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Where should you consider buying UK property in 2021?
Will Coronavirus have a profound impact on the property market like some have predicted? Is the new working from home phenomenon going to shape the way we live and where we live? Will Brexit impact where companies operate and consequently, where people are moving to? 2021 could be an unusual year for the property market, as some expected and unexpected major events have impacted the way in which we all live our lives.
Will working from home increase popularity of commuter towns?
Firstly, if we see the current trend of home working continuing, we expect less demand for city centre apartments that often command high rents, and for suburban homes and commuter town property to come to the fore. In mid-2020 a survey was carried out which revealed a record number of Londoners were considering moving out of the city, with spots across the home counties proving popular. While we have all been spending more time in our homes due to lockdown, it has reinforced many people’s desire for spacious living areas and outdoor space – a rare commodity in London. According to the survey, one in three buyers want to escape London whilst remaining close to the capital in case they need to travel in for work on occasion. Buying property in commuter towns is ideal because prices are lower whilst still offering good transport links into London.
According to the Hamptons International Housing Market, London is expected to experience the second largest fall in house prices in the UK at -1%. A poll conducted by the Royal Institute of Chartered Surveyors echoed this, with many surveyors expecting property prices in London to fall over the next three months, suggesting that many inner-city flats are lying empty and unable to be sold.
To the north of London and just a thirty-minute train ride from the capital is Luton. Luton’s property market has performed strongly despite the Coronavirus pandemic, with prices rising by 3% over the last twelve months to October 2020 according to Plumpot. Luton has been hailed as the best first-time buyer hotspot because of its modest house prices and excellent transport links. We also think it is a good town for investors looking for capital growth, as property prices have risen by 30% over the last five years.
Opportunities to invest in a completed development in Luton town centre start from R3.59m. Luton has been named the best place for first-time property buyer, so its proximity to London and market of potential buyers allows for good levels of capital growth.
Medway is a conurbation in South East England in the county of Kent. It comprises five main towns; Strood, Rochester, Gillingham, Chatham and Rainham, and has a combined population of 278,016. The Medway towns are situated on the River Medway, and due to their location, enjoy a long naval and military history.
Trains into London take just over thirty minutes, so the Medway towns are becoming more popular with those who work in London but are priced out of the capital. In Medway, people can enjoy peaceful waterside views and a slower pace of life, whilst still being just a stone’s throw away from London. According to research, demand for property in the Medway towns from Londoners has increased from 29 per cent to 40 per cent.
With an average property price of R5.72m and excellent transport links into London, it is no wonder people are starting to see the appeal of the Medway towns. It is also attractive to potential residents as according to Land Registry data, property prices in Medway have also outstripped London by 16% between March 2016 and March 2020. Investors looking for good levels of capital growth should look no further than Medway, especially with the regeneration it is undergoing.
In Chatham, the Peel group has presented a new development called Chatham Waters. The project created 1000 homes along with new shops, restaurants, and bars. Prices start from R4.5m which is under the town’s average and residents can enjoy riverside views and make use of the onsite gym and garden spaces.
How the technology sector will affect house prices
A growing employment sector in the UK is technology, and it has proven particularly resilient to the challenges faced by many industries during the Coronavirus pandemic. Throughout the summer months of 2020 when much of the UK was still in lockdown, the number of advertised roles within the digital sector increased by 36% according to research by Tech Nation and the government’s Digital Economy Council. The popularity of online shopping, especially during lockdown, has contributed to the strong performance of the sector.
Of course, jobs in the technology sector do not pop up everywhere in the country, and the sector is more apparent in some towns and cities compared to others.
Leeds is the fastest growing tech hub in the North, contributing £6.5 billion to the city region economy. It is understandable that technology companies are setting up business in Leeds, as it was one of the first UK locations to benefit from the new Vodafone and CityFibre fibre-to-the-premises programme. In 2016, the full fibre network went live and serves businesses in Leeds, with the vision for it to extend to family homes.
Leeds has a strong jobs market overall, and employment is expected to rise by 25,000 over the next decade, which is equal to Birmingham and higher than other employment centres outside of London. In terms of private sector jobs, Leeds has seen the highest rate of growth at 6.1%, well above London’s 4.4% and the national average of 2.5%.
Over the past five years, Londoners moving to Leeds has risen by 58%, enticed by its burgeoning cultural scene and job opportunities. According to JLL’s 2020 regional report, the economy in Leeds is expected to grow very strongly over the next five years. Keeping in step with the strong economic performance, sales prices are expected to increase by 13.7% and rental prices by 14.2%. Already in the last twelve months, Leeds has experienced the third-highest house price growth of 4.9%, yet average house prices remain a modest R3.56m.
Trinity Shopping Centre is just a 15-minute walk away and Leeds City Station is ten minutes away. Located on the same road of the development is the Cardigan Fields complex, where there is a trampoline park, IMAX Vue Cinema, a supermarket, and fast-food outlets. The latest development called West Central Apartments is due to complete in March 2021 and comprises one and two-bedroom apartments, duplexes and a three-bedroom penthouse. The location is perfect for those looking to enjoy a cosmopolitan lifestyle as many amenities are just a stone’s throw away. Apartments start from just R2.98m, which is below the average for Leeds.
Reading has an established technology sector offering over 45,000 jobs and turning over £12.5 billion. Those employed in the tech sector in Reading also enjoy the highest average salary outside of London at R1,089,867.
Reading has the highest take home salary outside of London according to Adzuna, with an average weekly paycheck of R13,404. With a population of well-paid workers and modest house prices compared to London, it is no wonder investors here can fetch good rental yields. Reading commands the highest rental yields of any London commuter town, standing at an average of 4.5% according to research.
Distribution centres driving prices in local towns and cities
The Conservative government proposed the Northern Powerhouse scheme to boost economic growth in the North of England. Not only has that benefitted cities such as Leeds in terms of investment and job growth, but if it addresses barriers in the logistics sector, it can unlock the potential for transformational growth and create 174,000 new jobs by 2050. Currently, the Northern Powerhouse scheme is looking at improving road and rail connections to help transport raw materials efficiently.
Doncaster is the UK’s logistical hub due to its location and infrastructure. It is equidistant between London and Edinburgh, connects to the A1 and M18 road network, and has its own airport and private rail network called iPort. As the online shopping trend continues to grow, more companies are setting up centres in the South Yorkshire region.
Work is already underway to deliver more warehouse space. A retail giant has announced plans to build an 800,000 sq. ft distribution centre near Doncaster which is expected to create over 1000 new jobs. In 2019 Lidl opened a 625,000 sq. ft warehouse in the region and last year Amazon opened a £100m logistics facility. People who move to the area for work will need accommodation, and the housing sector in Yorkshire is already under pressure. According to research by the National Housing Federation, the Yorkshire and Humber region needs to build 18,000 new homes per year to keep up with demand, which it is currently not doing. This has caused house prices to increase, and in 2020 Doncaster recorded the second highest house price growth in Yorkshire at 8.8%. Find out more about why Doncaster is a transport hub today.
Shared housing investments are ideal for investors wanting to achieve good rental yields. However, many can often be dissuaded due to the amount of work that goes into managing one. Shared housing is known as HMOs in the UK and must comply with strict regulations, such as ensuring that the property has working fire alarms, PAT testing on electrical appliances, fire escape signage and licensing. Also, investors must deal with tenants, whether it is to issue contracts, protect deposits or deal with any issues that arise.
We have one opportunity to invest in Doncaster that is a fully managed HMO. The purchase price is R4.42m, which includes the property and renovation work to turn it into a fully-fledged HMO. The developer uses the funds to renovate the house into a five-bedroom property, turning the existing living room into a bedroom and adding a conservatory that will function as a living space at the back. Work takes around eight weeks to complete, and once finished will be advertised on spareroom.co.uk. On average, their properties take around two weeks to be tenanted, and a 10% yield is predicted, going up to 16.46% depending on bank finance.
Brexit winners and losers
It has been predicted that the London property market will suffer, partly because of the uncertainty surrounding Brexit and partly because the Coronavirus pandemic has sparked people to reassess their work / life balance. Savills have predicted that house prices in the capital will rise by 12.7% between 2020 and 2024, which is well below the national average of 20.4%.
In contrast, house prices in Edinburgh are forecast to increase higher than the national average, climbing by 16.5% by 2023 alone. Both price and rental growth is forecast at 3.1% per annum, well above the national average of 2.2% price growth and 2.4% rental growth, according to JLL. Edinburgh offers the ideal fundamentals for property investors, as a young population coupled with a booming employment sector (especially digital) and a better work – life balance compared to many of the cities in England. Scotland is also underdelivering on house building, so demand is going up but there are not enough houses to satisfy it, thus leading to growth.
Those considering property in Edinburgh should look no further than 53 George St, situated in the coveted New Town area. Residents have everything on their doorstep, with a Harvey Nicholls just moments away and the financial district within walking distance. Apartments have restored Georgian features and enjoy views over Edinburgh Castle. A large two-bedroom apartment is priced at R9.41m but the property is poised to benefit from Edinburgh’s strong property market growth.
In conclusion, if you are looking at investing overseas in UK property, we suggest looking outside of London for the most resilient markets. The effects of Brexit and the Coronavirus are expected to hit London hardest. This is partly due to people moving to surrounding towns for more space and a better work – life balance, and partly due to uncertainty which tends to affect London’s prime central property market where people are less willing to invest a large amount.
Commuter towns are benefitting from London’s exodus, in terms of both population and house price growth. Investors can still buy property on a modest budget, but the long-term fundamentals look good for continued growth.
As the government develops its Northern Powerhouse scheme, towns and cities in the north are experiencing a sort of renaissance in terms of economic growth, especially within the digital and logistics sectors. Leeds is predicted to be one of the strongest performers in the country with regards to economic development, and with improved road infrastructure, the potential for efficient distribution can be unlocked, which will in turn create more jobs across the South Yorkshire region.
If you are looking to hedge your rand and invest in UK property, why not contact us today and we can provide further insight on where we think the best places to invest in 2021 will be?
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