Real estate agents are starting to punt London again as a property investment destination for South Africans looking for a hedge against a depreciating rand.

Industry commentators say that the slowdown in the UK property market and tighter mortgage lending by UK banks is creating buying opportunities for investors that can afford to put down cash deposits of at least 35%.

A new London development, Canary Gateway, is soon being launched to SA buyers. Unit prices in the building, which is within walking distance of Canary Wharf, range from £197,500 (R3m) to £500k (R7,8m). Canary Gateway is selling off-plan, with occupation scheduled for 2010

Investors are likely to fetch rental returns of just more than 6%, says Alan Heyman, international sales director for Jawitz Properties. Mortgage lending rates in the UK are also around 6%, which means that rentals should cover mortgage repayments as well as management costs if buyers pay a 35% deposit.

Heyman maintains that although London house prices have slowed in recent months, prices are not about to go into free-fall. He says as long as there is a housing shortage in London, a prolonged house price fall is unlikely.

Heyman notes that the credit crunch is severely impacting bank funding for new developments, which will further limit new supply coming onto the market over the next two to three years.

A report released earlier this month by UK property group Knight Frank shows that annualised house price growth in central London slowed to 12,8% in May, down from 38% in August last year. May was also the first time since the early Nineties that London house prices fell month-on-month (-1,5%).

Liam Bailey, head of residential research at Knight Frank, says the performance of the London market has weakened notably over the past two months. Up until April, London appeared to have escaped the worst effects of the credit crunch, but with the mortgage market in growing difficulties the weakness seen across the wider UK is now spreading to the prime London market.

Bailey says overall sales volumes in central London were almost 50% lower in May (y-o-y). However, the upper end of the market is still holding firm with sales in the £10m plus category up 40% in May.

Bailey expects a 5% fall in central London house prices for 2008, but adds that attempting to provide forecasts is becoming increasingly difficult. "Should the mortgage market recover later this year the property market should see a recovery in activity." - Joan Muller

 Property24 26/06/2008