I am talking to Stuart Law, chief executive of Assetz, a group of property investment advisers in Manchester, when he says something rather memorable: “I would rather own property in a city centre than anywhere in the suburbs.

It’s just a much better bet.”

Is it? Given concerns about the saturation of new developments in the middle of cities such as Leeds and Liverpool, would it not be worth taking a look at the suburbs after all?

Barry Markham, chairman of the National Federation of Residential Landlords, certainly thinks so. Markham owns 50 houses in or around Hastings, in East Sussex, and says that he steers clear of city centres in part because he cannot be bothered to battle against other landlords all doing the same thing.

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• The ties that bind

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• Tales of a landlady: the age of reason

• Tales of a landlady: Heroes and villains

• Tales of a landlady: High maintenance

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• When buy-to-let turns from a hobby into a living

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“I’m reading horror stories from members who have bought apartments in huge new-build city-centre blocks,” he says. “As soon as the blocks are ready to rent, the landlords start competing with one another for tenants, which means, of course, that the rents get pushed down.”

Far better, in Markham’s view, to have a mix of flats, converted houses, terraces and Edwardian villas. The wisdom of doing so is backed up by a survey released last month by Paragon, the buy-to-let mortgage lender, which revealed that in the 12 months to April, terraced houses produced the highest average yields of any style of residential rental property: 6.4%. Detached houses were right behind, at 6.2%; then semis, at 6%; and finally flats, which languished at 5.6%. In addition, Markham says, his tenants stay longer. “My average tenant stay is three years, but some of mine have been with me for 15. Oh, I wouldn’t trade my portfolio for yours!” Well, it is 25 times larger, for a start, and worth £7m, so I can see why he feels that way.

Traditionally, the two environments have appealed to a different kind of buyer. The suburban landlord tends to have a much larger portfolio, which is worth less per unit than its city equivalent and will appreciate in value less speedily. However, it will tend to produce a steady rental income.

The city-centre investor, meanwhile, is probably motivated primarily by the prospect of speedy capital growth. It is all about locating and buying in a hot spot, then remortgaging or sometimes selling before the building is even finished. Giant windfalls are there to be made, but it is a gamble.

At first glance, statistics would seem to back this up. Last year, prices in prime central London rose by nearly 30% (28.3% in Kensington and Chelsea, 29.6% in the City), while in sleepy Enfield, in north London, they rose by just 2.2%, says Hometrack, the property analyst. On closer analysis, however, there is evidence that the suburbs may be catching up.

In the home counties, Hometrack has reported above-average growth in Berkshire, Kent, Suffolk, Hertfordshire and Surrey; in London, property prices in Westminster have been outpaced by the likes of Merton and Sutton. Solid if unexciting suburbs such as Harrow and Croydon are also doing well.

What about elsewhere in the country? Jeanne Davis, who for the past eight years has invested heavily in Manchester city centre, says that she has sold quite a lot of her urban stock and begun reinvesting her cash in the suburbs, focusing on locations such as the Wirral, just outside Liverpool.

“Everyone has been concentrated in the city centres for ages, but now we see first-time buyers and young married couples going back to the suburbs,” she says. “If they have children, that’s where the infrastructure is, with crèches and green space.”

Intriguingly, Davis is still acting like an inner-city landlady, taking advantage of rising capital growth to make a profit. “We are trading on, rather than renting out. And there is good capital growth out there.” Philip Stewardson, who, with his brother, Mark, runs 65 properties (with a total value of £12.1m) in the West Midlands, is also a fan of the land of net curtains and cul-de-sacs. “Everything we have is in the suburbs,” he says, estimating that annual capital growth on the outskirts of Birmingham has been 15%. “I would say it’s the only safe place for new investors. Investing in city centres is so risky.”

How does he know? “Well, I have the catalogue for an auction here, and there are four apartments in the same Birmingham block. We regularly see apartments like this come up for sale. The city centre appeals to the landlord who wants to sell on quickly, but a lot of people have been caught out by that, investing in mediocre developments that haven’t done anything.” Keith Hollinrake, director of Hunters, an agency that trades across the north, agrees. “We’ve had quite a few of those, particularly in Leeds,” he says. “The city centre is saturated. We’ve had several investors who have bought hoping for capital growth, so they can sell on quickly, but not been able to do so. Anybody who buys in this market for an immediate return is not very wise.”

Does Hollinrake think that city centres are over? “Hardly. But investors should be looking to the long term, rather than hoping for a fast turnaround. And if you do buy something high-rise, at least make sure it has a decent view.”

buytolet@sunday-times.co.uk

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