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Thu 23 Jul 2020 02:04 PM

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London vs Manchester: Where to snap up a post-lockdown property bargain?

Manchester is forecast to see both the highest sales price and rental growth of any UK city over the next five years

London vs Manchester: Where to snap up a post-lockdown property bargain?

Manchester is forecast to see both the highest sales price and rental growth of any UK city over the next five years, despite a higher volume of development.

The UK’s revived post-lockdown property market presents a diverse range of opportunities for international investors, according to experts.

Real estate agents up and down the country are reporting unexpectedly high levels of property buying and selling activity, said Lucian Cook, head of residential research at UK real estate consultants Savills.

“Post-lockdown activity has taken us all by surprise,” he said. “The lead indicators, such numbers of agreed sales, are telling us that property transactions are actually well above pre-lockdown figures.”

Cook said this unprecedented boom is partly due to pent up demand, but also because lockdown acted as an “incentive” for people to move house.

“Lockdown has made people reassess their homes and lives. They are now looking for houses with office space or gardens, for example,” he said.

“Despite all the economic uncertainty, buyers are weighing up their work and life balance and deciding to move. In this respect, for the first time, practicalities may be outweighing finances in the decision to move.”

Investment opportunities for overseas investors are ripe in the newly buoyant British market, added Cook.

London calling

The Savills expert said particularly good returns could be expected at the very top end of the London market.

“The premium end of the market is very different to the mainstream,” he said, referring to properties worth £2 million and above in areas such as Kensington, Chelsea and Camden.

According to Savills data, prime London property prices have slumped by around 20% since 2014, so the market is “relatively cheap” and ripe for leveraging currency play gains given the weak pound, Cook said.

Prime London residential property values are currently forecast to appreciate by 15.7% over a five-year period up to 2024, according to Savills data.

Non-prime London residential prices are set to grow by a more modest four percent over the same period, the property firm said.

When looking to invest in the London market, Cook said buyers should carefully study the market and select areas that are undergoing development and improved infrastructure programmes.

“In the past few years, prime London property has underperformed [in terms of capital appreciation] compared to other parts of the UK, but if the stock is carefully selected, there are some great investment opportunities and investors can do well.”

Tom Bill, head of UK residential research at property firm Knight Frank, also noted that prime London is offering rich pickings for overseas investors.

”In the last five years prices have been going down… there is a widespread recognition that parts of prime London look to be good value. The weak pound will also help drive demand for Middle Eastern buyers,” Bill said.

Despite the diverse range of UK real estate investment opportunities, and the potential for higher capital appreciation in secondary cities such as Manchester, London continues to draw in investors who are looking for a “safe haven”, Bill added.

“London is starting to regain some of its sheen as a safe haven investment... it never loses that sheen but that aspect shines brighter at certain moments,” said Bill. "We are probably at one of those moments now in these uncertain economic times,” he said.

Northern lights

A few hundred kilometres north west of London, the smaller city of Manchester also offers ripe property pickings for overseas investors, said Cook.

The Savills property expert said that choosing the right area to invest in, especially given the current uncertain economic climate, is paramount.

“As with London, and perhaps more so, it’s really important to understand the merits of different areas and how much supply is coming through,” Cook said.

“If you can get all this right and take a five-year view on it, there is capacity for more capital growth and rental yield in Manchester than London,” he said.

Over a five-year period up to 2024, the average value of residential Manchester property is slated to grow by 17.1%, according to the latest data from property consultants JLL.

According to Invest in Manchester, the ten boroughs of Greater Manchester combined make the largest city region economy outside London, with a gross value added (GVA) of £62.8 billion.

Fuelled by growing national investment, an increasingly diversified economy and a young, educated population, Manchester‘s GVA is expected to grow by 45% between 2016 and 2036.

“The economy of the North West will be one of the strongest performing economies in the UK over the next five years,” JLL noted in its report.

“Manchester is forecast to see both the highest sales price and rental growth of any UK city over the next five years, despite a higher volume of development,” it said.

“We expect rents to rise strongly over the next five years, reflecting both heightened demand and better quality stock,” the report added.

However, Savill’s Cook cautions against simply “following the crowd” to Manchester.

“Manchester has been in vogue for a couple of years because of its high capital growth and diverse economy,” Cook said. “However, it’s more important than ever in these current time to make sure you select the right stock.”

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