London's yields are low
Residential Valuation Specialist | June 18, 2018
|Last Updated: Jun. 28, 2018|
|PRICE/SQ.M. (£)||YIELD (p.a.)||PRICE/SQ.FT. (£)|
|TO BUY||MONTHLY RENT||TO BUY||MONTHLY RENT|
|W1S:Marylebone, Mayfair, Soho flats||31,873||59.20||2.23%||2,961||5.50|
|W1K:Marylebone, Mayfair, Soho flats||27,740||59.20||2.56%||2,577||5.50|
|SW1Y:Belgravia, Pimlico, Westminster flats||25,296||47.54||2.26%||2,350||4.42|
|SW1X:Belgravia, Pimlico, Westminster flats||24,370||52.92||2.61%||2,264||4.92|
|W1J:Marylebone, Mayfair, Soho flats||24,080||48.44||2.41%||2,237||4.50|
|SW1A:Belgravia, Pimlico, Westminster flats||20,215||53.82||3.19%||1,878||5.00|
|SW1W:Belgravia, Pimlico, Westminster flats||19,214||46.65||2.91%||1,785||4.33|
|SW3:Brompton and Chelsea flats||19,074||44.85||2.82%||1,772||4.17|
|SW7:South Kensington flats||18,719||43.06||2.76%||1,739||4.00|
|SW1E:Belgravia, Pimlico, Westminster flats||15,834||44.85||3.40%||1,471||4.17|
|SW10:West Brompton, World´s End flats||14,403||35.88||2.99%||1,338||3.33|
|Prime London - other areas|
|W1U:Marylebone, Mayfair, Soho||18,794||43.95||2.81%||1,746||4.08|
|W1G:Marylebone, Mayfair, Soho||18,730||43.95||2.82%||1,740||4.08|
|W1T:Marylebone, Mayfair, Soho||18,730||44.85||2.87%||1,740||4.17|
|W1H:Marylebone, Mayfair, Soho||16,835||41.26||2.94%||1,564||3.83|
|W1W:Marylebone, Mayfair, Soho||16,674||43.95||3.16%||1,549||4.08|
|W11:Holland Park, Notting Hill||15,091||40.37||3.21%||1,402||3.75|
|NW8:St John´s Wood||13,466||35.88||3.20%||1,251||3.33|
|SW1P:Belgravia, Pimlico, Westminster flats||13,380||38.57||3.46%||1,243||3.58|
|NW1:Camden Town, Regent´s Park||12,756||40.37||3.80%||1,185||3.75|
|SWIV:Belgravia, Pimlico, Westminster flats||12,164||34.98||3.45%||1,130||3.25|
|NW3:Hampstead, Swiss Cottage||11,873||33.19||3.35%||1,103||3.08|
|W9:Maida Vale, Warwick Avenue||11,281||32.29||3.44%||1,048||3.00|
|SE1:Bermondsey, Borough, Southwark, Waterloo||10,786||37.67||4.19%||1,002||3.50|
|W10:Ladbroke Grove, North Kensington||10,409||33.19||3.83%||967||3.08|
|SW6:Fulham, Parson´s Green||9,957||29.60||3.57%||925||2.75|
|All yields are gross - i.e., before taxes, repair costs, ground rents, estate agents fees, and any other costs. Net yields (what you´ll really earn) are typically around 1.5% to 2% lower.
Belgravia, Brompton, Chelsea, Holland Park, Kensington, Knightsbridge, Mayfair, Marylebone, Notting Hill, Pimlico, Soho, South Kensington, Westminster
Source: LonRes Definitions: Data FAQ See also: Update Schedule
London´s residential prices have stopped rising in the higher-end districts. But London remains by any measure extraordinarily expensive.
That impacts rental returns, since rents have not risen as much as prices. Gross rental yields, i.e., the gross annual rental return on an investment in an apartment if fully rented out, are now quite low in London.
A 50 square metre (sq. m.) apartment in prime central London is likely to cost you £750,000. If rented out, it will give you a gross rental return of around 3.2%
A 120 sq. m. apartment in prime central London is likely to cost you £2,200,000. If rented out, it will give you a gross rental return of around 2.6%
Yet surprisingly, larger apartments sometimes have higher yields - particularly in the more expensive districts of London. This defies the almost universal rule in other cities that smaller flats have higher rental returns. Why is it now different in London? Because of the UK´s amazingly high stamp duties on super-expensive property purchases, which are dissuading high-flyers from buying. People prefer to rent if they are staying just a few years, because the total costs of renting high-end properties are lower than the total costs of buying and then selling them. High capital gains taxes on sale, and worries about Brexit, reinforce the message that in London, renting now makes sense for the rich.
To get the picture, look at our table and at the high-end districts. In Knightsbridge and Kensington, rental returns on 1 bedroom apartments are 2.7%, but returns on 3 bedroom apartments are 3.2%. However before you leap in, to buy your 3 bedroom Kensington apartment will cost you a cool £4.2 million!
The highest yielding 3 bedroom apartments appear to be in W1 (Mayfair, Marylebone and Soho). These areas have traditionally been popular with the Arab market, and a 3 bedroom apartment can earn 5.3%.
ANNUAL RATES OF RETURN ON BUY TO LET INVESTMENTS (CASH PURCAHSE)
|Prime Central London|
|Rest of London|
|Rest of South East|
|Source: Arla Q3 2014|
Foreign residential property investors in Britain have long faced a rising rumble of discontent 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 are now 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.