London Property Buyers |
I represent clients from all over the world but also many Londoners.
If you asked 100 London property buyers, the majority would say they would prefer to buy a traditional property.
If you asked 100 buyers from Hong Kong, Singapore and Malaysia at least 85% would say new developments.
So, who’s right?
Considerations for Property Buyers in London:
Well, it is important to differentiate between whether you are planning to acquire a home or investment. And if the former how concerned are you about price growth compared to your enjoyment of the property?
This is particularly true for international buyers. For example, I am currently advising a family from Thailand who want to acquire an investment property in prime central London. They might use it themselves in 8-10 years’ time but that is a secondary consideration.
However, when I showed them the best investment opportunities in areas like Chelsea, Kensington and Marylebone, they said they wanted to look at new developments instead. This is despite the fact that we had already had a very long conversation about why new developments are not as good. Indeed, they were so adamant that they wanted a new development that they were also keen to look in second and third rate areas so that they could afford the size of property they wanted.
Now this may sound like confused thinking and you may feel that my clients may have more money than sense, but this is far from the truth. While they are most certainly wealthy, he is a partner at a major law firm and I was recommended to him by another client of mine who rates him as a first class solicitor, i.e. he is no-one’s fool.
However, when I asked him why they wanted to shift their focus to new developments he had several reasons:
- He thought new developments with concierges, gyms, swimming pools, etc. would rent quicker and for more money as it would make tenants’ lives easier
- The maintenance would be easier. He and his wife had heard of horror stories about traditional properties constantly requiring expensive repairs.
- They are used to acquiring property in new developments and they are much more highly regarded in Thailand than traditional properties
And he is not alone in thinking this. Indeed, I hear the same comments from most of my Asian and Middle Eastern clients.
But is this true in London?
At the moment, the rental market is incredibly strong and pretty much any property can be rented quickly, but I have never seen evidence that it is easier to let a property in a new development than in a traditional building. Indeed, one of the issues in the new developments in areas like Nine Elms and Canary Wharf is that there are thousands of identikit apartments that have been bought by international “investors”.
I put the word investors in inverted commas because most of these people are actually speculators who have done only a minimal amount of research, but more of that later.
So, one issue is that there is often a surplus of properties to rent in these developments which suppresses yields. Oh, and if the developer guarantees the yield for two years ask yourself: why? Would it be unreasonable to suggest that they know it’s unlikely that you will achieve the yield they are promising, but they can guarantee it because you are overpaying for the property!?
To skip to the third point, the fact that new developments are more sought after in Thailand is totally irrelevant. You are buying in London, so you need to have a very clear understanding of which properties are the best investment in the areas you are targeting.
Consider Property Maintenance
But the second point – the maintenance issue – is the one that probably worries international buyers the most. Most traditional properties in London are over 100 years old, so surely maintenance will be more complicated than in a new development.
In general, that is absolutely correct, but it is by no means a disaster. Of course, there are buildings that you absolutely must avoid, but well-run buildings have a regular cycle of maintenance that all apartment owners contribute towards and are handled by a managing agent. In other words, you don’t have to do anything except pay the bill.
Now, you may think that you don’t want to pay for the upkeep of the building, but as the service charges in new developments are significantly higher than in traditional buildings, you often pay more despite the fact that you have to undertake less work. The higher service charges also significantly impact your investment returns.
Now, there are buildings which are run by the apartment owners themselves which may involve a little more administration. However, as long as the building has a clear arrangement and is well-run, this will again mean that disasters are unlikely.
Benefits of a Traditional flat for London property buyers:
For example, the gentleman who recommended me to the Thai family is based in Hong Kong and I acquired an investment property for him in a traditional property in prime central London. It has always rented quickly, even during the pandemic, has low service charges and he has had no issues, except with one messy tenant. Unfortunately, messy tenants are also found in new developments…
But more importantly, it will be a far better investment than a property in a new development because he will see much greater price increases which will be the main source of your investment returns.
Reasons why a new development may not be the best invesment:
- New developments tend to be massively overpriced. Yes, you may have negotiated a discount from the asking price but do you really think that the developers haven’t factored that into their pricing models? Most new developments are overpriced. Why do you think they are predominantly sold in Hong Kong, Shanghai, Kuala Lumpur, Singapore, etc. rather than London?
- Planning restrictions mean that there will only be a very small increase in supply of new properties in the most central areas. Not only is there almost no land on which to build, you cannot build high-rise towers. In contrast areas along the river and further out of London have more land and exceptionally tall buildings are allowed.
So, while new developments are easier to maintain, it is a very poor reason to invest in them. They key is to acquire good quality apartments (or houses) in well-run buildings in great locations. And obviously you need to achieve a good price.
Of course, it is much easier to just visit one of the developer’s events in a hotel (if you are outside the UK) or the flashy sales showrooms at the developments. But if you think that ease of purchase means that you are making a sensible investment, would it be a bad idea to think again? They make it easy for a reason just like the Venus Fly Trap seems to make it easy for insects to collect its nectar.
Contact Mercury Homesearch:
If you would like to discover more about how to avoid the most expensive mistakes people make when buying property in London, you can request a complimentary copy of my book, The Insider’s Guide To Acquiring £1m to £100m Property in London, by clicking here, emailing [email protected] or call 02034578855 (+442034578855 from outside the UK).
