The beginning of the year might not have gone as planned for some investors, but most are keen to get moving again now the property market is open. Choosing the right location is the best place to start for successful property investment.
There are a number of different measures to assess the ‘best’ location for property investment. Historically, London has been a sure bet among many investors. House prices there have risen exponentially over the past couple of decades, although this has slowed down in recent years.
Now, more developers as well as investors, both in the UK and from overseas, tend to look at more peripheral and regional areas of the UK. Much of this strategy is based on clear figures supporting both higher yields available, as well as stronger house price gains in certain areas away from the capital. While London is still a hugely popular investment spot, many other locations are seeing much higher returns.
Andrew Ward, founder of Solomon New Homes, believes that secondary and tertiary markets will be “at the heart of the property market’s bounce back”. He spoke to Property Investor Today about why investors should always look at alternative locations.
“We know that yields in Central London were pretty woeful even before the pandemic… even if the market there picks up, it’s likely to be a long time before yields become competitive with those in other parts of the UK.”
“We’re also seeing a growing desire to move away from the larger cities and into more rural locations post-pandemic.”
Focus on: Capital appreciation
Ward recommends investing in areas that are still affordable – depending on your budget – and with strengthening economies. These areas are attracting the most inward investment, and could see the biggest house price rises.
He says: “Destinations like Manchester and Liverpool are well-known investment hotspots and there’s still a strong case for investing there in 2020/2021.”
“But we’re also urging clients to consider less obvious targets, where employment rates, populations and rental demand are all rising, but where average prices are still well within reach. Bolton, Doncaster and Wolverhampton are three good examples, but there are many others that offer variations on the same theme.”
Of course, house price prospects in the short term may have changed slightly now. The current crisis has led to lower transaction levels, so predicting house price outcomes is difficult at present. However, as property investment tends to be a long-term venture, looking at the bigger picture in terms of trends is still a good strategy.
At the end of last year, Seven Capital came up with a list of the top 10 places to invest. This was based on projected rental yields, capital growth, local demand and supply, and regeneration. Top of the list were Birmingham, Liverpool and Manchester. Read the full article here.
Focus on: Rental yields for monthly income
For many investors, this is the most important thing to look at. A location with high rental demand and strong yields could ensure the best ongoing returns for the buyer, regardless of house price fluctuations.
There are various ways of finding out where the ‘best’ rental yields are. This could be based on a town or city as a whole, or a specific location. Totally Money, for example, released a rental yield report each year with the best postcodes in the UK.
For the past few years, Liverpool has dominated the top 10 list in Totally Money’s roundup. L1 in the centre reaps the highest yields in the country, hitting an average 10% last year. To put it into perspective, the worst area for yields was AL5 in St Albans, where average yields are just 1.95%.
Liverpool has become a hugely popular place for property investment. There’s a lot of regeneration going on there, a growing jobs market and a huge rental demand.
Aside from Liverpool, Leeds also appears in the top list for Totally Money – LS2 is in ninth position with 7.92% yields. Sheffield’s S1 postcode follows with average yields of 7.83%.
To look at another tracker, Sourced Capital released a rental yield table earlier this year. It found that the north-east region had the strongest rental yields at 4.9%. This was followed by Yorkshire and the Humber with 4.5% and the north-west with 4.4%.
Speaking again about rental yield prospects in secondary and tertiary towns and cities, Ward says: “The ingredients are there for some very healthy yields and, at the same time, buoyant local economies make longer-term capital appreciation a very credible prospect.”
