South Africans have always had a love hate relationship with London with an estimated 1 million working and living in the city. Many have emigrated permanently while others have called it a temporary home away from home.

When the British Home Office announced early in 2009 that South Africans will now require visitors visas, even if they just visit the UK as a holiday maker, there was an understandable outcry. Official reasons cited included the apparent ease in which a SA passport can be forged and the many of our citizens staying in the UK longer than legally allowed. In truth I believe it has more to do with “British jobs for British people”. The downswing in the economy has been hard on some British voters, and with elections looming, the government can’t be seen giving jobs to overseas workers.

With a population of 60 million and the highest density in Europe after the Netherlands it is easy to see why the government want to limit the number of immigrants. Even so, population growth is estimated to increase by 300,000 per annum.

And it seams South African investors are not the only overseas buyers with a soft spot for London. Sovereign wealth funds of Qatar, Abu Dhabi and Oman, as well as private Saudi Arabian investors, are snapping up London deals. Such behaviour may seem risky on the surface but when you dig a little deeper it’s easy to see the sound fundamentals at its foundation.

Considered the financial capital of the world and with the largest aviation hub in Europe, London’s population is expected to grow to 8.2 million by 2016.

With the Olympic Games taking place in the city in 2012 and a severe undersupply of new homes being built, property values are expected to improve strongly over the medium to long term. Over the last 35 years, London properties have achieved an average annual growth rate of more than 11 percent. So why not take advantage of the downswing - buying opportunities on the way to the bottom of the market are more plentiful than those on the way up, and sellers are more open to low offers.

But how’s this possible I hear you say. Isn’t it a well known fact that property prices are falling quicker than banker’s bonuses? Yes, prices are falling, but it’s not that simple: some areas are faring a lot better than others. As Cherry Maslen puts it in a recent Sunday Times article:  “We (the UK) don’t have just one national housing market, but myriad ones, responding to a variety of specific factors, from factory and office closures to the pulling power of local schools.”  

I couldn’t agree more and I often point this out to wannabe investors citing house price figures they read in the media as reasons not to invest. It is often said that in order to be a successful investor you need to learn how to zig when others zag. Or more plainly put - have the courage to break out of your comfort zone, leave the herd and think for yourself.

So let’s take a quick look at the facts behind the sensational headlines.   According to the Government's official house price index, produced by the Land Registry, prices in the UK as a whole fell by an average of 13.5% during the year, yet those in the WC postcodes of central London recorded a jump of 14.8%. By contrast, neighbouring west London once the favourite stomping ground of City bankers suffered a fall of 20.7%.  

So combine the lower property valuations and strong London rents with a 25% drop in sterling during the past year, mix in British interest rates of just 1% and good quality London property suddenly becomes an investment opportunity of note - so long as you buy in the right area at the right price.

These facts have not escaped the property pro’s and according to the Royal Institution of Chartered Surveyors (RICS) – the number of inquiries by new buyers has been rising consistently since November.     

It seems likely that before 2009 is out, the UK market will stabilise, heralding the start of a buying stampede kept in check for over a year. And at its forefront will be the broad, smiley faces of the property investors.

Wishing you health, wealth and happiness,

Mike Smuts
Property investor and MD of Smuts & Taylor.