Where does the smart UK residential Real Estate investor buy in 2017?
The answer is Greater Manchester!
The historical data clearly shows a clear divergence between Greater London and Greater Manchester over the last 10 years. Following the global credit crisis in 2008 the average price in both markets fell by approximately 25–30% according to the Land Registry statistics shown below.
By 2011 the London market recovered to pre-crisis levels, while Manchester still lagged behind by 5–6%. This in itself was a clear buying opportunity for any experienced investor. Broadly speaking, nothing had changed in the size, aesthetics or appeal of these properties to their respective local markets. The only change was a mere recession; the worst since the second world war! And the subsequent recovery in London, and lack there of in Manchester. The second, and more pertinent reason this would have attracted the experienced investor is the classic theory that market turmoil at a macro level results is buying opportunities and here is a perfect example of a 10% price reduction for the same house in 2011 compared to 2008, not to mention any upside with modernisation and reconfiguration works which can on average add 20% to the value.
The key point to note here is that despite the statistics clearly favouring a buying opportunity in Manchester, the investments continued to poor into the opposite direction and further fuelled the London market resulting in the divergence between valuations to steepen. By 2015 the average prices across the board in London had climbed almost 45% since the 2008 lows whilst Manchester had only gained under 20%.
The notion that in real estate investments the margins are generated at the point of purchase rather than sale is clearly being demonstrated here with facts. For any investor looking to start, or increase an existing residential portfolio there is currently a 25% discount on offer for those who know where to look! This has been the case for the last 4 years whilst eyeballs have been focused on London property listings. Almost everybody has lost sight of where the low hanging fruit has been.
The reason for this in my opinion is simple, the residential investor with surplus cash flow and large current accounts deposits is confused! Why? Because, even with a sound knowledge of the financial markets and the best will in the world, the facts are simple. Equities are at a all time high with not a great deal of upside, commodities like gold are suffering as result of the strong dollar and that same average real estate investor simply does not have access to the sophisticated wealth management services that can generate double figure returns (which by the way happen to be also having struggles of their own with increased regulation and a status-quo with very little growth opportunity at a macro level for the near term). So what does the residential investor do? He or she becomes obsessed with ‘head lines’ with the intention to uncover that ‘secret recipe’ for where to invest in next! It is therefore no surprise that all the ‘head lines’ have been pointing at London.
The fundamentals for Manchester as an alternative to London during the next 12–18 months remain strong, as highlighted by the facts in this article. There is no doubt that the London market has slowed down during the second half of 2016 and will be bracing itself for looming geopolitical events such as the UK triggering article 50 by no later than March 2017 as announced by Teresa May at the conservative party conference and the US presidential elections which has already created uncertainty.
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