Post-referendum, several questions concerning the economic consequences of Brexit are yet to be answered. How will it affect the markets? the pound sterling on the long run? Investments in the UK?
The outcome of the referendum has caused economic uncertainty, and at this stage nobody is able to predict what is coming next. London luxurious properties have already seen price drops, as home prices in prime central London were down 1.5% in July from a year earlier, whilst some investment funds have halted their operations on major commercial projects in the capital.
While most investors have focused on London, a small number of them have been tackling housing shortage in areas within the commuter belt of London. Is Brexit turning the outskirts of London as a place where opportunities are to be found?
LONDON’S PERIPHERY: ITS EVOLUTION IN THE LAST FEW YEARS
Londoners suffer from a situation in the capital: a third of them need to travel 45 minutes or more to get to their workplace, and the living costs have become so high that many must today resolve to house sharing, as real estate prices have shot up 40% since 2012. It is no wonder then that Londoners tend to increasingly move outside of the capital, where housing prices can be as much as 4 times lower. On top of that, commuters living in these towns can reach Central London in only 30 to 45 minutes by train.
The world’s largest investment funds have acted upon this situation a couple of years ago. London, historically known for being stable and secure, was already seen among a few other global cities as a “safe deposit box”, and attracted many of these investors. Whilst being secure, rental returns in the capital do not exceed 1 to 2%. Soon they decided to look into the periphery of London for higher rental returns, in cities that deliver yields from 5 to 6%. By doing so, they were able to benefit from the combination of the proximity of these cities to London, and the higher yields they offer.
Brexit may amplify this turn towards the periphery. The office market in London has seen a fall in demand since the vote, while according to the Financial Times the luxury property market faces a slow-down in the upcoming years (see sources at the bottom of the article). Today, this context encourages several developers to shift towards the periphery, which seems best protected from potential Brexit threats.
HOW TO CREATE STRONGER OPPORTUNITIES?
We have met Homes of England (www.homesofengland.com), the leading property development firm in the periphery of London. This team is the strongest believer in the need to create more affordable housing, and in the great potential of the outskirts of London. They have been acquiring all their projects in the commuter belt of London since 2013.
Homes of England’s vision is to export the “London lifestyle” to the periphery. Today, the modern tenant in the capital has expectations in terms of amenities, and private rental complexes already exist where services are provided on-site. When exporting this modern lifestyle to the outskirts of London, the company includes services such as gyms, cinema rooms, conference rooms, storage space and delivery docks.
Instead of engaging in buy-to-let, they engage in build-to-let as they believe in adding value to their buildings in order to create a healthy, diversified and secured portfolio able to resist market drops. The company converts office buildings into residential buildings, for which demand is rising in the commuter belt. It was pleasing for us to see that conversions are less risky than new builds as no structural changes are operated on the buildings. Through their numerous projects, they benefit from economies of scale, and their average project creates margins of 40%, which are used as a buffer to protect all stakeholders. Is that where opportunities lie, both for tenants and investors, in the coming years?
Touthill in Peterborough, Cambridgeshire, is a 119 apartments project located 5 minutes’ walk from the railway station. The building faces the cathedral and includes all the amenities listed above for its tenants
If Homes of England’s expertise and added value lies in its ability to locate and select schemes with high development potential, the company also takes care of funding its projects. Their activities are financed up to 70% by banks, while the rest comes from their equity capital. Some experienced investors have also invested with them for a fixed return. If you share the vision of the teams at Homes of England, do not hesitate to contact them with any queries. (http://homesofengland.com/contact)