London real estate remains a bright spot amid UAE malaise

London’s property market continues to offer something for every investor’s strategy and risk appetite. Paul Hackett / Reuters

As ever, the outlook for the UAE property market remains a fiercely debated topic. Although prices continue to fall at the top end of Dubai’s real estate market, according to the latest UBS Prices and Earnings study – which examines prices, wages and earners’ purchasing power in 71 cities globally – housing costs in Dubai are still among the four most expensive in the world.

And a report from Asteco this month revealed that luxury property prices dropped an average of 10 per cent in the past quarter. Apartments in Dubai Marina have declined in value by as much as 17 per cent and Palm Jumeirah units have slumped 13 per cent.

For an end-user looking to buy in the UAE, the recent pullback in prices could be the right time to jump into the market. But as an investor, the latest bout of market volatility is cause for concern. I would be hesitant to predict what will happen next. Will safe-haven markets such as London continue to hold their allure for UAE investors seeking shelter from the local residential storm?

In a word, yes. London’s property market continues to offer something for every investor’s strategy and risk appetite. In fact, in the early days of the global financial crisis, London property experienced significantly shallower dips, and a much faster recovery, than other, more liquid investment assets. It continues to rise in value and at a historic pace.

To best explain the popularity of London property, let’s start with the bigger picture. A robust economy, a strong sovereign currency and a booming population are all driving demand for housing. Balance this against the city’s endemic shortfall of new homes and it is little surprise that prices continue to track steadily upwards – perfect conditions for the longer term, five to 10-year investment play that most investors would be wise to take.

For buy-to-let investors, London’s rental market is also in rude health, delivering yields of up to 6 per cent in Outer London. This trend is often described as the “ripple effect”, and also drives capital growth patterns. With prime central property appreciating an average of only 2 per cent in value over the past 12 months, buyers are starting to seek out new pockets of value in Outer London, where gains of more than 25 per cent are forecast in the next three years.

For many investors, especially those not familiar with London, predicting exactly where these pockets of value will emerge next is the tricky part. A glance at the city’s future commuter train map – which is due to be transformed from 2018 when Crossrail welcomes its first passengers – is a useful first step.

Europe’s largest construction project will provide a major new rail service, connecting 40 stations along its 100-kilometre route between Berkshire in the west and Essex in the east – dramatically shortening travel times between key commuter towns and the City, Canary Wharf and Heathrow Airport.

The Crossrail stations connecting Outer London property markets are starting to show massive potential. Ilford is one town that is expected to be a major beneficiary. Crossrail’s arrival there will cut travel times to some key central locations in half, with the journey to Heathrow reduced to 52 minutes from 71. Since the scheme received a green light in 2008, the value of properties within 500 metres of the town’s future Crossrail station have risen 17 per cent, a rate well above that of the local market.

As a result of Crossrail, and the lack of housing to meet increased demand, the property market remains strong and investors entering the market can expect gross yields as high as 7 per cent a year.

The case of Ilford illustrates this key point: to unlock value, you need to be selective and do your research. The potential for strong gains remains. This is why UAE investors, in certain and uncertain times, continue to look to London’s property market with confidence.

Paul Preston is a director and head of the Middle East at the property investment company IP Global.

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