London calling

So, if you’re after capital growth, where should you be investing today? According to the latest forecast, the north-south property divide is being turned on its head, and the top-end London market is all but dead.

Yet if you’re in it for the longer term, flats under £1m in central London are still the place to be, says Naomi Heaton, chief executive of London Central Portfolio (LCP), which has bought more than 1,000 such properties for its four funds and private clients in the past 25 years. Clients who have sold since 2000 have seen values exceed average market growth by 49%.

“Everywhere else, it’s about timing the market, but in central London it’s about time in the market,” Heaton explains. “There are only 6,000 sales a year — that’s what sustains the market.”

Flats under £1m in central London are still the place to be (Alamy)

Prime central London is not all oligarch territory: 61% of Land Registry transactions in the area last year were below £1m and 82% were below £2m, according to Heaton. Only 52 properties sold for more than £10m in 2014.

Even though prime London saw an overall price rise of only 2.6% last year, as stamp-duty changes sent the £2m-plus market into a tailspin, the market below £1m was its strongest performer, with 7.9% growth, according to Savills estate agency. Tom Bill, head of London residential research at Knight Frank, expects this trend to continue. “The sub-£2m market is less susceptible to short-term political risk and is likely to outperform the wider prime central London market in 2015,” he says.

What does the ideal investment flat look like? In central London, most tenants are professional singles or couples wanting to rent for less than £500 a week, Heaton says. “Look for small but perfectly formed,” she advises. “Extra space won’t mean an increase in rents, but it will result in lower yields and more void periods.”

Prime property typically changes hands only once every 33 years, so you’ll likely need to refurb your investment flat. The communal parts are also important, says Camilla Dell, founder of the buying agency Black Brick. “Even if there’s a lift, walk down the stairs to look at their state. If the paint is peeling and the carpets are stained, you are going to find it hard to sell.” If you enlist the help of a buying agent such as Dell, expect to pay a fee of 1.5%-3% of the purchase price.

Hayley Clifton bought a buy-to-let flat in Balham, south London, because she couldn’t afford a residential mortgage in the area. She rents nearby with friends (Peter Tarry)

If you’d rather do the legwork yourself, LCP has exclusively shared its list of target locations. In the Royal Borough of Kensington and Chelsea, and the City of Westminster, the firm has picked eight underpriced future hotspots out of 51 postcode sectors — it is buying 100 sub-£1m flats in these areas for its five-year London Central Apartments II fund, now open to investors.

All eight are historically run-down patches around transport hubs: Paddington, Euston and Victoria stations, the Westway flyover and Earls Court (see table below). They all have average prices under £1m and average growth rates of more than 10% a year over the past two decades. As more commuters want to live closer to work, Heaton says, the pockets of appealing architecture around this infrastructure are ripe for gentrification.

Based on LCP’s research, as well as advice from investment experts, here are Home’s picks for capital growth in London — whatever your budget.

£250,000

Less than £500,000 won’t stretch to Zone 1. Instead, go west. Plans for the “Canary Wharf of west London” and up to 24,000 new homes at Old Oak Common, 383 acres of semi-industrial land between Wormwood Scrubs and Willesden Junction, were approved by the government in January. At its heart will be a Crossrail and HS2 station, due to open in 2026.

“The average flat price in Old Oak Common — about £340,000 — has shown 30% growth since 2007, when Crossrail was first announced,” says Ash Griffiths, associate partner at Strutt & Parker estate agency’s London residential development team.

Grainne Gilmore, head of UK residential research at Knight Frank, backs neighbouring Ealing. “The borough has seen strong capital growth over the past 18 months, but there is room for outperformance, especially around the Crossrail stations at Ealing Broadway and West Ealing.” Two-bedroom flats there average £431,000, according to the property portal Rightmove.

£500,000

Choose a decent-sized flat in an attractive area just outside central London, rather than a “shoebox” inside, says Dell, who would look in Islington, Shoreditch or South or West Hampstead. “That will give you more meat on the bone for capital growth.”

Jo Eccles, managing director of Sourcing Property, is buying flats for £500,000-£600,000 in Maida Hill, an overlooked pocket of Victorian terraces just south of chichi Queen’s Park and west of stucco-fronted Maida Vale. “It’s between two expensive parts of northwest London, and the make-up of the area is right for improvement,” she says. “There’s really nice housing stock and little parades of shops, with delis opening up here and there.”

Balham, in south London, is another option for two-bedders at £650,000. Hayley Clifton, 26, chose it for her first buy-to-let: a one-bedroom flat in the eaves of a Victorian conversion, snapped up for £360,000 a year ago. She couldn’t afford a residential mortgage in the area on her salary as a marketing assistant, so chose to invest her inheritance while renting with friends above a shop nearby. “Where I bought is more grown-up — it’s not near the bars, but on a really quiet road next to the common.”

£750,000

At this level, you can bag a two-bedroom flat that will appeal not only to professional singles and couples, but to sharers, two couples or young families. LCP’s top target is W2 6, around Cleveland Square, in north Bayswater, where houses are typically priced at about £785,000. Undervalued compared with neighbouring locations north of Hyde Park, the area stands to benefit from the regeneration of Queensway’s tacky kebab shops into a tree-lined shopping boulevard to rival Covent Garden. The five-year project starts this year, while a Crossrail station is due to open at nearby Paddington in 2018.

This area is followed closely by SW1V 3 and SW1P 4, the Thames-side area around Pimlico Tube station and Tate Britain, with average prices of less than £809,000.

£1m+

With this kind of money to play with, a flat in the handsome stucco-fronted terraces of the Pimlico grid (SW1V 2) is within reach: prices average about £977,000. “Pimlico feels like South Kensington, without the extortionate price tag,” Eccles says. Or try the streets of SW5 9, around the former Earls Court exhibition centre, where demolition work for an £8bn redevelopment started in December; prices average £987,000. But with completion due only in 2033, avoid selling too soon.

Any more cash and it’s time to divide and conquer. A three-bedroom flat can be yours for £1.5m, but they make poor rentals: too big for sharers or singletons, too small for families. Go for a brace of one-bedders instead.

Properties for sale

Bayswater £895,000
Near Paddington station (part of Crossrail), this balcony flat is on the second floor (with a lift) of stuccoed Gloucester Terrace. It has two double bedrooms and could let for £2,600 a month. 020 7262 2900, winkworth.co.uk

Maida Hill £599,950
A classic one-bedroom flat on the first floor of a Victorian building on Goldney Road, near Westbourne Park Tube. It has high ceilings, sash windows and balcony views over a park. 020 7993 3050, marshandparsons.co.uk