December traditionally brings us to that time of year when journalists wheel out their favourite property sector pundits and ask them for their predictions about how the market will fare over the coming twelve months. Come the New Year, there will be forecasts aplenty about whether house prices will rise or fall, the likely direction of interest rates, which towns and cities will attract the most demand for tenancies, and the best places to invest in property.
It's never a bad thing to gather some well informed views, but the most important thing to remember about all of this is the simple fact that nobody really knows. The economy is a complex beast at even the most settled of times, so it's important to treat all predictions with a generous pinch of salt.
This cautionary note also applies to forecasts about market conditions in specific locations (so yes, it applies to this article, too). The more locally-focused your data, the more useful it tends to be - because market demand, prices and a whole host of other important criteria can vary, even along the length of a single street. Investors look to buy properties that meet local demand effectively and profitably, so it really comes down to the market appeal of each individual property.
Ultimately, that's the only level of detail that matters. If you are serious about investing, then national and regional data won't help you very much, nor even figures that examine particular postcodes. Investors should consider each single property on its merits.
So what's the point of this annual ritual of future-gazing? Well, it's fundamentally about shortlisting; about using data to examine a huge number of geographical options and to use sensible criteria to filter out the locations that best suit your personal investment needs.
What are the Priorities When Looking for the Best Places to Invest in Property?
Different investors prioritise different things. Ideally, of course, you'd want it all: great affordability, exceptionally high yields, zero risk, fast-rising capital appreciation and a realistic prospect of strong, sustainable price growth. That would be fantastic, but in the real world, choices normally have to be made; choices based on compromise, balance and attitude to risk.
Investing for Capital Growth - The Best Places to Invest in Property
For some investors, the chief goal is capital growth. There have been periods in recent UK history when, by gaining in market value, the average home had made more money in a year than the average worker. Strong capital growth can therefore deliver a massive increase in wealth, so there is an obvious appeal.
A few years ago, parts of central London were seen as a sure-fire win, especially by wealthy foreign investors and professional fund-holders looking for safe bets for large sums of cash. However, economic conditions have changed and now those same, high-priced central London postcodes are amongst the worst-performing markets in the country.
This is not to say that property investors have abandoned London altogether; some are content to play a waiting game in the reasonable expectation that prices will recover in the longer term. Others are proactively investing in areas in London's (wide) commuter belt. Again, capital gains have not been especially strong here in recent years, but basic market dynamics suggest that those that are delivering a strong economic performance must eventually see a recovery in their local housing market. If that happens, then properties selling now for relatively modest sums might deliver big capital returns later on.
However, for those who prefer to base their decisions on hard data, house price indices suggest a few urban hotspots where average prices have been rising at impressive rates. For these, the investor usually needs to look further north. According to HomeTrack data, the UK top-performers for capital gains in 2019 have been Liverpool, Birmingham, Cambridge, Glasgow and Leicester. Taking pole position was Liverpool, which delivered year-on-year growth of 4.6%, while Birmingham managed an impressive 3.8%.
These figures might seem a little lacklustre to those who remember much higher growth a few years ago, but in a relatively subdued market characterised by pre-Brexit jitters, such numbers are still very good. At a time when inflation is running at below 2%, an annual upturn of 4.6% means a significant net gain - particularly when you consider that it comes with the added benefit of a monthly rental income.
Choosing the right location is clearly important for those who want to prioritise capital gains, but then so too is the right choice of property. Existing properties offer the advantage of a track record, which will help to show how well they have previously performed, but well established properties are only likely to appreciate more or less in line with the local market rate. By contrast, off plan properties are often offered to investors at well below market rates by developers who need cash liquidity in the early stages of construction. Buying off-plan can therefore create an opportunity to buy cheaply, and then to benefit from capital growth both during the construction period and afterwards.
Off-plan investments are not guaranteed to outperform other opportunities, but where the other market essentials are in place, they can be well worth considering for those keen to maximise their capital gains. Those local market essentials might include proven rental demand, strong economic performance, population growth, increasing employment and big public and private sector investments in local regeneration projects. There are plenty of towns and cities that meet some or all of those criteria, and this might help to explain the continuing popularity of cities such as Liverpool, Manchester, Birmingham and Glasgow.
However, not everyone will prioritise capital growth, so in the second part of this article, we will look at the other key investment goal: rental yield. We'll examine some of the locations that are delivering the country's best yields and some of the reasons why. Finally, we'll examine some of the very best of the UK's investment destinations; markets that have been delivering good yields and steady capital appreciation.
Part two of the best places to invest in property will be available shortly. In the meantime, if you would like to discuss investment options or plan a new investment strategy for 2020, please call our advisory team on 01244 343 355.
* * *