October 2015

Navigating the new build minefield?

In any market, demand encourages supply – and developers are scrambling to meet demand for prime residential property in London. A recent edition of Metro, London’s free morning newspaper, carried adverts for no fewer than 29 prime new build developments. Earlier this year, it was reported that about 54,000 new homes are being built in the more expensive parts of the capital – equivalent to a decade’s worth of supply. This supply is, however, failing to keep up with demand: prices in London rose 10.6% year-on-year in the third quarter, up from 7.3% in Q2, according to Nationwide.

In theory, purchasing an apartment in a new build development should be a straightforward proposition. But the reality is more complicated. The process can be a minefield for prospective buyers – and particularly so for investors who may be highly sensitive to the yields they can obtain.

The fact of the matter is that not all developments are created equal. Some offer better value for money than others. Some are likely to be harder to let or sell on.

Take the flood of development underway around Nine Elms, including Battersea Power Station. The area is attracting enormous press and attention, but we’ve always been very cautious on advising our clients to buy into the new builds underway there. For a start, this hype around the area has pushed up valuations. It is always important to consider the premium developers are seeking compared to the existing local housing stock: in Battersea, developers are asking around £2,000/square foot. This compares with around £900/square foot for period mansion block properties in the area.

And there are some 20,000 units being built. Such a volume of property becoming available in a short period of time will put substantial downward pressure on the rental yields that will be achievable.

There is also a risk that existing investors could rush for the exit. Developments in Nine Elms were marketed extensively in Asia. Recent currency moves mean that many of these investors are sitting on 15-25% returns in currency terms alone. The slump in the oil price may encourage some to liquidate foreign assets. We are already hearing reports of a rise in resales from Battersea investment properties.

Other developments are a different story. We have recently acquired properties in the redevelopment of BBC Television Centre, in White City in West London. This is a much smaller development, of around 950 units, in an iconic building situated in an area enjoying substantial regeneration. The premium over period property is more like 5-10%, and the rental market is much healthier.

Connections are also important. We have a relationship with the developer, which allowed us to purchase properties at the ‘friends and family’ stage – around six months before the formal launch of the development. Not only did that give us the pick of the apartments available, but it also means that our clients have likely secured property at up to a 10% discount of the full sale price.

“With such strong demand for prime new build property, prospective investors need to be cautious about where they deploy their money,” says Camilla Dell, Black Brick Managing Partner. “They need either to carry out extensive research into the state of the market, and the pros and cons of the dozens of developments available, or instead simply tap into our expertise.”

An hour-glass market

With the summer lull behind us – and all the development activity notwithstanding – we are seeing a continuation of the trends that emerged after the General Election in May. Namely that tax changes have pushed lots of buyers into the £1-2 million bracket, where tight supply is creating intense competition for properties. This competition is being fuelled by increases in levels of mortgage lending not seen since the financial crisis: net lending rose by £3.4 billion in August, the largest monthly increase since spring 2008, according to the Bank of England. Meanwhile, supply remains constrained: new instructions to estate agents fell in August for the seventh consecutive month, according to the Royal Institute for Chartered Surveyors.

We continue to be very busy representing UK owner-occupiers, who have been frustrated at the difficulty in finding and successfully bidding on family homes in the capital. Meanwhile, the uncertainty in global stock markets is encouraging investors to move assets into London property. We are representing cash buyers and those aiming to ‘future buy’ property for their children.

Interest in property between £2 million and £10 million remains very limited, as a consequence of recent changes to stamp duty and the Annual Tax on Enveloped Dwellings. But, in an encouraging turn, we are again taking enquiries from larger clients looking to make development investments in the £50 million realm.

Development expert joins Black Brick

Partly in response to this client demand, we are pleased to announce a new addition to the Black Brick team. Edward Minter joins as Development Consultant, where he will focus on sourcing and securing high value residential development deals for some of our larger institutional clients. In addition he is also launching the Hotel Acquisition arm of Black Brick.

Edward trained as a property lawyer working for two of London’s top law firms, Eversheds and DLA Piper. He then went on to work for private high net worth clients, securing more than £0.5 billion of development deals across Prime Central London.

As Development Consultant, Edward brings a unique skill set to the Black Brick team and he will be focused on servicing this growing interest in development investment, leveraging Black Brick’s ability to deliver deal flow to this part of our client base.

Property acquisition of the month: St Martins Lofts WC2

A lot of work – and time – goes into finding and buying the right property. We recently represented a time-poor American financier looking for a central London penthouse. After drawing up a shortlist of six properties through our network of agents and developers, he opted for a stunning penthouse apartment in the former St Martins School of Art, on the edge of Soho.

The three-bedroom apartment, measuring 2,480 square feet and with stunning views from its west-facing terrace, was about to go on the market for £6.25 million. But, given our relationship with the agent, we knew the developer was keen to move quickly, so we were able to secure the property for 12% below the asking price.

Not only did we manage the solicitor, surveyor and mortgage broker throughout the process, but we also oversaw a snagging list of 131 items to be resolved – at the vendor’s expense – to ensure that our client moves into a property in the best possible condition.

Hear Black Brick’s views at the Bloomberg Summit

Financial information giant Bloomberg is seeking to take the pulse of London’s property market at its Bloomberg Markets Most Influential Summit on Tuesday, 6^th October – and has turned to Black Brick Managing Partner Camilla Dell for her insights.

Camilla, who is frequently quoted by Bloomberg journalists covering property, will participate in a panel session entitled ‘Surreal estate: London Property’. The summit will take place at Bloomberg’s Finsbury Square London headquarters. The complete agenda, speaker line-up and registration details can be found on the Markets Most Influential website.

Helping our clients around the world

While Black Brick is based in the UK, many of our clients seek property investments in other global cities – and we have developed a network of partnerships to seek to provide a seamless, global service. We have close relationships with buying agents in New York, Sydney, Berlin, Barcelona, the South of France and Dubai, and we would be delighted to make the required introductions to any of our clients interested in property purchases in these cities. For more information, please email.