

Read also: Look to the midlands for high yielding property and capital growth

Then there is the issue of Eskom, which reneged on its promise that the country would not experience blackouts. These power cuts often happen in the middle of the day and the effect they have on businesses, and consequently the economy is profound.

On Monday 9th December 2019 Eskom raised blackouts to a record level and the rand weakened two days in a row, falling 1% against the dollar on the 10th December. Not only is it affecting the value of the rand, but the poor state of its finances and its dependency on government bailouts means that it’s one of the biggest risks to the country’s investment-grade credit rating.

Contact One Touch Property today to find out more about investment options in Luton and Reading, and how they can make suitable alternative investment options to London.

If you would like to find out more about these or other UK property investments please do book an appointment with one of our experienced consultants who will be in South Africa from the 5th February – 14th February in Cape Town, Durban and Johannesburg.