London property prices - bit of a shocker here

[Jennifer S.]

Hi all, I was just on a US thread where the theory of the case was roughly that gateway cities (NY, HK, London) are always a good bet. I posted these numbers there because I'm always interested in relative value between US and UK. These are just in GBP terms so imagine comparing how someone would have done putting money to work in a US city like Denver or LA over this period and getting the pick up of USD strength.

This is what I wrote: Just wanted to note that nothing is guaranteed in high cost cities especially year by year. I think Hong Kong has been haemorrhaging value lately and I live in London so can share some numbers I was just running today because we are deciding whether to do more property here or in the US:

I was a bit shocked by my results -- even though I had heard from posh friends who bought in central London around the time of the Brexit referendum that they negotiated discounts of 10% the day after the vote and since then their property fell another 10%.

But I was kind of shocked to see the flat / negative return over 7 years in those 2 posh areas. These are all averages and I know smart people made fortunes in the top areas the whole time but imagine being a flipper and the next year having a drop of 22%. This is why I like to try to diversify cities/countries even if it's not easy on a day to day basis. (Like almost everyone else on BP it seems) I'm looking at southern and mountain areas of the US right now for future opps

Source = Foxtons

Total return of £100 since start 2014

Our area (outer London)	N1	Kens
+63%	-2.5%	-9%

Year	Our area	N1 (Islington)	Kensington and surrounding
2014	14%	15%	23%
2015	16%	6%	-13%
2016	16%	0%	16%
2017	4%	3%	-14%
2018	3%	1%	10%
2019	-4%	-4%	-1%
2020	3%	-19%	-22%

[Mitch Messer]

Originally posted by @Jennifer S.:

@Mitch Messer, thanks! One could argue that the GBP at least might be bottoming out but on the other hand the same government team who handled the coronavirus response here are negotiating the Brexit package so it's hard to be super confident. One the bullish side for London I read yesterday that there has recently been more fin tech VC here than in SF so that is promising. And the North of England has been doing well on FDI even recently--Maybe Brexit will turn out fine. 

On the Southern/Mountain theme in the US I feel like I'm a bit late to the party but maybe there is still room to run. In the past I have done better at neighborhood selection eg up and coming so it's tricky for me to do that from afar with so many regions to choose from. I'll keep your details on file for sure. I've been monitoring Durham NC and Atlanta periodically. I have to have a mindset shift though because I'm so used to looking for the walkable areas, the coffee shops etc and this isn't how a lot of people live currently because of space patterns. 

I have a lot of tax complexities that I'm also still working out (just spoke to a US / UK tax expert yesterday who told me he couldn't advise on the UK impact of US LLCs which is what I need the advice on ) so buy and hold is a bit difficult for me right now

I don't believe you're late to the U.S. real estate party. Better said, it's more like that particular party was shut down by the authorities and now there's a new cooler after-party just getting started!

I submit that one of the enduring legacies of COVID-19 on the U.S. will be the complete rewriting of the "rules" governing where its citizens choose to live their lives. The notion that we must live in close proximity to our job sites has, for millions, just been proven unconditionally false. So too has fallen the "truth" that insane, punishing rush-hour traffic is inevitable, unavoidable and simply the price of living in a great metropolitan area. Nope!

For example, in a market like Atlanta, real estate prices soar as you get closer to Midtown and Buckhead, and then fall off the further away you get. Go too far beyond the Perimeter and house values and market rents really plummet. Why? No one wants to live that far out for fear of the daily commuting penalty.

But...  

What happens when more people figure out that they can work from home, live on the outskirts and enjoy way lower housing costs, all while enjoying the City only when they feel like it, and not every day out of necessity?

The submarkets that were out-of-favor and cheap suddenly become very popular among home buyers and renters.

And that, of course, is the point at which investors like you and me start to salivate uncontrollably!