The regional property market is set to outperform London for the first time since 2009. Our experts analyse the market and explain what this means for student property investments in 2015.
- London’s stalling property market
- Growing appeal of regional locations
- Cities undersupplied with student property
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As the capital of the UK, London is a key driver of the national economy. Its sheer size means that it has long taken the lion’s share of property investment in the UK and will continue to do so long into the future.
There is, however, now widespread evidence that a notable proportion of investors have become more active in areas away from the capital.
Market activity ultimately boils down to both confidence and budgetary considerations, and signs are that London’s high prices and saturated market are pushing investors towards more lucrative opportunities in the regions.
London’s stalling property market
It is predicted that national house prices in 2015 will rise faster than in London for the first time since 2009. UK-wide property prices are set to rise by 1.5% in 2015, compared to a 3.6% drop in London, according to the Centre for Economic and Business Research (CEBR).
This is a consequence of a number of factors, which include the weakness of the euro against the pound and the implementation of huge stamp duty charges in London. Also, fears over potential mansion tax rules are felt more keenly in the capital where a large proportion of the country’s most expensive houses are located.
The imminent general election is also feeding into this state of affairs, with London traditionally much more affected by concerns over these events than elsewhere in the country. However, a more long-term issue is the implementation of more stringent mortgage regulations, meaning that potential buyers are less prepared to meet high asking prices.
Growing appeal of regional locations
All this is increasing the attraction of regional investments. Though house prices outside London were sitting at record levels at the start of the year, they were nowhere near those in the capital, which were inflated even further in 2014 by an unhealthy supply-demand imbalance.
As well as driving professionals out of the capital and towards second-tier cities, this state of affairs means that it is still easier to find investment value in properties regionally.
The government has also made the stimulation of regional economies a central feature of its economic planning. City deals and housing zones are injecting high levels of investment into local economies around the country. Investment naturally builds up its own momentum, meaning that they are an indication of the long term viability of a location for investment.
Capital cities do have an important role to play, trailblazing new ideas and forms of business that then naturally diffuse across the country, and this could well be the reason why investors are now able to look further afield for opportunities.
Considering the costs involved when purchasing a home, Purpose Built Student Accommodation (PBSA) provides investors with bite-sized access to the UK student property market. Two decades ago, PBSA developments existed mainly in and around London, but they have become much more prevalent in the regions in recent times.
Cities undersupplied with student property
Importantly, investors also understand that there still remains some university towns where the construction of these developments is lagging far behind the needs of the local student population. So, while globally recognised cities like Liverpool and Manchester have over saturated PBSA markets, less known locations like Preston and Leicester have a much better student-PBSA ratio that ensures reliably high yields.
This is backed up by market figures, with regional activity responsible for a £54.9 million spike in 2013 and total investment value rising 35% to £34.4 billion. Experts argue that this came to be because of the availability of higher yields in the regions, alongside high demand and a limited supply of developments.