7th November 2016
10mins
As we approach the year end, the UK’s leading agents and property analysts crank up their spreadsheets and pricing models, and do their best to estimate what the country’s property market is likely to do over the next five years.
This year, their job is tougher than ever. The UK market faces extreme uncertainty as a consequence of the Brexit vote. Not only will the terms of the UK’s relationship with the EU have a profound effect on the country’s overall economic performance over the next few years, but the treatment of the financial sector will bear particularly on the London property market.
The terms of the UK’s exit are unlikely to be known before early 2019 – at the end of the two-year negotiating period mandated under Article 50, which was expected to be triggered by the end of March. However, in a sign of the question marks hanging over the process, the High Court ruling on 3 November that Parliament must vote on triggering Article 50 is likely to cause a delay.
Notwithstanding that judgment, which the government is appealing, the range of negotiating outcomes remains wide – from a ‘hard’ Brexit that severs most ties with the EU to arrangements that look not unlike the status quo. The collective response to this uncertainty is expected to be inaction. Forecasts recently published from JLL predict a couple of years of sideways movement for Prime Central London, with no rise in 2017 and a measly 1% in 2018, before things pick up in 2019 and 2020. That later acceleration should see PCL beat the UK as a whole over five years – up 15.2% compared with 13.1%.
These are in line with the latest forecasts published by Savills.The agency expects flat prices in PCL in 2017-18, before a healthy 8% jump in 2019. Its 2017-21 five-year forecast pegs overall growth in PCL at 21%. Other prime London (areas such as Fulham, Wandsworth, Chiswick, Islington, Wimbledon, Canary Wharf and Hampstead) would do less well, registering 14.6% growth over the same period, Savills analysts believe, but still outperforming the UK as a whole, which it forecasts to grow 13%.
“We would be inclined to agree with the broad brush of these forecasts – but we would caution, as always, the usefulness of a single number for such a heterogeneous market as prime London,” says Black Brick Managing Partner Camilla Dell. “As we have seen in the past, just as some geographic areas have performed better than others, some parts of the market are likely to outperform the average.”
Indeed, Knight Frank’s first post-Brexit forecasts, published back in August, see what it defines as East PCL – City & Fringe, Islington, Southbank, Kings Cross and Riverside – rising 26.4% over 2016-20, while PCL West is only expected to rise 10.2%. It remains to be seen if Knight Frank will be revising their forecasts.
Meanwhile, in terms of market segments, we expect the lower end, below £1 million, to remain active and resilient. It is supported by government programmes to promote home ownership such as Right to Buy, and because the Stamp Duty regime continues to make properties at this end of the market relatively attractive to investors. This implies that Outer Prime markets (areas such as Islington, the City, Canary Wharf, Maida Vale, Hammersmith and Fulham) are likely to do better than more traditional – and more expensive – PCL.
And there will also be outliers at the higher end of the market. We’re seeing stock dry up, as vendors refuse to countenance the discounts needed to close deals. This can have effects in both directions: those sellers which come to the market are likely to be highly motivated to sell, and open to offers; while limited supply can see buyers pay up for high quality properties, as we saw with our recent sale of Lansdowne Road. We believe there will be a “flight to quality” in the months ahead, with the best in class properties still continuing to attract buyers willing to pay the price.
For the opposite reason, we remain very cautious on the new-build segment, which we think is still the most vulnerable part of the market. Some parts of London are flooded with supply, and we’re likely to see properties offered with substantial discounts.
Flat price growth often goes hand-in-hand with lower transaction volumes, and Savills is also forecasting falling volumes across the UK residential property market to 2018, ranging from 10% falls against 2016 levels for home movers, up to a 33% drop in mortgage-financed buy-to-let purchases.
“With fewer transactions there are fewer comparable sales, so seeking advice will be essential for buyers. And we may also see less property come onto the market in PCL as vendors feel less incentivised to sell, making it harder for those without good market knowledge to find opportunities,” says Dell.
“Buyers can no longer assume that a property investment is a one-way bet,” adds Black Brick Partner Caspar Harvard-Walls. “Buyers need to take professional advice to ensure they are buying the right type of property, in the right location, in order to give themselves the best opportunity of seeing capital growth. Buying well and adding value through refurbishment etc. will be essential.”
Will Trump or Hammond play property wild-cards?
Of course, all forecasts are at risk of being blown off course by wildcard events. The first is the US election, on 8 November. A win for Donald Trump would almost certainly cause market turmoil, weakening the dollar but also potentially seeing some wealthy US citizens move to the UK, as some of our US clients have hinted to us.
The US may also lose foreign investment, particularly from Middle Eastern buyers who may instead favour London as a destination for a second home or investment property. The second is the Chancellor of the Exchequer’s Autumn Statement, due on 23 November. “Budgets under George Osborne delivered raid after raid on the property market,” says Dell. “We don’t know what – if anything – Philip Hammond has up his sleeve, but we are hopeful he won’t be anything like as toxic as Osborne.”
For a buyer, the run-up to Christmas can be a great time to make your move. Sellers are likely to be highly committed, and many will have an end-of-year psychological deadline in place, making them amenable to offers.
There is also less competition: the gloomy weather is a deterrent to many overseas buyers, while domestic rivals may be more concerned with Christmas shopping and planning seasonal festivities. It’s worth noting that both of Black Bricks’ partners bought their family homes just before Christmas. But time is pressing: as of writing this newsletter, there are only seven weeks left…
We’re delighted to report that Black Brick has received two accolades from leading industry publications this month. PrimeResi, the journal of luxury property, has published its first ranking of UK buying agencies for three years – and has Black Brick in fourth place. It notes that tough market conditions have seen a contraction in the number of registered buying agencies – down to fewer than 400, from 547 in January last year. “Ironically, it’s during markets like this that buyers most need expert representation,” he publication argues.
“Buying agents have become increasingly essential for serious purchasers to make good decisions in a complex and shifting landscape; a genuine understanding of local markets (and people), of individual properties, and real experience of the art of high-value property negotiation – combined with access to those elusive pre- and off-market prospects – means that the best and most innovative agents have more than earned their keep over the last few years.”
We couldn’t have put it better ourselves – and we are over the moon to have been ranked in the top 1% of our market.
We are also very pleased to be included in Spears magazine’s Spears 500 guide to the UK’s top private client advisers, wealth managers and high-net-worth service providers. Managing Partner Camilla Dell and Partner Caspar Harvard-Walls are both listed in just a handful of recommended London Buying Agents. The guide has been described as “the Michelin guide to the wealth management industry”.
Acquisition of the month: South Bank Tower, SE1
This month’s acquisition illustrates the opportunities presented by market uncertainty. Our British clients were looking for a pied a terre for visits to London and for their future use, and realised that the current market offers a perfect buying window. Our brief was for a three-bed apartment, in a secure building within walking distance of Waterloo station. We conducted an exhaustive analysis of potential property for sale in the area, and came up with a 24th floor apartment in South Bank Tower – with 24-hour concierge service, swimming pool, gym and business suite, as well as a private roof terrace and stunning views over the River Thames and the City.
We knew the developer was keen to sell, so we were able to negotiate aggressively, saving our clients £550,000 from the £2.75m asking price, a discount of 20%. Our clients paid circa £1,600/sq ft in a building where equivalent units have gone for in excess of £2,300/sq ft foot – showing the value we can bring through our market knowledge, relationships and tenacious negotiating.
In addition to the services we offer property buyers, we periodically act for clients on the sell side, and we have now managed the sale of more than £30 million worth of properties. This month we have a new prime London property on our books: 50 Sloane Street, Knightsbridge SWI. We have been instructed to act for the owner of a stunning three-bed, sub-penthouse apartment in this highly regarded portered block on Sloane Street. The 1,059 sq ft apartment features two bathrooms, a balcony and views of Cadogan Place Gardens. The vendor is looking for a discreet, off-market sale. The guide price is £2.85 million.
For more information, please contact Tom Kain on +44 (0) 20 3141 9866 or email tom.kain@black-brick.com
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.
