What should Malaysians consider if they are looking to buy a London property now? Is rental yield or capital growth better?

When considering buying a property in London, the question as an investor or homeowner is: what do you want or expect the property to perform for you?

If you are an investor, are you looking for rental income diversification, capital gains or both? If you are an owner-occupier, are you looking for comfort and potentially a place to call home?
Here are the first three considerations to help narrow down your search.

1. How much are you willing to spend?

Your budget will affect your options.

London is the capital and the most populated City in the UK; it has 32 boroughs and also Greater London neighbourhoods that many live in to commute in and out of work in the City. If you’re a Malaysian investor who has a set budget to invest to diversify your MYR income, understanding the difference between each London neighbourhood, type of properties and future infrastructure or amenities planned in the area will give you the confidence to invest.

If your idea of investing is to build a long-term rental income for retirement and potentially thinking of passing on this income to your children in the future, we recommend starting small and focusing on areas that achieve high rental yields, a benchmark of 6% gross returns and above.

Similar to Malaysia, there will also be completion costs such as stamp duty, legal fees, title registration fees, as well as interest on repayment if you have a mortgage facility in place to support your investment, and ongoing holding costs; these are considerations that may affect outgoings and reaching a balance is crucial in meeting the positive cash flow position most Malaysians seek in their investments.

2. Where should you buy?

There is a saying: cheap things are not good, and good things are not cheap. The same concept can be applied to real estate across the world.

Prime locations or developments are determined by the cost or barrier of entry, as that sets the benchmark of the demographic or people who live in the neighbourhood or building. If you are thinking of purchasing a location similar to Mont Kiara or Bangsar, where in London would give comparable community vibes and the investment returns that you would expect, based on the budget you have?

Understanding the locality of each London neighbourhood, amenities, future infrastructure growth, demographics, type of property (house or apartment), market rate (buy or rent), supply and demand, as well as economic conditions will be able to provide an expectation on your investment returns and projected growth, whether it is rental income or capital gains.

If your preferred location to buy seems far from your budget, speak with us to explore options that would match as closely as possible to your investment goals or needs.

3. What is your purpose of buying a London property?

Like any other real estate investment in the world, understanding the intention of making the purchase or investment sets clear expectations – buying for investment vs buying for comfort can be different. Apart from deciding on budget and location, knowing the laws, whether it is housing, residency or foreign policy, can indirectly affect your decision to purchase and your choice of investments. Similar to Malaysia, the UK’s real estate has policies set by the government and is always subject to future changes, steering the direction of the market and increasingly leaning towards a long-term investment strategy.

Understanding what taxes would apply to you affects how you structure your purchase or investments. Each country’s tax systems are different, and one cannot assume they are the same. Malaysians who are looking for capital growth returns have to be aware that there is no RPGT (Real Property Gains Tax) in the UK, and any UK real estate that is sold for a profit (after allowable deductions and personal allowances), even after holding it for 6 years, will still be subject to Capital Gains tax.

Having knowledge gives you the confidence to take the first step in making any investments. If you are interested in exploring further, it’s always best to connect with local London real estate professionals who have been in the industry for a long time and can break down the changes and provide a neutral assessment based on historical data and potential future direction for better decision-making.

How Benham and Reeves Malaysia can help

Having been in the London real estate market for more than 65 years has allowed us to build a sizable data set on how the UK real estate market has changed since our establishment in 1958, and how new policies today affect new investors and home buyers. Having a Malaysian branch will help bridge the differences and knowledge gap on both countries’ practices so Malaysians can invest with peace of mind.

From introducing local London neighbourhoods, to opportunities to purchase with high rental yield, or deals available from various developers at the time of search, to providing sales advisory and after-sales support; in landlord services areas spanning from lettings, property management, compliance and tax returns, we are based in Kuala Lumpur in your local time zone, and speak in your language.

Contact Benham and Reeves Malaysia for a private consultation.

FAQs

Is London property a good investment for Malaysian buyers?

We would recommend it if you have long-term investment goals and want to diversify your MYR income and are looking for a steady income-generating asset for retirement planning.

Should I prioritise rental income or capital growth?

At the time of writing this article, we recommend the rental yield approach and building on income. There are also tax benefits for Malaysians if it is a rental income-based investment; reach out to us to learn more.

Which London areas should Malaysian buyers consider?

If you are a pure investor, we recommend local areas with high demand for both owner-occupiers and renters. If you are looking for the “Damansara” in London, book an appointment to learn more.

Disclaimer: The information in this article is provided for general guidance only and reflects the policies, regulations and market conditions at the time of writing. As information may change over time, speak to a sales & lettings professional to seek clarification and for the most up-to-date information.