April 2016

Shifting scenes for London buyers

One of the reasons for the resilience of London’s prime property market is the almost universal attraction of the city. This means that a drop in demand from buyers from one market is often offset by demand from elsewhere. Indeed, it’s well documented that Russian buyers are much less active in the market, as a result of sanctions against the Putin government, and the fall in the price of oil – which has also dampened demand from other oil-exporters, such as Malaysia and parts of the Middle East.

Figures from estate agent Hamptons International show Russian buyers accounted for just 1% of purchases in prime central London (PCL) in 2015, down from 6% in 2014. Similarly, Chinese buyers now make up 2% of the total, down from 8%.

However, other overseas buyers are taking their place. The recent strong performance of India’s economy has boosted the fortunes of top industrialists and entrepreneurs from the Subcontinent, encouraging some of them to look for properties in London. As the Hindustan Times recently commented, some 3,000 Indian families own prime central London property, attracted by the UK’s stability as an investment destination.

“We’ve seen an uptick in instructions from Indian clients, who are particularly keen on new-build and off plan purchases,” says Camilla Dell, Black Brick Managing Partner. Such properties often involve staged payments, which suit resident Indians, who are restricted to remitting no more than $250,000 per family member each year. Meanwhile, those with international business interests face fewer constraints, and are showing interest in higher value properties.

“As we’ve noted before, it’s important for buyers of new build properties to get good advice,” says Dell, who points out that, in Mayfair alone, there are more than half a dozen new build developments on the market. “New build contracts can also be tricky, and can contain unfavourable clauses preventing a buyer from assigning the contract before completion, for example. We are experts in what to look out for and have an enviable track record of renegotiating new build contracts to favour buyers.”

“And while it may be a buyer’s market for £5m-plus properties, buyers should take advice to ensure they don’t overpay. Since the start of the year, we’ve been able to negotiate an average of 15% off asking prices,” Dell adds.

Meanwhile, the Hamptons research suggests that Russian and Chinese buyers remain active in the market – but are looking for cheaper properties outside prime areas. Russians bought 11% of properties in inner London areas including Clapham, Islington and Pimlico last year, up from 2% the year before, while Chinese buyers rose from zero to 2% of demand in outer London boroughs.

Indeed, leading agent Knight Frank has identified a significant performance gap between traditional PCL areas in the west of London and emerging prime regions including City & Fringe, Islington, Southbank, King’s Cross and Riverside. In response, it is now treating these parts of London as a separate prime market, which it is calling PCL East, with its own set of price forecasts. While PCL East is in line for 26.4% growth between now and 2020, PCL West (Noting Hill, Kensington, South Kensington, Chelsea, Knightsbridge, Belgravia, Hyde Park, Marylebone, Mayfair and St Johns Wood) is expected to manage just 10.2%.

At Black Brick we have a team with over 100 years combined experience across all of London and the Home Counties. In addition to operating in PCL, we have helped buyers in the last 12 months in many areas that other buying agents do not cover, such as Walthamstow, Shoreditch, Islington, Maida Vale, White City and Golders Green. We are therefore well placed to help clients that are looking for value beyond PCL West and, for that matter, PCL East as well.

2016 Budget: Residential relief, commercial curses

For once, there were no unpleasant surprises for residential property buyers in Chancellor George Osborne’s budget last month. It is testament to the series of unexpected blows this Chancellor has inflicted on property buyers in recent budgets that no-one could be sure what the sector was in for until his budget speech was over.

Of most note was the clarification of the stamp duty surcharge, previously announced on buyers of second properties and buy-to-let investment. Some commentators were initially dismayed that landlords with more than 15 properties would be subject to the 3 percentage point stamp duty surcharge, which comes into effect on 1 April. It had been hoped that larger property investors would be exempt, to encourage institutional investment in the build-to-rent market.

However, the Treasury has since clarified the situation, pointing out in an email sent to those who responded to its consultation on the issue that there are already “significant flexibilities” in the stamp duty system available to “significant investors in the property market”.

These include multiple dwellings relief and the ability to pay the non-residential rates when purchasing six or more properties in the same transaction. ”Both of these flexibilities will remain,” the email said.

Commercial property buyers were, however, singled out. Properties worth less than £150,000 will now face no stamp duty, those between £150,000 and £250,000 will be subject to 2% duty, and those above £250,000 to 5%. This compares with the current flat rate of 4%.

The Chancellor said that only 9% of buyers would pay more, but the British Property Federation railed against the change, which it described as an “out of the blue raid” on the sector. Indeed, the Treasury expects the changes to raise an additional £385 million in 2016-17, rising to £590 million by 2020-21.

“After the surprises we’ve seen from the Chancellor in recent budgets, it’s a huge relief he didn’t spring anything else on the residential sector this time round,” says Camilla Dell, Managing Partner at Black Brick. “As it is, we expect to see the flurry of deals we’ve seen ahead of the April deadline come to a screeching halt. We’re hopeful that institutional investors will pick up some of the slack in the buy-to-let market, otherwise we’re going to see rents rise and London become even less affordable to renters.”

…and funding challenges loom

Access to finance is looking tougher for both small-scale buy-to-let landlords and bigger developers. At the end of last month, the Bank of England said buy-to-let landlords will face stricter affordability tests, over concerns that underwriters are applying less rigorous lending criteria in a bid to capture market share. The Bank wants lenders to consider both the likely rental income and the borrower’s wider financial situation. The Bank’s Prudential Regulatory Authority estimate that this could reduce lending to landlords by up to 20% over the next three years.

 Dell at Black Brick says that the move is a sensible one, and may help to reduce the risk of a speculative bubble forming in the buy-to-let market, which will increasingly be dominated by more liquid, wealthier cash buyers. The various changes to tax rates, and these latest restrictions, mean that buy-to-let investing remains viable if borrowing 50% or less of the value of the property, she adds.

But it’s not just smaller investors who are finding financing harder to come by. New figures suggest that property developers have seen bank funding slashed in the last two years, forcing them to put development projects on ice. According to Funding Options, an online business finance supermarket, banking funding fell to £16bn in January this year from £34bn in the same month in 2014. While banks are happy to offer longer-term secured loans and mortgage finance, they are proving less willing to offer shorter term funding, the report finds.

 At Black Brick, we offer a property development service designed to help both specialist and non-specialist investors undertaken residential property development. As part of the service, we help to put the funding in place to underwrite development opportunities, with access to providers of both equity and debt. 

“Bank debt may be harder to obtain than in the past but, in this low interest-rate environment, there are investors ready to offer funding,” says Black Brick’s Hotel and Development Consultant Edward Minter. “It’s a question of matching the right opportunity to the right investor. We also have excellent relationships with the right brokers and private banks and we regularly help source finance for hotel and development deals for our clients”.

Acquisition of the month 1 – Eaton House, Mayfair W1

Limits to overseas remittances can pose particular challenges for some clients, as was the case with an Indian buyer seeking an apartment in Mayfair or Knightsbridge. We found an outstanding 1100 sq. foot, 3-bed property on Upper Grosvenor Street, with the 24-hour porter and air conditioning that the buyer required.

We also introduced our client to a suitable lender who could provide financing that was able to accommodate the remittance restrictions. However, during the conveyancing process, it emerged that the property was held under two leases, one of which contained highly restrictive provisions on reselling. Rather than de-railing the purchase, we were able to negotiate with the immediate owner to vary the lease, and to pay the £65,000 premium involved. In addition, we were able to negotiate £400,000 off the asking price, to secure the property for a highly competitive £2.8 million.

Acquisition of the month 2 – Bank Chambers, St James’s SW1

Some searches pose particular challenges, such as this one for a British client looking for a two-bedroom pied-a-terre in St James – a largely commercial area of London with extremely limited residential options and strong demand for property.  Nonetheless, we identified an attractive building and made enquiries to the building owners to identify any who might be interested in selling. We managed to secure an off-market sale at an attractive valuation of £3m, and completed the transaction within four weeks of our offer being accepted – illustrating our willingness to persevere and our efficiency in closing the deal.

In regal company

When it comes to buying residential property, the cliché goes, it’s all about location, location, location. So too with office premises. We were delighted to learn the Queen recently chose to patronise Bellamy’s – a restaurant across the road from our Mayfair offices – to celebrate the 90^th birthday of one of her oldest friends.

According to The Times, it’s the only restaurant in London, excluding hotels and private clubs, which she has eaten in since her coronation in 1953. While we at Black Brick usually grab a sandwich at our desks, we can wholeheartedly recommend Bellamy’s. It’s a great place for a smart business lunch and they serve up some of the best fish dishes in London.

On the market

In addition to the services we offer property buyers, we periodically act for clients selling properties. This month, we have three new prime London properties on our books:

 One Blackfriars SE1 We are acting for an off-plan buyer of a 32-floor apartment in this signature block, that is due to be completed in late 2017. The 2,000 square-foot, 3-bed property will be in the widest part of the tower, with stunning City and river views. Guide Price: £4.99m

Lowndes Square, Knightsbridge SW3 A truly exceptional interior designed 2 bedroom, 2 bathroom apartment of circa 1356 sq feet on the ground floor of this well maintained portered building on Lowndes Square, moments away from the amenities of Knightsbridge and a short walk from Hyde Park. Guide Price: £4.25m.

 Yoo Building, St Johns Wood NW8 This stunning fifth and six-floor duplex penthouse apartment, in a converted telephone exchange moments from Little Venice, was developed by Yoo and inspired by Philippe Starck Architecture. The 2,220 sq ft apartment is currently tenanted, and offers a compelling rental investment. Guide price: £2.6m

For more details, to arrange a viewing or to see what else we are currently selling please contact Caspar Harvard Walls chw@black-brick.com or call +447827277741.