Bank on a bargain

The City of London and Docklands is sharing the pain with Wall Street, where the loss of thousands of jobs has led to panic selling of homes and corporate rentals.

This provides an investment opportunity for those looking for fair-priced properties.

There are at least 13 developments in the pipeline, with potential to deliver 5,800 new homes over the next five years, which will also be available at lower market prices.

Collapsed investment bank Lehman Brothers employed high-earning bankers and traders, who lived in smart pied-à-terre apartments around Canary Wharf.

Some used big bonuses to purchase flats off-plan in
the hope of making a pre-completion killing. With hundreds of homes due for completion within the next 12 months, many Docklands owners will have to walk away from these properties making a big loss and waving goodbye to their deposits.

'Prices won’t go up early next year but the number of buyers will - so good deals will be easier to close now'

The average price of a new flat in E14 in 2007 was £369,000, 20 per cent more than the London average. About 95,000 people work at Canary Wharf, which has underpinned demand for local homes.

But with the financial sector reeling from the global credit crunch, a big correction will take place. “We are seeing forced sales now, and there will be more over the coming weeks,” says Richard Cotton of estate agent Cluttons.

“In the rental market, tenants are moving out; one ex-Lehman employee asked me this morning to use his deposit to pay the rent as he was not sure if he was going to get paid. And as owners lose their tenants, they put their properties on the market".

About two-thirds of corporate tenants in London work in financial services, an indication of the impact the banking crisis is likely to have.

“This is worth remembering by buy-to-let investors who want to enter the market now,” says Russell Hunt, managing director of search agent Property Hunt. “But new buyers should be those who can finance their property long-term because until the market comes back there will be voids to cope with.”

Hunt recommends buying in prestige waterside blocks within a 10-minute walk of Canary Wharf’s dealing rooms.

“Go for flats for sale with tenants in situ,” he says. “This gives buyers a bit more security. We’ve just done a deal on a £450,000 one-bedroom flat at Discovery Dock where the tenant is paying £430 a week.”

Hunt’s advice is “to be realistic about rents but negotiate hard on price and don’t be afraid to go in low”. Some sellers are sitting on big amounts of equity because they bought a long time ago and are prepared to sell at an attractive price now.

“Prices won’t go up early next year but the number of buyers will - so good deals will be easier to close now,” Hunt adds. He also believes that Canary Wharf will bounce back strongly because of the Olympics’ regeneration and longer-term employment growth in the area.

‘This is the time to buy a better-quality home in a better location than previously you could have afforded’

Rental yields are strong in areas where would-be buyers are frustrated by a lack of mortgage availability, for example for homes in City-fringe inner-London districts such as Whitechapel.

But buy-to-let mortgages are also harder to come by. Last year, there were 4,350 mortgage products to choose from whereas now there are fewer than 350. Investors should expect to put in at least a 35 per cent deposit and have evidence of rental income of 120 per cent of the monthly mortgage repayment.

Many investors believe Docklands will always to prone to more dramatic rises and falls than the more residentially secure central London areas.

Bruce Ritchie, chief executive of rentals specialist Residential Land, which has a portfolio of more than 1,200 central London flats, says over the years he has become even more focused on the centre. “Our spread of properties used to be across 24 postcodes, now it is eight.”

Good buying opportunities are also emerging in the banker-belt strongholds of Notting Hill, Chelsea and St John’s Wood, says Ed Davey of estate agent Douglas & Gordon.

“Events of the last fortnight have made a lot of wealthy people in London wake up to reality. Sellers in the £2 million to £4 million bracket are coming back to us and saying: ‘that offer I had at 15 per cent below asking price, is it still there?’”

So the door is open for businesslike buyers to negotiate hard with “distressed” sellers and desperate developers. There are 30 per cent price discounts around. This is the time to buy a sensibly priced home, perhaps with a few financial sweeteners thrown in.

This is the time to buy a better-quality home in a better location than previously you could have afforded.