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London Rental Yields Improving as the Market Bottoms Out

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Wed 13 Mar 2019

London Rental Yields Improving as the Market Bottoms Out

London rental yields seem to be improving, as the property market in the capital shows signs of bottoming out, reports estate agent Chestertons.

House prices in the capital have dropped in recent years, with property values in prime London experiencing the sharpest declines. They are now close to 20% below their peak in 2014, according to various indices.

However, there are now fresh signs that the London property market is finally bottoming out, as a substantial rise in people registering to buy homes is coupled with a significant decrease in the number of new properties coming onto the market.

Chestertons has witnessed a 35% increase in the amount of buyers registering to purchase properties in the capital since the start of this year, compared to the corresponding period of 2018.

In addition, the number of agreed sales has risen by 7% year-on-year, while property viewing appointments have increased by 12% over the same period. This further demonstrates the existing strong buyer demand in the market.

But the estate agent reports that the number of new properties coming onto the market during this period in London has fallen by 22% annually, adding to the widening supply-demand imbalance in the market, which has slowed the rate at which house prices have been declining in the capital.

The latest House Price Indexfrom the Office for National Statistics (ONS) shows that growth in London improved from an average of -1.4% in December 2017 to -0.6% in the same month last year.

Meanwhile, in Zone 1, Chestertons’ own data shows that, in the three months to December 2018, prices in prime locations dropped by an average of 1.2%, which is a considerable improvement on the -2.2% rate recorded in the previous quarter.

As house prices have fallen significantly since 2014 and rents have increased in many parts of the capital, due to a shortage of available rental homes, London rental yields are also picking up and supporting investor demand.

London rental yields in locations covered by Chestertons stood at an average of 3.2% at the end of December last year, compared to 3.0% at the same point in 2017.

In Zone 1, rental returns increased to an average of 2.8%, from 2.7% in the previous year.

Guy Gittins, the Managing Director of Chestertons, says: “Following two years of substantial price drops, the market is now bottoming out in London. 

“Property values in the capital – particularly in prime locations – have now come down to a level that is proving increasingly attractive to potential buyers, driving a huge surge in the number of people registering with agents and buying property since January.”

He continues: “At the same time, the number of new properties being put up for sale has plummeted. This dramatic imbalance between supply and demand is starting to fuel small price increases in areas like Hyde Park and Putney, as competition ramps up – and we’re even seeing instances of buyers attempting to gazump others by offering to pay over asking price. The signs of recovery are there, with the prime market leading the way.

“It’s not just local buyers who are coming to the market in their droves now, but investors, too, who are seeing improved yields and good opportunities.”

Gittins adds: “With 29thMarch looming large in people’s minds, overseas buyers fear their window of opportunity is closing, and are moving fast to invest in the London property market while prices are low and sterling is weak.”