Buy to let landlords with property in the capital may be enjoying higher rental incomes but investment yields appear to have a glass ceiling, according to a new international investment report.
Knight Frank has discovered Asian property investors are now buying more than a fifth of all central London new-build properties, accounting for 49 percent of all investment purchases in central London. This compares to only 36 percent purchased by UK investors.
Liam Bailey, head of residential research at Knight Frank, says that weak investment yields could be putting some domestic buyers off.
He explained: “Rents in London have been rising since June last year and high demand has meant lower void periods.
“The problem for buyers looking to secure stronger investment yields has been that capital growth has outstripped rental growth in the past year and yields are being squeezed further.
“For new build properties in a good location, a gross yield of above five percent is rare.”
Bailey revealed that of the 7,595 new-build properties completed in London in the 12 months to March 2010, investors rather than owner-occupiers bought 41 percent were bought by investors rather than owner-occupiers.
But a total of 49 percent of all investors in this period were Asian, 11 percent were from China, 10 percent from Singapore and seven percent were Malaysian.
“Knight Frank estimates that over the last 12 months the total volume of Asian investment has totalled £761million,” Bailey added.
“Why is this demand growing? While the weaker pound has created a compelling buying opportunity for Asian investors, overseas purchasers buy property in the UK for a number of reasons but in almost all cases they are looking for a secure return on their investment.
“The interaction of currency movements, strong capital price growth and, more recently, rising rents, have created an attractive investment case for many investors considering central London property.”
Bailey believes that despite prices rising by 22 percent in the 14 months up to the end of May 2010, effective prices in central London were still 32 percent lower compared to their peak March 2008 level for a purchaser looking to buy in Hong Kong dollars, as a result of currency movements.
Asian buyers have also benefited from the wealth created from strong Asian price growth. Similar savings have been delivered to Singapore, Malaysian and European buyers.
Many of the Asian investors may be purchasing property for their children to live in while they study in the UK.
According to Knight Frank, over the past decade the number of Asian students studying in UK universities has risen by 175 percent.
The Asian buyers are snapping up one and two-bedroom apartments priced from £400,000 to £800,000, if not more.
The jubilee line extension south of the Thames has brought interest to the Southbank and further along the jubilee line to Canary Wharf.
Many foreign investors have also bought into the regeneration of Dalston and the East London line extension.
