October 2014

Conditions in prime Central London property market continue to favour buyers – attractive market for opportunistic buyers

In a month that saw the uncertain outcome of the Scottish referendum become global news, the balance of power in London’s prime Central London property market edged further towards buyers.

With supply on the increase and heightened concerns about interest rate rises and the potential impact of any annual tax on higher value property, buyers are now in a much stronger position to negotiate. For opportunistic buyers, this is a potentially attractive market, particularly as vendors look to complete before the end of the year. As an increasing number of London families look to exploit the valuation gap between the capital and the commutable home counties, realism is the watchword for many vendors and their agents – and the days of two hour open houses swiftly followed by sealed bids are now definitively gone.

But while the power now lies unquestionably with buyers in most sales scenarios, we would again reiterate that there is no evidence yet to suggest that this shift in market dynamics from earlier in the year is transformational, or is heralding a protracted period of price declines.

The critical point is that both domestic and international demand remain strong. At Black Brick, we have continued to sign a raft of new clients in recent weeks. Our recent seminars in Dubai and Cyprus were fully booked and attended by over 200 existing and potential PCL property owners.  We have also been involved in several transactions in recent weeks in which there were multiple competing buyers.

Broader industry news reinforces the point. Mainstream developer British Land recently announced that it had exchanged on 18 apartments at its Clarges development close to Bond Street and overlooking Green Park in Mayfair at an average price of £4,750 sq/ft. The penthouse was sold at a record price “materially above” £4,750 sq/ft, according to British Land.

While sixteen apartments clearly remain to be sold, the prices achieved demonstrate demand at the very top end is more robust than recent media coverage would imply.

Current activity levels and our own day-to-day conversations suggest strongly to us that neither international nor domestic interest in prime Central London property is waning significantly.

Latest data shows increase in available stock in London 

Conditions in the wider UK housing market have also softened in recent weeks despite unemployment dropping to a six-year low. The monthly house price index compiled by leading mortgage lender Nationwide fell 0.2% in September – the measure’s first monthly fall since April 2013.  The annual rate of house price growth across the UK dropped from 11.0% at the end of August to 9.4% at the end of September. Nationwide’s data also reveals that London house prices rose 0.9% in the three month period to end-September – compared to a UK-wide average of 1.5%.

The latest figures from the survey conducted by the Royal Institute of Chartered Surveyors add further detail to the overall picture of a stable UK housing market gradually losing upward momentum. The survey’s headline net price balance showed a majority of 40% of surveyors reporting price rises, while a net balance of just 9% now expect prices to rise in the coming months, down from 51% earlier in the year.  Revealingly, the survey also highlighted a modest increase in supply in London and a fall in new buyer enquiries in the capital.

Mansion Tax: we run the rule over Labour’s latest plans

Few who follow closely the media coverage relating to London property will have missed the announcement by Ed Miliband, the leader of the UK’s opposition Labour party in the UK, that he intends to levy a so-called Mansion Tax to help pay for the National Health Service should his party win next year’s general election.

The word ‘mansion’ in this context is a pejorative term that appears to be playing to politically-motivated stereotypes rather than reality. In the most expensive London post codes £2m buys studio flats and two bed apartments at well under 1,000 sq/ft. While no-one would dispute that these are highly desirable and attractive homes in some of London’s most sought-after districts, they are clearly not ‘mansions’.

More importantly, when approaching 100,000 homes in the capital will be hit by these proposals, it is clearly more of a wider London homes tax than a policy aimed at high net worth individuals.  Moreover, owning a £2m home, valuable as this asset clearly is, does not change a homeowner’s income or available cashflow.

Significantly, as well as attracting opprobrium from a number of broad range of respected industry commentators, these plans have already been subject to widespread criticism from within the Labour Party itself, including all five of the Labour party’s expected candidates for London Mayor. As these dissenting voices have argued, the government already benefits from rising property values in London and the South East via stamp duty and Inheritance Tax. This suggests to us that even if Labour win the next election there is no certainty at all that the policy as outlined would become law. Many believe that Mr Miliband is merely positioning Londoners for big changes in Council tax bands, which have not been reviewed since 1993.

So what would the theoretical impact of this Mansion Tax be? In the first place, legal chaos.  Aside from the administrative nightmare, owners of properties just above the cut-off point are bound to challenge valuations in the courts. However, if the tax is applied as detailed, the impact on prices would clearly be negative.

For long-term London families faced with the prospect of the annual charge, the rationale response for many will be to sell up and move outside of London, regardless of whether that payment is deferred until death or not. Despite assurances that the ‘cash poor, asset rich’ will be allowed to defer payment until death, it seems inevitable that the tax will have a proportionately greater impact on long-term London residents or those already living on fine margins in properties with large mortgages. Our view is that the tax appears to penalise people simply for living where they do.

Property Acquisition of the month: reputation counts in the Kings Road

In the Kings Road, on behalf of our British developer client, we have recently secured an extremely valuable off-market freehold development opportunity for £3.4 million in the face of stiff competition from two other bidders. Reputation can count for a lot in these circumstances. And despite not being the highest bidder, the vendor knew Black Brick and the quality of our clients and decided to go with the buyer he felt would be able to complete quickly and without any histrionics. Contracts were exchanged within two weeks of the offer being accepted.

We were also pleased to secure a fabulous four bedroom terraced family home in Hammersmith for another British family client. The family had been in rented accommodation in Central London for some time but had identified the area as ticking all boxes including quality of schooling and proximity to central London. The area has received a great deal of media coverage of late, identified by many as the area of London with some of the strongest long-term price potential. Please click here to see details.

Meet Black Brick in Asia: details of our visit to Hong Kong, Singapore and Kuala Lumpur below

Black Brick Partner, Caspar Harvard-Walls will be visiting several major Asian cities in early October where he will be meeting investors and presenting to the clients of a number of local private banks. If you would like to meet Caspar or are interested in him presenting to your client base please contact us immediately. Caspar will be Singapore on October 9^th and 10^th, Hong Kong on October 13^th and 14^th and finally in Kuala Lumpur on October 16^th and 17^th. Caspar’s visit represents an excellent opportunity to hear first-hand about market conditions, the most attractive investment areas and our thoughts about longer-term prospects for prime Central London.