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Why You Should Invest In The North-South Divide

The North-South divide has split the country in two, as the recovery in jobs and house prices focuses primarily on booming London and the South East.

But investors shouldn’t ignore the North. Because there are opportunities on both sides of the divide.

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Morose At Morrisons

In some cases, sadly, investors should tread carefully up North. Disposable incomes are lower, and local businesses are feeling the impact.

Bradford-headquartered supermarket giant WM. Morrison Supermarkets (LSE: MRW) is an unfortunate example.

Still nominally one of the big four supermarkets, rubbing shoulders with Tesco, Asda and J Sainsbury, its share of the UK grocery market has tumbled to just 10.6%.

A major reason for this slide is that it has failed to crack the prosperous South. 

Most of its dwindling sales are in its struggling northern strongholds.

Greggs Is On A Roll

I wouldn’t discount a Morrisons fightback; after all, another Northern retail symbol — Newcastle-headquartered bakery chain Greggs (LSE: GRG) — has managed it.

With sales down 0.8% last year, and the bulk of its 1,663 stores in the struggling North, Greggs looked like another tale of regional decline, but this year the news has been far from grim. 

Sales are up after Greggs introduced better quality coffee and fresher sandwiches, while cutting costs and closing underperforming stores.

Its share price has rallied a meaty 33% in the last 12 months.

If you think Morrisons can pull off the same trick, now is the time to pick this stock up on the cheap.

Southern House Prices Aren’t Soft

The greatest North-South divide can be seen in property. 

London house prices rose 17% in the past year to an average £435,034, Land Registry figures show. In the South East, they rose 7.5% to £225,650.

In the North East, they rose just 2.9%, to £99,001, and prices actually fell in April. The North West did slightly better, with prices up 3.8% in a year. 

That still only took the average price to £112,064.

So property investors should target London and the South East, right? Wrong. 

The smart money is heading North.

Hit The North

Sky-high prices mean that London now offers the lowest rental yields in the country, at just 4.8% a year. The South East is only slightly better, with an average yield of 5.2%.

That compares to 6.6% in both the North and Yorkshire & Humber, and 6.3% in the North West.

In London, you need an average £119,720 deposit to tap into these juicy yields, while you can get started with £27,710 in the North, and £30,966 in the North West.

Build, Baby, Build

The South’s relative buoyancy during the financial crisis eased the plight of London-focused housebuilder Berkeley Group (LSE: BKG).

Its share price has now recovered all its losses in the financial crisis, trading at 2300p today, against a pre-crash peak of 1937p in May 2007.

In contrast, the share prices of Bovis Homes Group and Persimmon (LSE: PSN), which build all over the UK, have yet to rescale their former peaks.

But they are catching up fast, partly powered by government stimulus such as the first phase of Help to Buy. Persimmon’s share price is up 128% in the past two years.

The North-South divide endures, but investors can make money on both sides of the line.

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Harvey doesn't own shares in any company mentioned in this article. The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.

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