Timetable for growth

Former FT journalist Clare Gascoigne looks at some London rail schemes that could boost property values

Clare Gascoigne

“The Jubilee line extension boosted property prices by 20% or more and some think that the ELL will have the same effect.”

Infrastructure investment is often a good indication of potential return for buy-to-let investors.

“Traditional advice has always been to buy into an area where you are getting a freebie, where someone else is spending a lot,” according to Stephen Ludlow from London estate agency Ludlow Thompson.

In London, the extension of the East London Line (ELL) and plans for an orbital railway are provoking interest among property investors. Transport for London, the body that runs the tube, bus and rail network, is spending £1 billion on a two-year project to extend the ELL south from its terminal at New Cross right down to West Croydon, and then north to join up with the existing North London Line at Dalston Junction. It is part of a £10 billion programme that aims to ensure London’s transport infrastructure can cope with, among other things, the arrival of the Olympic Games in 2012.

“This is the kind of infrastructure investment that is symptomatic of property price growth,” says Nick Hopkinson, director of Incito Property Investment. “It’s not rocket science – but you are likely to get above-average growth in these locations.”

Just the ticket

A second, currently unfunded project would link east to west London with a new line running from Surrey Quays to Clapham Junction, through Peckham and Denmark Hill – creating an orbital route around London.

Linking to the underground network will boost property prices, says Ludlow. “The funny thing in London is that buyers and renters have always assumed it has to be the tube – look at the premiums that tenants seem willing to pay to be close to the ‘new’ Jubilee line,” he says.

The 1999 Jubilee line extension, running south of the river from Waterloo to Canary Wharf and then up to Stratford, boosted property prices by 20% or more, and some believe the ELL will have the same effect.

“It will be a very quick link in to the City, and we have already seen prices move in those areas,” says Alex Pedder, Managing Director of Wates Residential.

Certainly living close to the transport network helps property prices. Research from the London School of Economics found that prices increase by about nine percentage points for each kilometre move towards an underground station or Docklands Light Railway station. But not everyone believes the ELL will affect prices. “There are so many better lines to use,” says Eric Walker, who is a director of Alex Neil. “The problem is, where does it go?”

Platform for investment

So what can you get for your money? Two-bedroom purpose-built flats in Sydenham are priced at about £215,000; similar properties rent for £875 a month. That compares to £1,400 a month for neighbouring Dulwich Village – but you’d shell out £350,000-400,000 on it.

In leafy Honor Oak Park or Forest Hill, the housing stock is large Victorian and Edwardian houses, suitable for families. Four- to five-bedroom houses go for £600,000 upwards, and rentals are from £1,800 a month.

Clearly the tenants to aim for north of the river are City workers with fat salaries to spend, but the property needs to be of the highest quality and the sums might not add up. Further north, prices are sharply higher; in fashionable Hoxton a two-bed new development next to the Regent’s Canal is going for £630,000 – similar properties might rent out for £1,600 a month.

You won’t see much change out of £300,000 for properties around Dalston, many of which are ex-local authority; moving down to Shoreditch and Whitechapel can mean spending £1.5 million for a two- or three-bed flat, which might rent out for up to £4,000 a month.

Stay on track

If you are willing to take more of a gamble on transport infrastructure investment, look slightly west to Peckham and Denmark Hill, where three-bedroom properties can be rented for about £1,200 a month, and cost from £360,000. But, given the uncertainty of the London Orbital railway, your calculations here should be based strictly on current prices; you might not see above-average capital growth for some time.

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