What role does real estate play in tumultuous times? In particular, can prime residential property in the UK still act as a safe global asset class? This report – part of our ongoing collaboration with real estate researcher Yolande Barnes – looks at the price and value of prime property in London and the country on the global stage to determine whether it is a ‘buy’, ‘hold’ or ‘sell’ and how international markets might affect its growth prospects in future.
The key findings are below:
Prime residential property in the UK looks like a ‘buy’ for several reasons:
- Prices in Prime Central London are back to 2013 levels.
- In dollar terms, prices are even lower, below 2011 levels, making landed London houses particularly cheap on the global stage.
- When compared to gold, prices are low, while also sharing some of its ‘real asset’ qualities.
- Despite the recent rally, the British pound is still cheap against world currencies in relation to previous decades.
- London and the UK have particular qualities among global cities and countries, making them an investible ‘safe haven’.
- Threats of global recession and uncertainty around conventional investment assets mean global equity will be looking for a secure, long-term home.
- The same threats mean that there may be increased opportunities to ‘buy the dip’ over the next year or two.
- Real estate has desirable qualities in comparison to other, more volatile assets.
- The UK’s established rule of law and legal title are important considerations for some overseas investors who cannot take them for granted.
Other attractions for real estate investors can include a moderate climate, lack of geothermal and earthquake activity, social and religious tolerance, democracy, education, culture, language, time zone, familiarity, amenities, open spaces, stock quality, business environment, and financial capability.
Historically, prime London markets have performed well after injections of overseas capital. Two out of three conditions which have attracted overseas capital in the past are present now; the third is uncertain. They are:
- Cheap US dollar exchange rate.
- Prices have fallen or not grown for several years.
- There is a prospect of broader economic recovery.
There are compelling incentives present for global investors to buy long-term, illiquid assets in safe jurisdictions that will not exhibit the price volatility of stock and bond markets.
Real estate presents potential for portfolio diversification as it has behaved differently from stock and bond markets. This is particularly true of Prime Central London residential property.
An analysis of residential prices against the price of gold suggests that Prime Central London property has rarely looked better value on the global stage. Prices are now at the same inflation-adjusted level as in the recovery year 1987; they have not reached this level of affordability since. Either gold is overpriced (possibly), or prime UK property is a ‘buy’.
Read the full report here.