By Jessica Sullivan, commercial property adviser, UK.
Regeneration and gentrification are often on the receiving end of much criticism, especially when locals are being priced out of the area. This has been a particularly delicate issue in London where developers are acquiring land or blocks of flats to knock down and build luxury developments on, then setting prices well beyond the average earner.
In the past, investors have been far more likely to invest in western areas of London such as Putney, Richmond, Kensington, Chelsea, and Westminster. But as London becomes overcrowded, investors are looking to the south and east as places that are going through a regeneration process. Land is cheaper, and the property prices are rising more quickly than in rival cities, at a pace second only to that in New York.
But how does regeneration impact property investors, or landlords? In order to acquire the land or property, the developers must first reach an agreement with the owner. If an agreement cannot be reached then the developer may decide to approach the council and apply for a compulsory purchase order (CPO).
While this can be a horrible experience for those who have built lives in the area and do not want to sell, for investors this can be a terrific opportunity to make profit. Normally the developers will offer around market value for your land, but if you hold out and push for them to issue you with a CPO, then you will be in a better place to negotiate a deal.
This is why hiring the services of a representative who is familiar with these negotiations is key. Developers will want to start building quickly, and a CPO can take months if not years, so it is common for the developers to negotiate an above market rate price for your land. Accepting an increased offer such as this gives you the opportunity to sell for a profit, and reinvest it elsewhere.
As an investor, you are likely to also be happy if an area near your property is being regenerated. Those landlords and homeowners who had property in Bromley-by-Bow or Stratford, were delighted when the Olympics came to the east side of London. Development sharply increased, as did infrastructure around the area. Suddenly, it was no longer a poor region, and tenants have since flocked from around the world to be a part of the legacy.
Outside of London, the much criticised HS2 development, a high-speed rail line project, is benefitting some investors and homeowners. Not only will the speedier transport link open up business and commuting opportunities to the cities further north, but those that will be affected by the building process can apply for compensation or have their property bought at market value.
The government have so far spent £157 million in HS2 compensation, and are expected to spend more. It could be a blessing in disguise for investors whose property will decrease in value once the transport link is complete, and can receive full market value in a stagnant market.
Alternatively, compensation up to £22,000 is on offer for those who do not want to sell. Although this will raise some quick capital, landlords or homeowners may find there is less demand for their property once development is underway.
In conclusion, while tenants and homeowners lose out, the investor with capital is in a better place than ever. London is outpricing many outside of the super-rich, but compensation can get you far in northern England, and prices that are currently low are likely to increase in a rapid ascent.