Recently, I had an investor who did a U turn on an investment, citing Brexit as the reason.
This is a convenient reason, as it’s all over the press and is in our faces daily. People like simple easy headlines to hide behind. The truth is, not many know what Brexit actually will entail, neither its impact; especially on the property market.
Does it have an affect over all? Of course it does, that’s easy to see. The reality is, you cannot paint the whole property market with one brush. There are segments within, which are segregated both geographically and price wise. Each has its own politics.
The deal we were looking at is a two bedroom property, in the South East of London, which has a yield touching 5%. The price point is £245K.
In the midst of the current turmoil, we forget there is a fundamental housing need in this country which is not being met, and will not be met in the foreseeable future.
Property is not just an investment. It provides a fundamental human need; shelter.
At this price point you are looking at the bottom end of the pyramid. One in which it becomes within the affordability range of an average couple earning £25K each. A combined salary of £50k would qualify for a mortgage of £250K. This puts this property well within the reach of first time buyers, who some say are responsible for fuelling the property market from bottom up.
Is there a chance this property will fall in value due to Brexit? Very unlikely, as we are dealing with the bottom end of the market, and the yield of nearly 5% speaks for itself. This used to be a normal yield in the early 2000s, but you would be hard pressed to see this anywhere else in London. As property prices have risen the rents have not kept pace, and consequently the yields have dropped.
There are two major forces in play, which will ensure this investment will not only weather the Brexit storm, but rise from it. One, is this is the last borough of 33 boroughs in London where the average property price is below £300,000. Historical analysis has shown this factor alone will ensure it will be in demand; purely from the view of satisfying a need. Two, is this is in a location where when Crossrail finally comes in, it will mean Canary Wharf will be 11 minutes away and Bond Street only 22 minutes away. We have compiled an 18 page in depth report on this location. This is an area we feel will be on the rise for at least the next five years.
Suresh Vagjiani
