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Jun 18, 2014

London prices are rising, yields are not great


Last Updated: Jun 18, 2014
PRIME CENTRAL
LONDON - Flats
COST (£) YIELD (p.a.) PRICE/SQ.M. (£)
TO BUY MONTHLY RENT TO BUY MONTHLY RENT
40 sq. m. 670,680 2,040 3.65% 16,767 51.00
75 sq. m. 1,384,350 3,822 3.31% 18,458 50.96
120 sq. m. 2,458,320 6,578 3.21% 20,486 54.82
250 sq. m. 6,185,500 15,895 3.08% 24,742 63.58
LONDON - Flats
(other luxurious areas)
50 sq. m. 735,650 2,091 3.41% 14,713 41.81
85 sq. m. 1,305,260 3,463 3.18% 15,356 40.74
120 sq. m. 2,251,560 5,098 2.72% 18,763 42.48
200 sq. m. 3,668,800 8,796 2.88% 18,344 43.98
Districts researched:
Prime Central London: Belgravia, Brompton, Chelsea , Kensington, Knightsbridge, North Mayfair
Other Luxury Areas: Bayswater, Earls Court, Hampstead Heath, Notting Hill, Marylebone, Regent´s Park, Pimlico, South Kensington and St. John´s Wood
Source: Global Property Guide Definitions: Data FAQ See also: Update Schedule

London´s residential prices keep rising, with daily press warnings that the city is overvalued.  It is by any measure extraordinarily expensibe.

Prices per square metre (sq.m.) of apartments in Prime Central London (PCL) range from GBP 16,800 to GBP 25,000, with bigger apartments tending to cost more.

A 120-sq.m. apartment costs on average GBP 2,500,000

A 250-sq.m. apartment in Prime Central London costs around GBP 6,200,000.

Monthly rents per sq. m. range from around GBP 51 to GBP 64. This means that a 120-sq.m. apartment lets for around GBP 6,600 per month, while a 250-sq.m. apartment rents out for around GBP 16,000 per month. As a reminder, these are not typical London rents - this is Prime Central London.

Average square metre prices in the other luxurious areas of London range from around GBP 14,700 to GBP 19,000. A 120-sq.m. apartment here costs on average, GBP 18,800 per sq. m. or about GBP 2,250,000 to buy.  Monthly rents per sq. m. range from around GBP 41 to GBP 44. Even so, a 120-sq.m. apartment in these areas can typical rent for around GBP 5,000 per month.

In Prime Central London, rental yields range 3.08% to 3.65%, whereas in the other luxurious areas of London, rental yields range from 2.72% to 3.20%.

However these figures may be somewhat misleading.  because of London´s size and its position as a global centre, its flavour-of-the-month quality with Russian, Middle Eastern and Chinese buyers, neither of these two central London zones that we cover are truly representative. 

If you look the sources of the data in our table, you will see that some of these ´other luxurious areas´ are very luxurious indeed.  South Kensington for example is placed here. 

A possibly more realistic impression is given by the figures from Association of Registered Letting Agents (ARLA), which suggest that gross rental yields in Prime Central London are 4.37%.  Arla´s estimated yields in the rest of London are 4.74%. These estimates are taken from a database of active buy-to-let landlords, and are likely to represent a good assessment of the real situation.

ANNUAL RATES OF RETURN ON BUY TO LET INVESTMENTS (CASH PURCAHSE)

REGION
GROSS ANNUAL RENTAL YIELD (%)
AVERAGE VOID PERIOD (DAYS PER YEAR)
NET ANNUAL RENTAL YIELD (%)
Prime Central London
4.37
21
4.11
Rest of London
4.74
16
4.53
Rest of South East
5.26
17
5.01
South West
4.94
17
4.71
Midlands
5.21
19
4.94
North West
5.88
26
4.47
North East
5.34
22
5.02
Scotland/Wales/NI
5.98
23
5.60
All Regions
5.08
20
4.81
Source: Arla Q3 2014

Foreign residential property investors in Britain face a rising rumble of dicontent from the British public about exorbitant housing prices in London, which rightly or wrongly is partly blamed on the large numbers of foreign buyers, as well as the continuous flow of immigrants into London.  Both are hot-button issues. 

One result is that foreign buyers will soon be liable to capital gains taxes when they sell their UK properties (previously they were exempt). Another is that stamp duty has been ramped up on higher-end properties.  There is talk of further measures - it is widely agreed that Council Tax is too low on high-end properties, and the Liberal Democrats have been agitating for a mansion tax.

Round trip transaction costs are higher in the UK now than they were in the past, especially in London given higher stamp duties on expensive properties.  See our UK residential property transaction costs analysis and our Residential property transaction costs in UK compared to other countries.  






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