Recent trends in London property market suggest an increasing number of people leaning towards renting instead of purchasing homes. This is great news for Singaporeans actively investing in London real estate as the properties such as the recent Royal Wharf have been seeing higher returns lately.
A study by real estate consultancy firm, CBRE, showed that there has been an increase of 50% since 2008 among the number of private tenants. Last year alone, there has been an increase of 11% from 2013, which rounds up to 421,000 tenants in Britain. In contrast, the population of owner-occupiers remained static.
There are numerous reasons that might explain the trend. One is the increase in property prices which makes them less affordable. This has a more staggering effect for first-time buyers who might not have the necessary financial capacity to have a mortgage loan approved, especially since an initial deposit of 20-25% is usually required. Thus, renting becomes a more viable option.
Another explanation is the increasing population of millennials (people in their 20’s). This age group has always been seen as comprising the majority of tenants. Increased population of tenants has thus increased the demand.
A short video from BBC, reporting the booming London property market
One last explanation is the shifting views regarding renting. Traditionally, renting has been seen as temporary, while renters are still saving up to be able to purchase permanent homes for the future. However, there has been a recent development of people deliberately choosing to rent. A natural creation of modern living, these so-called “lifestyle renters” opt not to purchase homes, even if they can afford to do so, mainly because of the flexibility and mobility renting offers.
All these have resulted into a revival of the rental market. For example, the Southern and Eastern Boroughs saw increased rents by at least 5% in the past year, with a only few exceptions. In contrast, North-Western Boroughs had seen a growth of 5% or less. This growth is also due to the restoration and development efforts around these areas that have resulted into improved housing qualities, which then resulted into an increased demand.
With an increase on quality, tenants have also been willing to pay more for newly built properties. Statistics show that the prices for new-build properties are 40% higher as compared to the older ones.
However, investors are still concerned over the rising property prices as this also theoretically results into a lower rental yield for the London property market. No worries, according to CBRE, as projected ROI remains strong. Over 5 years, for example, returns are forecasted to be around 20%, or around 3.8% annually, still higher than bank and bond investments.
Doris Tan, JLL Singapore’s Head of International Residential Property Services also noted that rental in London is currently strong and will only continue to strengthen. She added that properties in prime central London are the ones which are quite popular. She has assured that there will be not be any dull period.
This is great news for Singapore. According to a survey by Colliers International, Singapore is the top investor from Asia investing in Britain, Australia and China. Additionally, London is one of the top cities for Singaporean investors in terms of popularity.