Buy to Let Investing in East London for Higher Yields

Investors in many of London’s Eastern villages were among those that got their fingers burn worst in the recent downturn. Many had bought flats off plan hoping to cash in on demand from people working in Canary Wharf and the City. They also hoped that otherwise quite down and out little villages such as Woolwich or Stratford would see huge increases in property prices because of the Olympics and extensions to the transport lines connecting them to the city and Canary Wharf.
They were looking at what had happened just a bit closer to the city in places such as Greenwich and also north of the river, where property prices did quite well between the early 2000s and the crash in 2007.
But what happened was that many of those areas didn’t really change, though they may yet in time, and so couldn’t command high-priced rents from city boys who were looking for quite fancy places to spend their bonuses on. What’s more, many people had over-leveraged themselves far too much and just couldn’t support the mortgages they had. Many had bought two or three properties, yet if just one of them was not collecting full rent then they all would go down. That led to a huge glut of properties on the market and produced some of the steepest falls in price anywhere in Britain.
The huge question now, is whether there is a killing to be made buying some of those flats, getting a great rental yield out of them and hopefully making some real money.
There is some cause for optimism. Savills, a property company, recently published a report that points out that after the previous housing crash, the best (or prime) parts of East London recovered really well and delivered higher returns to investors than mainstream property investing in the 1990s. They ask whether this trick can be repeated. They note that new buildings accounted for more than a third of sales over the past 10 years in the area, which suggests that the shortages of housing that keep prices up in other parts of London are not evident in East London, where there is still land available for building. They reckon, not surprisingly, that the wellbeing of this market will depend a lot on how London does as a financial hub. More than half of the people who bought property in this area working for banks and other financial services companies (many of them in Canary Wharf) so until the big investment banks start hiring in big numbers, and start handing out their usual bonuses, it seems that prices will stay depressed.
They also note that there are some big housing projects that will be completed this year and next, so a lot of new stock will be coming onto the market. It seems reasonable to assume that this too will depress property prices.
On the other side of the coin, rental prices are holding up reasonably well for the sorts of properties that these city boys like to rent. One bedroom flats tend to get rents of £300 to £400 a week, the report says. That delivers a current gross yield of 4.6%. It may be a bit higher than in other parts of London, especially prime central London, but in my book it isn’t quite enough to cover the risks involved unless you really want to make a huge bet that the housing market has bottomed out. I, for one, am not completely convinced that this is the case.
Savills doesn’t agree and concludes that this area will outperform the rest of London over the next five years, helped by the Olympics and all of the money and regeneration that is going into the area. So there you have it, two different opinions on the same data: my pessimism and the experts optimism.
To add yet a bit more data to the mix, there is a recent report on rental yields from findaproperty.com, which reckons that in March the average gross rental yield in the UK was 4.3% but that in some parts of East London renal yields are much higher at close to 6% in places such as Barking, Newham and Tower Hamlets, but that these are also places where property prices were falling in March.
I’d still say that now is the time to wait things out. For impatient buy to let investors, there are plenty of appealing properties out there. But sensible investors could still pick up even better bargains further down the line.

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• Is Now the Right Time to Invest in Buy-to-Let Properties?
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• The three rules of buy to let property investing
• The economics of buy to let property investment
• Is Buy to Let About to Improve?