London’s property market has historically been one of the strongest in the world, and while millions of investors have taken advantage and made great gains, prices in the capital are now falling and profits are diminishing.

In the latest house price figures released by Halifax, London was one of only two areas in the UK to see house prices fall in March compared to the same month the previous year, with an average 1% drop across the city.

While there are still some areas of the capital that are up-and-coming, with stronger property price performance than the rest of London, overall the market has begun to stagnate and one property expert based in Finchley, north London, has warned investors to do their maths before making an investment.

Investors must have a plan

Ali Oftadeh, partner at Richard Anthony Charted Accountants, commented on the lure of finding and renovating properties to turn a profit, saying: “However, these more enticing aspects of property investment are only possible when the sums add up, which is becoming increasingly difficult to achieve but by no means impossible.”

He added that the calculations must be guided using clear commercial strategy in order to ensure a profit is made from any investments.

“This might be through buy-to-let, holiday lettings or development. Whichever it is, investors need to have a plan in place from the start.”

Choosing the right property investment is increasingly vital as the market has got tougher for some buy-to-let landlords and investors. One major difficulty faced by those buying second properties – which is especially prominent for higher value purchases such as those found in London – is the 3% stamp duty surcharge applied to any additional property acquisition.

Oftadeh said: “It is important to ensure you can cover these costs, yet continue to make a profit when you could to let the property.”

Where to invest

Looking outside the capital to where property prices are significantly cheaper is one of the most effective ways savvy property investors can make the best profits, particularly those investing in off-plan developments in emerging and up-and-coming areas.

Another factor that could affect landlords and investors is the phasing in of Section 24, which means that mortgage and other borrowing costs will no longer be able to be offset against tax calculations. However, property is still an ideal investment sector in spite of the challenging landscape.

“Despite all of the tax challenges faced, property investment remains incredibly popular in the UK and letting out property can still prove lucrative if the right advice is sought,” Oftadeh commented. “The same can be said for purchasing the right property to sell on for a profit at a later date.”