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Property in London: Still a Good Investment?

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"You can't go wrong with a property in central London," you often hear people say.

Fact is, they are right. Property development in London is booming. Since London's trade is primarily in financial services, companies are set up, bought out and financed everyday. This translates to a real estate and property development industry that is active and flourishing.

More than ever, the price of prime residential property in central London continues to rise. The primary reason cited for this phenomenon is the lack of supply of suitable properties.

The steady rise in residential prices has also been greatly influenced by the buying pattern of foreign buyers. Traditionally, foreigners who work in London purchase property for their residence or occupation. They used to immediately sell this property once they returned to their respective homes or countries.

However, the trend has been slowly shifting. In 2004 it is estimated that a foreign buyer would hold on to his property for less than a year before selling it. In more recent years, the period has risen to an average of 20 months. Foreign buyers have been retaining their properties longer because they now see them as investments and assets, considering the rising prices and short supply of real estate in central London.

Since more and more central London property is retained, property shortage has become severe and real estate values remain high. Unlike domestic property investors who usually release a previous property back into the market upon buying a new one, foreign buyers hold on to their property as an investment.

Foreign property owners who no longer live in the city utilize their property as rentals to reap income from tenants. With the equally high cost of rental units, this has become an easily profitable opportunity. If this trend continues, central London property prices would remain substantially high.

Though London property remains one of the most solid investments, a quick stroll around the city would reveal some glaring contradictions. Various flats would claim that they are "80% sold" yet the signs on the windows of commercial spaces announce "units to let."

Sadly, a house in London is still not affordable to those living on average incomes. The price-to-income ratio of residential property is more that five times higher than in other parts of the country. Being one of the most expensive cities in the world, the cost of utilities, services and taxes are constantly increasing. This translates to a rapidly falling disposable income.

Financial analysts have predicted that interest and mortgage rates are most likely to fall. Unemployment and inflation rates are increasing. Experts say that the growth of house prices cannot even keep up with the rise in the inflation rate. Property values in London have become so high that it is restricting. Many want to cling to the hope that falling interest rates will save the London real estate market. Otherwise, although property in central London is indeed valuable, not many are willing, or able, to buy.

Copyright (c) 2008 Parmdeep Vadesha

Article Source: http://www.articlemanual.com

Parmdeep Vadesha is a property investment expert and founder of the largest community of property entrepreneurs on the web who buy below market value properties from distressed homeowners facing repossession, divorce and bankruptcy. He writes a monthly newsletter for over 70,000 property investors worldwide - www.Property-System.com



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