A team of researchers has found that investment property in London is undervalued.
The research, led by Professor Alan Lichtman of the University of Warwick, finds that properties that are overvalued by an average of around 5.3 per cent are worth more in London than properties that average around 4.8 per cent.
It has been a long-standing theory that investment assets are under-valued in London, with a view to attracting and attracting investors to the city.
But the research found that the theory was not borne out by data, as the researchers looked at the properties of more than 1,000 properties owned by companies that were valued between $100 million and $1 billion, and found that their average value is less than $100m.
The authors also found that most of the properties that were undervalued were owned by London companies that have large holdings of real estate, with the average value of those properties in comparison to the total value of all the London properties that have been bought or sold since 2000.
“This paper gives an insight into how much investment property is underpriced in London,” said Professor Lichtmen.
“The findings are consistent with previous research that has shown that real estate in London has a strong correlation with the value of property in the capital.”
However, the real estate investment property market is relatively young, and many of the owners of investment properties are not yet fully mature, making their returns difficult to predict.
“It’s not clear how the value is calculated for property in general.
But in a recent paper, Professor Andrew Wootton from the University’s Centre for Economic Performance looked at how the prices for property across London have changed over time.
He found that properties bought or resold for investment in the past 10 years have averaged $12.50 per square foot, compared to the average $13.20 for all other property types, such as land, office, and industrial buildings.”
We can infer from these figures that real property in England has been undervalued by about 5.5 per cent since 2000, but the price difference is much larger than the 5.0 per cent difference between investment property and non-investment properties,” he said.
Professor Woottons paper suggests that London’s property market may be overvalued.”
Investment property has been particularly undervalued over the last decade, with recent research showing that this may be the case because there are many less properties available than there were before,” he wrote.”
Given that London is one of the fastest growing cities in the world, we are unlikely to see a return to real estate values falling in the foreseeable future.
“However, some people in the investment property business are concerned that this could also mean that investors may move elsewhere in the UK.”
Our research has shown over the years that many investors prefer London to other areas of the UK because of the quality of investment property available in London and its proximity to other major centres, such to New York and Melbourne,” said Mr Stowe.”
Many of the people who currently own property in other parts of the world may also be attracted to London.
“The study will be published in the International Journal of Finance and Economics in December.