Investing in London Real Estate
London real estate has long represented one of the most attractive forms of investment both domestically and even more so for foreign investors. London’s position as a global financial powerhouse in Europe, the quality and transparency of its business infrastructure and the rule and certainty of English law are a few of the factors instrumental to the success of its property market.
The decade leading up to the financial crisis in 2008 saw a spectacular boom in London property prices, allowing many passive investors to enjoy annual returns north of 15% from capital appreciation alone.
Though the impact of the crisis on property was relatively short-lived, the climate since then has become increasingly more challenging, with multiple governments altering the tax environment to disincentivize the influx of private foreign buyers and the four-year political uncertainty surrounding Brexit taking hold – not to mention the global pandemic.
As we emerge from the difficulties surrounding Brexit and Covid-19, many see the next few years as an opportunity for London real estate to reassert itself on the global stage and offer another period of solid returns. The factors to which London property owes its long-term success have survived worse and we suspect are likely to persist for several decades to come. Indeed, the central London residential market experienced annual price growth of 0.8% in July 2021, being the highest level since May 2016 with average London prices increasing by 6.2% in the year to October 2021. In November 2021, a report commissioned by the Urban Land Institute and PwC named London as the highest ranked European city for property investment over competitors including Paris and Berlin. Notwithstanding the latest threat posed by Omicron and rising interest rates, the new year has begun with London FTSE 350 real estate companies hitting their highest level since October 2015 and shares in homemaker Hammerson jumping 5%.
While we share this optimism, recent years have shown that things can change unexpectedly and we consider that a balanced and strategic investment approach is required to protect capital in the long run. Value-add strategies will be essential to protect against the dampening effect of further rate hikes but if the last five (or fifteen) years are anything to go by, steady cash-flow will remain key.
AMCAP – RE Greater London
The AmCap RE Greater London Fund was launched in July 2020 with the aim of providing investors with long-term risk adjusted returns through a combination of income and capital growth.
The fund utilises a blended approach to investing, combining the stable cash flows offered through buy-to-let investments with the preferred returns of value-add development. Our buy-to-let strategy is based on stable rental yields and on matching the market’s capital appreciation. The fund’s development strategy focuses on undervalued assets and their short to medium term development, potential re-positioning and disposal.
In terms of assets, the fund targets small-cap transactions perceived to have less competition on the buy side and markets where management has long-term experience and a competitive advantage. These areas include the affluent suburbs of Cobham and Esher in Surrey in the South and the boroughs of Camden, Enfield and Barnet in the North. While value add opportunities in commercial real estate continue to be explored, the fund’s management believes a focus on quality residential real estate with access to outdoor space is likely to benefit most from the post-Covid recovery.
Unlike many other real estate investment products, the fund is pre-seeded with an SDLT paid investment portfolio valued at over £67m, meaning that new investments begin generating a return from day one. This seed portfolio delivered an average annual return of 11.2% in the 10 years prior to the fund’s inception and the fund now targets an aggregate annual return of 12%.