Long-Term Capital Growth from Crossrail 1 and HS2

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At the end of February, FCT Developments presented our breakdown of Crossrail 1 and HS2 and how infrastructure like these provide long-term capital growth in particular areas of London property. In this article we will cover all the main points from the presentation for anyone who missed out.

What are Crossrail 1 and HS2?

Crossrail is a 118 kilometre railway line under development in London and will connect Reading and Heathrow in West London with Shenfield and Abbey Wood in East London. Crossrail is Europe’s largest construction project and one of the largest single infrastructure investments undertaken in the UK. It is set to increase Central London’s rail transport capacity by 10%, carrying 200 million passengers per year, bringing a further 1.5 million people 45 minutes closer to Central London. It is also expected to increase the UK’s economy by £42 billion per year.

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HS2 is a 530 kilometre high-speed railway under construction, which will link London to Birmingham and Birmingham to Manchester, Leeds and the East Midlands, connecting around 30 million people. At speeds of up to 400 kilometres per hour, HS2 outcompetes all other current operating speeds in Europe and would run as often as 14 times per hour in each direction. To give an example of its speed, the journey time between London and Birmingham will be cut by 32 minutes – just a 49 minute journey – and there will be 18 trains every hour between Old Oak Common and the North, which means passengers will be able to reach Birmingham airport in just 31 minutes. It is scheduled to open in phases between 2026 and 2033.

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The MTR Effect

Let’s bring an example closer to home – in Hong Kong, MTR opened two new lines in 2016: the Kwun Tong extension line to Ho Man Tin and Whampoa, and the South Island line. The 7 stations along the two railways house a population of approximately 350,000.

MTR Effect of the Kwun Tong Extension Line – According to JLL, the ‘MTR Effect’ led to an upsurge of 90% and 85% in residential property prices at Whampoa and Ho Man Tin respectively from the development’s announcement in December 2009 to the official opening of Kwun Tong Extension Line.

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MTR Effect of the South Island Line – The Land Registry’s records showed the average sales price of South Horizons flats in Ap Lei Chau increased from HK$13,320 per square foot in January 2016 to HK$17,000 per square foot in July 2017.

A General, Two Phases of Growth as a Result of Crossrail and HS2

Phase 1:  The station location will be announced and there will be a surge in land purchase activity within a mile radius of these stations and buy-to-let investors will be looking  to hedge their bets on growth. This is otherwise known as “Hope Growth”. Major estate agents also report that this stage is also attractive to first-time buyers and around 70% of buyers in 2008/09 were indeed first-time buyers, suggesting that attitudes in the UK have shifted from home-buying to property-investing.

Phase 2:  The stations will go live, commuters will start to feel the benefits of the stations, foot traffic will increase, demand will deepen and the area will develop and flourish. This growth involves lifestyle changes and increased population, which leads to higher prices. The areas with the greatest drops in journey times to Central London will see the greatest changes and growth.

Below is a table to demonstrate some Phase 1 growth statistics. For example, growth in Reading in the last 7 years has been twice the UK average. More central areas such as Whitechapel and Acton have seen a “double growth effect” with a bounce back from the 2009 crisis and Phase 1 of Crossrail growth. Highlighted in red is the anticipated five year growth as a result of Crossrail 1.

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Old Oak Common – Set to become London’s Busiest station by 2026

Old Oak Common is an enormous renovation project opening in 2026, a project that forms part of the UK’s largest station building programme since the Victorian era. Old Oak Common Station is set to undergo a £1.3 billion renovation designed by WSP UK, who have previously worked with projects such as the Shard. The super hub will provide connections between HS2, Crossrail, the Great Western Railway and London Overground and is expected to bring as many as 25,500 homes and 65,000 new jobs to the surrounding area, which will fuel the UK economy with £7.6 billion each year. Due to be ready by 2026, the station will be one kilometre in length, 20 metres below ground and will host 8 platforms. The station is also an essential part of Heathrow Airport’s plans for expansion, as it will connect major cities with the Elizabeth Line.

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FCT Strategy for Long Term Capital Growth and Assurance on Returns

  1. Don’t follow the herd without prior research. Investing by imitating the behaviour of other investors is far riskier than educating yourself on the necessary facts and figures specific to the property in which you wish to invest.
  2. Prime location within a radius of transport links, restaurants, green space, shops, as well as the style of neighbourhood in which a property is based will all impact how well an investment will fare in the long-term. This can include proposals for future additional elements to a location, such as infrastructure plans.
  3. Fundamentals – Take note of sentiment but focus on the fundamentals that are unlikely to change, such as supply and demand, focusing on long-term capital growth and yield, and a prime location. It is unwise to jump into an investment because of personal emotions connected to an area or a property itself as opposed to a logical, detached perspective that focuses on the investment fundamentals.
  4. Infrastructure hotspots – Crossrail and HS2 are investment strategies that should not be missed – infrastructure hotspots like the surrounding areas of Old Oak Common are set for future growth. You only need to look at historical trends to see the potential long-term yield from infrastructure projects like these.
  5. Do your due diligence – It is really essential to best inform yourself when information about the property market is so easily accessible. Check prices of surrounding properties to get a feel for the general price mark in the location. Ask the vendor for their professional opinion on which properties are best to compare to one another. At the end of the day, it is you who is purchasing the property, meaning you are at the greatest vantage point when you have all the possible information – be certain that you are happy with everything that the property offers.

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