The current buy-to-leave vogue for investing in properties without living in them, or renting them out, is transforming vast swathes of London. We believe that using property purely as a way of investing capital will not benefit investors in the long run.
Houses, flats and cities need people. Without them they wither and die. A large complex with 1000 flats might look gorgeous in the brochure, but if all the other buyers also buy-to-leave, what will your investment look like in ten years? Without inhabitants the shops close down, the restaurants leave, the cafes go bust.
We already have lots of examples. Le Racine, a Knightsbridge institution and one of London’s most famous French restaurants, closed down in 2014 when it became a victim of the change in local demographic that means the vast majority of owners in the area rarely live there. In summer the area can feel quite busy, when the owners are in town, but go there on a November evening and it’s very different. Shops have closed, the streets are empty and you can see why it’s difficult to sustain a business.
Quiet streets, closed businesses
Kensington and Chelsea used to have a real buzz at night. Now they are deathly quiet. As the older clientele move out they are replaced with buyers who are using the flat or apartment as an investment and don’t live there. This means local businesses, the lifeblood of an area, close down. Poissonnerie has been a favourite with locals in Chelsea for decades, opened in 1964. Last May it closed along with Le Suquet, another French restaurant in the same area.
The Candy Brother’s One Hyde Park, which has views over the famous green-space, is probably the most high profile example of buy-to-leave. Its 86 apartments have only ever had a 30% occupancy rate and some of the flats have never been lived in.
It is unlikely that Chelsea or Knightsbridge will turn into ghost towns. They are too central, with too much history for that to happen. But that’s not the case everywhere in London. There are many large developments in less fashionable areas that are being sold to investors who don’t understand how people live in the city.
Beyond the brochure gloss
Gorgeous brochures are convincing foreign investors to buy London apartments off-plan. Low rental yields mean it’s an investment for capital gain, and a rental income is not part of the plan. But without visiting the property, or understanding how people live in this city, it can be hard for the owner to understand the importance of a tenant.
An empty apartment doesn’t need somewhere to buy food or coffee and transport links are unnecessary. In ten years time, when the apartments are no longer cutting edge, the architecture is dated, the gloss has gone from the brochure and there is virtually no infrastructure to sustain whoever lives there what will the property be worth then?
These are important questions to ask. At the moment, low interest rates mean mortgages are cheap and returns on traditional savings and investments are very low. But what happens when the situation changes? What happens when interest rates go up, mortgages become more expensive and investors want to leave the London property market? Selling an empty flat with very little local infrastructure may be much harder than it was buying in the first place.