Middle East and Asian buyers increasingly seeking new build property investment in London

New build property in London is proving to be a big attraction for foreign real estate investors with demand increasing from Asia and the Middle East, according to property firm Cluttons.

In particular the city's new build residential pays dividends for Middle East investors as the number of private tenancies have rise by 80% over the last decade, according to Cluttons which has been working in the Middle East since 1976.

Its latest independent research paper highlights the popularity of new build housing stock in London amongst international investors and the potential for high returns. Cluttons notes that much of this international investment appetite comes from the Asia Pacific and GCC regions, whose buyers are additionally incentivised by favourable currency exchange rates.

The research, undertaken on behalf of Cluttons, notes that new build housing stock offers a strategic opportunity for international residential investors. These new properties are efficient, often have lower management costs and can be tailored to match distinctive renter profiles, which have been identified by the research.

New build rental accommodation can also achieve a rental premium due to location and quality, making it attractive to highly skilled workers, who are increasingly attracted to the British capital, the firm points out.

Since 2000, an extra 400,000 jobs have been created and as a result, there are now more people employed in London than at the 2007 economic peak. This has placed tremendous pressure on the capital's housing stock. However, demand has not been matched by supply, pushing house prices up and forcing would be home owners out of the market, into a rapidly expanding pool of renters.

'Given that the average price of apartments in prime Central London has breeched the Ј1 million mark for the first time, it is ever more important to cater to the growing pool of renters, for whom home ownership in London continues to seem increasingly unlikely, with our forecasts suggesting a 25% surge in capital values over the next five years,' said Bill Siegle, senior partner at Cluttons.

'Outside prime core areas, higher returns are available. Our research shows that gross yields in these areas are more favourable. Buyers are already looking at locations that were previously perceived to be more secondary, as improved transport links, better value for money and burgeoning demand ripples outward from Central London,' he added.

Compared to the market peak in the third quarter of 2007, international residential buyers, through the combined impact of the weakening of sterling, triggered in part by the  recession, are now able to capitalise on currency linked savings of approximately 15% for Euro buyers, rising to and 33.5% for Singaporean Dollar buyers.

Similarly, Sterling has lost 6.6% of its value against the UAE dirham since the start of the year, further strengthening the appeal of a London based investment. As of the end of the first quarter of 2013, residential property in London was trading with a dirham 'discount' of 18.5% relative to the market peak.

Investments from the Middle East are not new to the London scene. Amongst last year's biggest residential investment deals was Abu Dhabi Investment Corporation's Joint Venture with London & Stamford for the purchase of Moore House in Chelsea for Ј147 million.

'Cluttons does not expect any significant strengthening of sterling over the near to medium term and this is expected to further enhance London's investment appeal, particularly for investors from the GCC,' said Ian Gladwin, chief executive of Cluttons Middle East.

According to Siegle robust capital value growth has impacted on gross residential yields across prime Central London. Yields dropped to 3.69% during the first quarter of 2013, the sixth consecutive quarter of decline, according to Cluttons' first quarter 2013 Residential Investment Monitor.

'Despite this, the research predicts that rental value growth in London will outpace capital value growth in London over the next decade due to the imbalance between supply and demand, particularly from growing affluent renter groups,' he explained. propertywire