A leading London buying agency is warning that some areas of prime central London could face a downturn following the Brexit vote – but that the world’s “global elite” won’t be affected by the UK leaving the EU.
Camilla Dell, managing director of the Black Brick agency, says investors drawn to homes selling in the sub-£2m price bracket will continue, because of those properties’ favourable yields and domestic demand.
But she warns “the same can’t be said for the prime and new-build outer prime markets.”
Dell says sales of homes priced between £2m to £5m and then £12m to £15m are in many parts of prime London dominated by investment bankers and hedge fund managers.
“We do not expect the wholesale flight of financial services firms away from London, but it is likely that they will lose their ‘passporting’ rights, or their ability to sell financial services across the EU, if the UK does leave, triggering the departure of some financial services capacity to Dublin or the continent” she warns.
“Even relatively low numbers of bankers leaving areas such as South Kensington or Notting Hill – where European bankers, in particular, tend to be concentrated – could have a significant effect on local markets over the next couple of years.”
The agency also expects what Dell calls “the new-build outer prime market” to suffer most from continuing uncertainty, having already experienced a lull before the referendum vote.
“Areas such as Nine Elms in Vauxhall and Earls Court in west London are particularly vulnerable due to oversupply of expensive properties aimed at the overseas investor. However, there are a handful of stand-out developments – such as Television Centre – that we believe are likely to continue to prove popular, and there will certainly be bargains to be had, particularly on the secondary market” she says.
However, Black Brick expects the Super Prime market – which it describes as homes costing £15m to £20 or even more – to be the least negatively affected, with the collapse of the sterling meaning that dollar buyers are actually factoring in a 12.5 per cent increase in their purchasing power since before the poll.
“For the global elite buying properties at £15-20m or above, purchases tend to be about lifestyle choices rather than business decisions, or are to diversify extremely large portfolios. Indeed, we are still seeing transactions continue; Brexit did not feature in conversations with clients in this part of the market before the referendum, and it’s unlikely to be much of a factor now.”
London is going to retain its attractiveness to wealthy international buyers regardless of this outcome
Camilla Dell, Managing Partner at Black Brick
“Now that an ‘out’ vote has been cast, we will, no doubt, experience a period of ongoing uncertainty as the UK seeks to agree a way forward with the EU. Sterling may weaken even further, making London property even more attractive to foreign buyers.
“In general terms, London is going to retain its attractiveness to wealthy international buyers regardless of this outcome; its cultural attractions, geographic location, legal system, and concentration of talent mean that there will always be demand for Prime Central London property.”
“Trying to pick an off-plan development which is likely to appreciate upon completion, is extremely difficult and a high-risk strategy for investors. The main reason is that, often, new builds command a significant premium compared with surrounding existing property prices, so you are buying in the hope that the development will significantly outperform local property prices. You can increase your chances by buying into a low density (fewer than 100 units) development where, if the development proves popular, there is a demand vs. supply imbalance which would lead to an increase in prices. The development also has to tick many other boxes such as location, proximity to transport links, and shops.
Questions to ask
1. How many units are there?
2. What is the break up between one, two, and three bedroom units?
3. Which direction does your unit face? South facing is always going to be the best in terms of light.
4. Are there other developments planned in the area? This will hugely affect the investment potential – if there are thousands of units planned in the immediate area it could significantly reduce the investment potential.
5. Will your view be affected by future development?
6. Are you able to assign your contract? This is crucial if you plan to sell the property before completion as some developers prevent this in the sales contract meaning you have to wait until all units are sold before you can sell yours.
7. What is the anticipated service charge? Again, this is key as a high service charge will eat into your rental yield if you plan to let the property.
8. What are the staged payment plans?
9. How many units have already sold and what is the buyer profile?
10. What other schemes has the developer built? If possible, it’s a good idea to go and visit a previous development to get an idea of the quality you can expect from the developer.”
If you’re looking for property within an easy commute of London, then consider areas close to the next high-speed rail route and you could make a tidy profit too.
Until fairly recently, it has been hard to get too excited about Crossrail 2 – the proposed high-speed rail route that got the green light in March. It will link south-west and north-east London, as well as stretching out as far as Hertfordshire and Surrey, but the preferred route has not been confirmed and it’s not due for completion until 2033. Not many of us have the vision – or the money – to think that far ahead when it comes to investing in property.
But Crossrail 1 – renamed the Elizabeth line – will be fully operational in less than three years and a whole host of research has come out illustrating how property prices have risen close to its stations. So investors who missed the boat the first time round will want to make sure they pick up a bargain in potential property hotspots along the Crossrail 2 route.
This could be attractive to buy-to- let investors wanting a property that will increase in value. But first-time buyers priced out of the London property market could also find opportunities along the route.
While some areas on Crossrail 2 are bound to perform better than others, it’s hard to see how investors – or home buyers – along the route won’t benefit from its impact.
Johnny Morris, research director at Countrywide estate agents, says: “Our research shows the average landlord holds a property for 17 years, which for someone buying today would take them to around the Crossrail 2 opening. So for those looking for a long-term investment, as many do, it’s definitely worth thinking about Crossrail 2 today.”
However, he adds that the new rail route should not be the main reason for investing in an area. “If you’re going to keep a property for 17 years, you need to make sure that you can rent it out successfully so that it has sufficient yield to cover your costs. There would be no point buying a home in an area with a very small rental market on the prospect of Crossrail 2 because that would just be bad maths.”
It’s more of a case that if you are already thinking of investing in an area – say, south-west London – and you have a choice between buying a property in Wandsworth or Wimbledon, the fact that the latter is on the Crossrail 2 route might influence your decision.
Lessons from the Elizabeth Line
To get an idea of how much property prices could rise along Crossrail 2, you only have to look at how the housing market has performed along the Elizabeth line – and it isn’t even open yet. According to figures published earlier this year by property portal Zoopla, average property prices along this route went up by 52% – that’s £182,727 – since building work began in 2009.
This put the average property along Crossrail 1 at £522,192 in February 2016, compared to the national average of £298,883 – a difference of 54% (see map below, click to enlarge).
A separate study by financial services firm JLL, analysing areas within a 750-metre radius of each Crossrail station and looking mainly at opportunities for new-build housing, shows that some Crossrail 1 locations are expected to see house price growth of 16% above the Greater London average by the end of 2020, with the biggest winners being Woolwich, Whitechapel, West Drayton and Ealing Broadway. It says that, on average, house prices around Crossrail stations will be 7% higher compared to non-Crossrail stations.
The importance of being close to transport links was highlighted in Knight Frank’s Tenant Survey 2015/16, which sought the views of 5,000 tenants. It found that 71% of Londoners think transport links are the most important factor when choosing a rental property.
According to Knight Frank research from 2015, homes within a 10-minute walk of stations on the Crossrail 1 route have outperformed those in the wider boroughs by an average of 5% since the initial Crossrail plans were granted Royal Assent.
James Barton, partner at Knight Frank City and East, sees no reason why the ‘Crossrail effect’ won’t have a similar impact on houses close to the new route. “Focusing specifically on Greater London, Crossrail 2 will open up areas where the delivery of new homes has traditionally been stunted due to lack of accessibility. In areas such as Waltham Cross,we expect Crossrail 2 to have a particularly positive impact on the property market,” he says.
Playing the waiting game
While it’s tempting to consider areas along Crossrail 2 for buy-to-let opportunities, JLL points out that for Crossrail 1 the majority rental growth will come about only when the route is up and running. While buy-to-let investors are likely to see their property close to Crossrail 2 stations increase in value, they will have a long wait before they enjoy increased rental yields.
Jamie Burnhope, consultant at buying agent Black Brick, agrees that investors need to focus on capital gains. “One of the quickest ways to see capital appreciation from property investment is to buy into an area which is set to benefit from improvements to transport infrastructure. We’ve seen it happen since the opening of the East London Line and we’ve seen it in London and beyond since the announcement of Crossrail 1 – and it’s not even operational yet,” he says
A tip for first-time buyers
Consider funding your property with the Help to Buy London scheme.
It is open to first-time buyers – and home movers – buying a new-build home worth up to £600,000 in any London borough. It means that you can borrow a government-backed equity loan of up to 40%, while you only need to put down a 5% deposit and will get a mortgage of up to 55% to fund the rest of the borrowing.
The loan has to be paid back in 25 years or when you sell the property if this is sooner.
The loan is interest-free for the first five years and then you have to pay 1.75% in year six. It then rises by the Retail Prices Index plus 1%.
Lenders who support the Help to Buy scheme are Aldermore, Bank of Scotland, Barclays, Halifax, Leeds, Lloyds, Nationwide, NatWest, Royal Bank of Scotland, Santander,Teachers and TSB.
If you are thinking of buying along the Crossrail 2 route, bear in mind that if you buy a property outside a London borough, you will only be eligible for a 20% government-backed equity loan.
Watch out for areas along the route that are spread across London and the Home Counties. For example, some properties in Worcester Park are in the London Borough of Sutton, while others are in Surrey.
“With [the planned route for] Crossrail 2 not having been confirmed yet, now is a
good time for the risk-taking investor to buy in early to an area that is likely to be on the line.”
Mr Morris says: “It’s a safe assumption that prices of homes near a Crossrail 2 station will see a bigger increase than the equivalent place not near a station. If you improve the transport links of an area – and make it easier to get to central London – prices will increase relative to the surrounding area. Equally, if prices were to go down, they would fall less in these areas.”
On a final note, it’s worth remembering that the current route is just a ‘preferred’ one and could change. In particular, no decision has been made about whether the route to New Southgate will go via Wood Green or Turnpike Lane and while Balham is the preferred mid-way stop between Clapham Junction and Wimbledon, there is still a possibility that Tooting Broadway could be chosen if construction methods being tested at Balham prove problematic.
Transport for London is planning another public consultation on Crossrail 2 towards the end of this year and no date has been set to consult on the final route.
Potential hotspots
Investors are likely to get more for their money in the outer reaches of the proposed route, where the line will connect with the existing national railway network towards Hertfordshire and Surrey, given that properties close to the central London transport hubs along Crossrail 2 have already seen huge price hikes.
Tottenham Court Road, for instance, which is also on the Elizabeth line, has seen house prices go up by 66% between May 2009 and February 2016, according to property portal Zoopla, with average property prices at an eye-watering £1.85 million.
Instead, it might be better to focus on housing on the northerly edge of the proposed route, running through Enfield Lock, Waltham Cross and Cheshunt to Broxbourne in Hertfordshire.
However, be warned: house prices in this region are already rising way above the national average, and that’s before the Crossrail 2 route has been officially confirmed.
While property prices in the UK went up by 8.2% over the year to April 2016, prices in Hertfordshire – which includes Waltham Cross and Broxbourne – went up by 15.5%,
with an average price of £371,493 according to the latest UK House Price Index (UK HPI).
In the district of Waltham Forest itself, house prices went up by a whopping 25% over the year, with the average price now standing at £424,663. In nearby Enfield, houses sold for 17.8% more than in April 2015, with the average property a slightly more affordable £379,174.
Heading south, UK HPI data shows that properties in Surrey went up, on average, by 11.9% in April, with houses selling for £427,981.
In Kingston upon Thames, house prices in April were up 12.6% on the previous year, with the average home selling for £484,213, while in Epsom and Ewell, house prices went up by 14.4% annually, averaging out at £454,840.
The lead up to the EU Referendum has dark clouds brewing over London, with experts predicting everything from economic shocks to the ‘Brexit bounce’. But are there even bigger storms coming?
Much like the weather, trying to predict the future is a tricky business, none more so when it comes to trying to foretell changes in the housing market.
With the EU referendum drawing ever closer one of the major questions looming over Brexit is the effect it could have on north London property prices.
If you own, or would like to own, property in north London should you be concerned about what will happen to the value of your home, excited about a potential dip in prices, or blasé that things will right themselves in the long term?
With the advice of many in the property industry directly contradicting reputable economic opinion, there is plenty of scope for confusion.
Stand alone success
Self-confessed “fervent” Vote Leave enthusiast Trevor Abrahmsohn, director of Glentree Estates, predicts a glorious future should Britain vote to exit the EU.
“After the initial turmoil of leaving, the benefits will be there for all to see,” he says.
Goldman Sachs and HSBC predict that sterling could plunge by as much as 20 per cent following a Brexit, but Abrahmsohn is adamant that this would have an ultimately positive effect.
If the pound drops against the dollar but remains comparable to the euro, Abrahmsohn predicts that the effective discount on property prices could encourage overseas buyers who are currently put off by high taxes.
New research conducted by real estate investment management firm JLL also suggests that a correction in property prices could contribute to a ‘Brexit bounce’.
However Guy Grainger, head of EMEA for JLL has warned that this initial boost would precipitate at least two years of serious uncertainty.
And that’s bad news for Hampstead asset rich but cash poor home owners relying on the value of their homes to see them through retirement or help their children or grandchildren financially.
George Osborne has warned that Brexit could cause house prices to drop by as much as 18 per cent.
The Chancellor has dire warnings too for those who don’t yet own their property outright anticipating interest rate rises and a consequent rise in the cost of mortgages.
“If we quit the EU the country would be poorer, there would be volatility in the financial markets that would push up mortgage costs irrespective of what the Bank of England might do with official interest rates,” the Chancellor told the Sunday Times.
Brexiteer Abrahmsohn has a few choice words to offer on this point.
“Nonsense. Hogwash. Tosh. Poppycock. Interest rates are not going to go up. The Chancellor is propagating scaremongering of the worst type.”
Dip in demand
Whilst accusations of scare tactics fly on either side of the debate, some north London property experts are genuinely concerned that a UK exit could lead to a serious dip in demand.
“It could be catastrophic for the London market,” warns James Morton, director of Benham & Reeves.
He predicts that should the UK leave, global banks will relocate their headquarters, prompting an exodus of financial service workers who currently work, live and educate their children in London.
“Staying in means we know what we’re dealing with. Leaving would mean a potential economic shock.”
If the banks leave, homeowners may be forced to sell up and relocate to other financial centres such as New York or Dubai, potentially flooding the market with supply but no demand, Morton warns.
Areas such as West Hampstead have a high concentration of residents employed in the financial services, leaving it particularly vulnerable to this in the event of Brexit. West Hampstead estate agent Oakhill Residential calculates that of the 9,800 homeowners in NW6, 9.7 per cent are employed in the sector and could be prompted to leave London.
Switzer-bland?
“Where are they going to go?” asks Mark Pollack, founding partner at Aston Chase
“I’ve had high net worth clients who have re-located to Switzerland [for tax reasons] only to come back because it’s not as interesting. They have more money but it’s boring there! I don’t think there’s an alternative city to London.”
A swing voter, Pollack stresses that whilst there are potential negatives and positives with both outcomes, London’s cultural caché will remain the same whatever the eventual vote.
“Ultimately, whatever the outcome, life goes on. Fundamentally what makes London great won’t change overnight. I feel confident that London will be okay.
“If we stay in we might see a flurry of activity but I don’t see prices surging.”
Robert Bixby, regional director at Anscombe & Ringland concurs that London’s popularity will trump whatever voters decide on June 23.
“The reality is that north west London will remain hugely popular both nationally and internationally.
“Whether we remain in Europe or leave, St. John’s Wood, Hampstead, Highgate and further out to Finchley, Totteridge and Barnet, will retain their interest and attraction from an international buying market.”
North London’s got the stamp duty blues
Camilla Black, managing partner and founder of Black Brick Property Solutions has noticed her overseas buyers falling into two camps: the concerned and the carefree.
“For some buyers it’s put them off, for others they couldn’t care less,” she says.
Having recently closed a deal with an overseas buyer for £55 million, Black is dismissive of claims that Brexit is responsible for the property market’s woes.
“There’s been too much emphasis on Brexit for being at fault for the slow market,” she says. “It’s just a nice excuse for people.”
Instead she names the changes to stamp duty for buy-to-let and capital gains tax for putting the brakes on the market.
Leave, remain, or on the fence, property experts agree that Brexit is yet another tremor in the seismic shifts the London property market is currently experiencing.
Higher taxes have discouraged investors, hitting the middle to higher price brackets of the London property market hardest over the past two years by deterring the overseas buyers that have pumped up property prices for so long.
Whilst London remains a valuable asset in any global property portfolio the market has undeniably slowed, and uncertainty has become the watchword and curse of the London property market.
Some believe a vote to remain will mean a return to the status quo, putting an end to market uncertainty, while a leave vote would have the opposite effect, because negotiating a Brexit could take years and the terms of any deal are unpredictable.
A report from Hometrack warns that the London property market remains the most vulnerable to any referendum result shocks and predicts that, given past form, London could see a drop in transactions of up to 10 per cent following a Brexit.
An uncertain future
The analysis suggests that more uncertainty may be yet to come, regardless of the result.
Richard Donnell, insight director at Hometrack says: “After a period of strong house price inflation over the last five years, the London market faces greater headwinds irrespective of the referendum vote. Turnover fell seven per cent last year on the back of affordability constraints and weaker overseas demand.” The future is looking far from sunny, either.
“Tax changes for investors will reduce demand and we expect price growth to slow in the near future even if sterling were to weaken and improve the relative value of central London property,” he says.
Lest any first time buyers think that this would help them get a foot on the property ladder, Paul Cheshire, professor emeritus of economic geography at the London School of Economics, says leaving would cause a shock to the economy he predicts could last a decade.
Writing on The Conversation, he says that while house prices may fall, this would mean that house builders would build less, decreasing supply. Combined with the hit to the economy, this means first time buyers would continue to be locked out of the housing ladder.
If you already own property in north London, you can sleep easier in the knowledge that it should weather the squall and remain a valuable long term asset whichever way the wind blows (witness the stonking recovery in Hampstead after the 2008 financial crash).
“If you’re not under pressure to move my advice is to sit tight,” says Pollack.
“If you have property in London you have AAA stock.”
Darker storms than the referendum are brewing on the horizon of the London property market, but it might just be safer to stay in port than head out to sea alone.
Amid New York City’s luxury penthouses and sprawling duplexes is a stash of secret rooms: one-bedroom and studio apartments that will never appear on public listings or the open market.
These bijoux crash-pads — known as accessory apartments — are available only to elite families who’ve already bought (much larger) homes in the building.
Rafael Viñoly’s cloud-scraping tower near Central Park, 432 Park Avenue, includes such hush-hush assets, as does the West Village’s new luxury complex the Greenwich Lane.
Among that development’s 200 units are six small apartments — starting at around 500 square feet for $1.26 million — and offered for sale solely to existing buyers; four are already spoken for.
It’s a similar setup at NoMad conversion 212 Fifth: Its 48 units include six smaller apartments on the second floor, averaging around 425 square feet and starting at around $875,000.
So what’s the appeal of these tiny, secret apartments?
“The competition to hire, and keep, the best staff — a personal assistant, nanny, butler or house manager — has gotten way more intense over the last 10 years,” explains Caspar Harvard-Walls, a partner at Black Brick in London (where the trend first gained traction). “So the way they are housed has changed enormously.”
In other words, if you want a top-tier Poppins to tend to your precious offspring, she won’t settle for a dank room with a bunk bed; modern Mary expects the same finishes and fixtures as the family home, albeit on a smaller scale.
And there are other motivations informed by the increasingly informal and in-flux lifestyles of typical buyers.
“People often work from home today, so if both spouses are there they might prefer a place they can go to be alone — say, if they’re writing a book,” notes 212 Fifth developer Robert Gladstone. “Maybe they have a kid returning from college who is one of those millennials who needs to move in with their mom and dad.”
Of course, the concept is hardly a new one. In Manhattan’s Gilded Age, buildings often incorporated smaller accessory apartments (mostly studios for staff) tucked just below the roof. It’s the reason there are so many pronounced cornices among developments from that era. While many of these vintage examples have been swallowed up bysurrounding apartments, the strategy is now being revived in luxury conversions and new builds.
These clandestine hideaways — real estate’s version of speakeasies — are quickly becoming a brag-worthy high-end amenity. And once the kids no longer need that practically perfect nanny, there’s no need to downsize — simply sell the spare apartment. As long as the buyer is already a neighbor.
“These apartments are intended as a convenience to owners in the building,” Gladstone emphasizes. “So we do ask that someone doesn’t resell to an outsider.”
The sense of gathering momentum for the Leave campaign ahead of the upcoming EU referendum is causing high levels of uncertainty in the UK housing market, as many ‘nervous’ buyers and sellers adopt a wait and see policy, causing activity in the market to slow and property price growth to cool.
Both buyers and sellers are clearly anxious, as reflected by a noteworthy drop in sales market activity, while landlords, much like the rest of the British public, are evenly divided on how they will vote in the EU referendum, according to research from the National Landlords Association (NLA).
Jo Eccles, managing director at Sourcing Property, reports that the prospect of a Brexit has caused divided reaction amongst buyers, with UK-based buyers falling into two camps.
“Our family clients are buying as normal, whether it’s that they have to move to upsize, or be closer to certain schools. We call these ‘necessity purchases’ and the upcoming referendum has had very little impact on this part of the market,” she said.
“With our other UK buyers, who don’t necessarily need to buy now, they’re also holding off to see what the outcome is,” Eccles (left) added.
According to estate agency Haart, new buyer demand fell by 5% in May, while the volume of agreed transactions dropped by 3.9% as prices rose by just 0.8% month-on-month, down from the 1% rise reported in April.
Haart’s findings are supported by the latest study by the National Association of Estate Agents (NAEA) which shows that demand for residential property across the UK has fallen to one of the lowest levels on record as prospective buyers and sellers postpone investment ahead of the EU referendum.
The latest examining of housing market activity revealed a sharp slowdown in demand for homes across the UK, owed largely to the looming referendum as well as the recent buy-to-let stamp duty changes.
“Should we vote to leave, then this will create ongoing uncertainty as the UK seeks to agree a way forwards with the EU,” said Camilla Dell (right), managing partner at Black Brick.
Even in the new homes market, activity has slowed, with the Berkeley Group the latest housebuilder to report that home reservations have plummeted – down by 20% in the first five months of this year amid Brexit vote uncertainty.
“The upcoming EU referendum means we’ve entered a period of uncertainty, as buyers put off their hunt in anticipation of the result,” said Mark Hayward, managing director, NAEA.
Almost a quarter (24%) of estate agents expect house prices to decrease and a further one in four (23%) expect demand to decrease if Britain votes to leave the EU in June. This view is shared by many homeowners.
Long road to recovery
The majority of Britons who fear that the price of their property will fall if Britain leaves the EU believe that the road to recovery will not always be easy.
A YouGov survey of 1,735 UK adults revealed that 61% of Britons who think that their house price will decrease if Britain exits the EU believe that it will take at least five years for UK house prices to recover from the impact that the change will have on the UK property market and wider economy.
Graham Wellesley, founder and chief executive of Wellesley Finance, said: “These figures show that people across the UK are deeply worried about how their properties will be affected if Britain votes to leave the EU later this month.”
Brexit would put investments at risk
It has been suggested that up to £900bn worth of property investment in this country could be at risk of harm if the UK votes to leave the EU, according to a separate survey of more than 3,000 individual investors.
The study by online equity crowdfunding platform SyndicateRoom assessed how the upcoming EU referendum will affect individual investors and found that almost half of the investments at risk in the event of a Brexit are believed to be in the property market.
“At SyndicateRoom, we want to help individuals increase their net wealth through equity investment – and based on this research, it appears that is more likely and more achievable if the UK remains part of the EU,” said Goncalo de Vasconcelos, CEO and co-founder of SyndicateRoom.
Jamie Lester (pictured), head of Haus Properties, also thinks that a vote to remain should see the property market return to normal fairly quickly, while “it remains to be seen what exactly the impact will be if Britain leaves the EU”.
Either way, he thinks that the market will “stabilise” once the general public is able to “understand and adapt” to the changes.
Room for growth
Regardless of whether or not the UK opts to remain in the EU, Paul Smith, CEO of Haart, believes that the UK, particularly London, will remain a safe haven for property investment, once the uncertainty is over.
“It is the uncertainty around our status in the EU that is causing the market to stagnate, once we know the outcome, regardless of what it is, the property market will become reinvigorated,” he said.
“In the long term, house prices will bounce back once more as the age-old problem of a disparity between the amount of stock available and the number of buyers competing rears its head,” added Smith (right).
His views are supported by the latest survey by the Royal Institution of Chartered Surveyors (RICS), which shows that house prices in the UK are expected to rise further regardless of whether Britain opts to remain or leave.
Despite growing uncertainty ahead of the looming EU vote, many experts still expect to see house prices end the year higher.
Residential property prices are set to increase faster than UK inflation and outstrip average pay gains, making the homeownership dream even harder for the average first-time buyer, a recent Reuters poll found.
But the research does show that the decision to remain a part of the EU or exit the 28-member bloc will impact on the level of capital growth.
If Britain stays in, house prices are expected to rise by 5% this year, the poll of 17 experts taken in the past few weeks found, far outstripping the 0.7% inflation forecast by economists in a separate recent Reuters poll.
Next year and the year after, prices are forecast to increase about 4%, compared with corresponding inflation forecasts of 1.7% and 2%.
In the event Britain votes to leave the EU, prices will almost certainly still rise, albeit at a slower rate of 3.8% this year, but stay flat in 2017 before picking up 2% in 2018, the Reuters poll found.
The poll of experts pours scorn on the Chancellor George Osborne’s claim that a vote to leave the EU would have a ‘major hit’ on residential property prices across the UK.
Doomsday predictions
The scare tactics being adopted by the government to keep Britain in the EU has seen the Chancellor warn about the short-term impact of Brexit, insisting that property prices could drop significantly if voters opt to leave the EU on 23 June.
He recently insisted that a UK exit from the European Union could cause house prices to nosedive.
Property prices have been at the forefront of the EU debate in recent weeks, with the Chancellor claiming that the value of homes in the UK could fall by as much as 18% following a Brexit vote.
Based on the average price of a home in the UK, Osborne’s forecast suggests that the average residential property could fall in value by more than £50,000 within two years of the vote in comparison with what it would be if the UK stayed in the EU.
But some say that Osborne’s predictions are rather bold, given that there is a severe housing shortage in this country.
Nevertheless, the reality is that there is nothing that spooks markets more than uncertainty, as was evident in the run-up to the Scottish referendum in 2014, when the housing market north of the border ground to a virtual halt.
“These have been turbulent times and uncertainty is the very thing that the property market hates,” said Saul Empson from Haringtons UK.
Empson (left) believes that if Britain votes to stay in Europe, “we are likely to get more of the same property market that we have had – more people coming into London than leaving, fewer properties for sale thanks to George Osborne having raised the transaction costs to punitive levels”.
“If we leave, this is unknown territory, and the only certainty is that Nigel Farage, Boris Johnson or George Galloway don’t know the answer.”
“So from a purely property point of view, we’re swapping Donald Rumsfeld’s ‘known, unknowns’ for ‘unknown, unknowns’. And that is without asking the question as to what effect President Trump might have on the world.”
Last month, the chief executive of Virgin Money, Jayne-Anne Gadhia, also warned that a Brexit could place downward pressure on property prices in the UK, especially in the capital, not to mention push up interest rates.
She told the press that a vote to leave the 28-member bloc in the looming referendum could lead to a sharp drop in the amount of foreign investment into London’s property market from abroad.
“My personal view is that property prices would be likely to come down, as inward investment, particularly in London, is less available,” she said. “The risk on a Brexit is I think that property prices come down and interest rates go up.”
Britain will survive outside the EU
Despite concerns that a Brexit will have an adverse impact on the housing market, many property experts, such as Trevor Abrahmsohn at Glentree Estates, believe that the UK housing market will do well outside of Europe.
“I think that the chancellor must believe that the British electorate have all just ‘come off the onion boat’ and that we are too stupid to make sense of what is going on,” he said.
“The government is blaming every element of bad economic news on the Brexit campaign.”
While accepting that trying to second guess which path the property market will take off the back of the political landscape is “purely speculative”, Brendan Cox, managing director of Waterfords, does “not foresee any immediate change in the market” in the event of a Brexit.
“A British exit from the EU could take a decade to negotiate and research suggests that the process will be long and uncertain,” he said.
However, if the UK were no longer tied to EU regulations and attracted more local investment, “the property market could also benefit”, added Cox (right).
He continued: “Forecasters warn that house prices could fall by up to 25% if we exit the EU, but others argue this would bring prices to a more ‘sustainable’ level in relation to disposable income, which would also provide greater opportunity for first-time buyers.
New housing supply
While a Brexit may present would-be purchasers with fresh opportunities, especially those seeking a first foot on the housing ladder, some experts fear that an ‘out’ vote will have a devastating impact on the UK economy and reduce the level of new housing supply, as many housebuilders will be less willing to commit to new projects due to the uncertain economic climate.
Andy Hill, chief executive at housebuilder Hill, commented: “A Brexit would have severe consequences for the British property industry and economy in general. As Europe’s largest powerhouse, our economy is very much strengthened by our position within the EU, which brings numerous benefits that largely outweigh the costs. Exiting this arrangement will likely result in a largescale slowdown that I believe will take many years to recover from.”
The government’s target of building 1m new homes over this parliament will also become an unrealistic one, according to Hill.
“It is widely acknowledged that we need to build more homes more quickly, with more than 1m required by 2020. Without investment coming into the UK at current levels however and demand diminishing significantly, developers would likely pull away from building more homes and this figure will be incredibly difficult to meet.”
Chris Nelson, co-founder and partner of Cumbria- based developer egg Homes is also of the opinion that the UK shouldn’t leave the EU, “ because our economy is not strong enough to handle all of the implications that could come with the decision”.
“There will, without doubt, be an immediate financial impact following an exit, across all sectors of the construction industry,” he added. “Perhaps long-term, once new trade deals and agreements are put in place with individual European countries, and this could take years, things should go back to normal and we could even be in a stronger position, but the immediate impact is too big a gamble in my opinion.”
Skills shortages
The single biggest challenge for housebuilders is the lack of skilled workers in the UK, and Bob Weston (right), chairman of housebuilder Weston Homes, fears that that an exit from the EU will “exasperate the problem”, if it restricts free movement of people across Europe.
He commented: “Some 80% of the people working on our sites inside the M25 are not of British decent and 60% outside the M25. Who is going to build the extra 100,000 new homes a year that the Government says we need?”
Tony Pidgley, chairman of the Berkelely Group, has also offered his support to the pro-European campaign.
“The outcome of the referendum on Britain’s membership of the European Union is significant for the UK’s housebuilding and property sector,” he said.
“Berkeley supports a vote to remain in the EU. London’s status as the world’s best big city is underpinned by labour mobility, cultural diversity and a constant influx of talent and investment from around the world, and the UK economy in turn is powered by the success of our capital city.”
Summary
While uncertainty has certainly suppressed activity in the housing over the last few weeks, the good news is that the EU referendum has been a relatively short campaign, compared to say the Scottish referendum two years ago.
In the longer term, solid arguments can be made on each side, but regardless of whether the UK votes to stay in or out of the 28-member bloc, the fact is that there is a severe housing shortage that will almost certainly drive home price up further in the medium to long term, but the rate of growth may very well hinge on the outcome of the vote.
“In the run up to the referendum, we are seeing two types of clients. Some clients are very aware of a potential Brexit and the uncertainty that surrounds the referendum. They therefore want to put their search on hold until the result is known. We have other clients who couldn’t care less. They want to buy, and buy now, and actually see the uncertainty surrounding the referendum as a good opportunity to get a better deal on their London property. The uncertainty is also having an effect on sterling, making London property cheaper for foreign buyers.
“Should we vote to leave, then this will create ongoing uncertainty as the UK seeks to agree a way forwards with the EU. Sterling may weaken even further, again, making London property very attractive to foreign buyers.
“Should we vote to stay in, normality will return to the market straight away and we may see a pickup in transaction volumes as a result of pent up demand from buyers that were waiting in the wings.
“In general terms, London is going to retain its attractiveness to wealthy international buyers regardless of whether the UK remains in the EU. Its cultural attractions, geographic location, legal system, and concentration of talent mean that there will always be demand for prime central London property.” – Camilla Dell
We are thrilled to be included in the 2016 eprivateclient Top 25 Residential Property Buyers for a third year.
Eprivateclient is the leading website and news service for private client practitioners, including lawyers, accountants, trustees and fee-based IFAs.
The aim of the initiative is to identify, recognise, introduce and promote the Top 25 Residential Property Buyers acquiring prestigious residential property for high net worth and ultra high net worth clients. Approximately 65 Residential Property Buyers are surveyed and the Top 25 is based on data received on areas such as number of directors, number of buyers, the number of staff, fee structure, fee income and the company selling policy. The Top 25 firms are selected using this data and the six key areas are published on www.eprivateclient.com.
So you’ve spent months searching for the perfect property investment and transforming it into a modern, comfortable home. Now it’s time to hand over the keys to a perfect stranger and hope they pay up. Or perhaps you’re upsizing and you’re hoping Mr Rando won’t destroy your beloved first home. But how can you be sure, really? If you’re going it alone, or you want to make sure your letting agent is up to par, here are some tips from the professionals who find reliable tenants every day.
Target the right tenant
“Tailor the look and feel of your property, and set the rent to suit your target market. If your property offers lots of space and is close to reputable schools or nurseries it is likely to appeal to a family, possibly with young children, and they will enjoy the freedom to make the house a home. What about a young professional? Likely to have a little bit more money to spend, they’ll be after a modern property that’s well placed for transport links, bars, cafés and entertainment. Regardless of the tenant profile, keep the décor simple – don’t show too much of your personal taste. You may like bold patterns, but your dream tenant might not – you don’t want to put them off.”
– Nick Vincent, Lettings Director at Proctors estate agents
Carry out some basic checks
“To find high quality tenants, we take references from their previous landlords to show that the tenants’ paid rent on time and they didn’t cause any damages. We also contact their HR department to confirm employment and then also ask for supporting documents from the tenant in the form of a payslip or signed contract. Finally, we ask them to provide us with a copy of their passport by bringing it into the office in order to make sure they pass Right to Rent checks.”
– Jake Willis, co-founder of London Shared
Be aware of Right to Rent
“Following the implementation of the Right to Rent scheme across the UK, a landlord or agent also needs to ensure the tenant has the right to reside in the UK. The requirement is ensuring that an original passport/VISA/residence permit is seen in the present of the tenant and known occupants. If an individual is a UK citizen, EU or EEA national, then they will automatically have the right to reside within the UK. These documents are only required to be valid at the commencement of the tenancy. Should either expire during the tenancy, then the landlord/agent should follow it up.”
– Neil Short, head of city residential at JLL
Use your gut feeling
“A tenant’s behaviour during viewings can be really telling. If they turn up late, they’re rude, and they point out every tiny part of the property which isn’t perfect, it may be a good indicator that they’re going to be quite a demanding tenant. Ask the letting agent how the tenant came across. Even if they’re offering the most money, you may decide that their attitude simply isn’t worth the extra £50 per week or so.”
– Jo Eccles, managing director at Sourcing Property
“Most tenancies that do go wrong, do so before the contract is even signed. By this, I mean that either the estate agent or the client have neglected to act on signals that a prospective tenant may not be up to par. The process of renting in London is relatively straightforward. It can be a red flag if a tenant makes this process complicated.”
– Tim Hassell, managing director at Draker
Meet your tenant face-to-face
“Try to actually meet your prospective tenants; as much as an agent might paint a very good picture of anyone who wants to rent your property, I’ve always felt that it’s good to put a face to a name. In my past experience, the tenancies where this has happened have always gone smoothly as people feel like they know who they are dealing with.”
– Anton Neil, senior lettings manager at Haus Properties
Make sure they can afford it
“As a guide, their annual household income should be at least 30 times the monthly rent if they are to comfortably pay the rent each month. Other factors to consider are the length of their current employment – this should be for at least the length of the tenancy so they can demonstrate a continued, fixed salary.”
– Chris Boswell, east London lettings director at Johns & Co
“Affordability is key; a stable tenant needs to be living comfortably, not over-stretched so we make sure that household income is at least double the rent.”
– Sophie Lau, head of sales & marketing at Fizzy Living
“Make sure that you see the reference checks that the agent you appoint carries out. It might seem like an obvious one, but a lot of agents do not show these reports to their landlords and they contain a lot of important information, such as credit score, credit history, as well as the questions asked to the previous landlord and the employers.”
– Anton Neil, senior lettings manager at Haus Properties
Especially if they’re from overseas or self-employed
“A frequent obstacle in the prime central London lettings market is that many prospective tenants relocate from overseas, which means they do not have any history in the UK. The best place to start is to check whether they are relocating with a company, who will act as guarantor, or whether they are moving on their own. If the tenant is self-employed and does not have a UK accountant who can verify and quantify their annual earnings, we would advise landlords to ask for payment in advance of the tenancy.”
– Tracey Cumming, head of lettings at Jackson-Stops & Staff
Be flexible for the perfect tenant
“Many landlords make the mistake of playing ‘hard ball’ with the rental price; their property is often not in optimum condition, and they can forget that the incoming tenant is paying rent to stay in the property. It is paramount to remember that a tenancy is a ‘two way street’ and a mutual respect between a landlord (and their agent) and tenant is crucial to ensure both parties work together to maintain the property.”
When the author John Lanchester was writing Capital, his 2012 novel about London’s spiralling property market, he chose to set it in Clapham in 2008. There, house prices were rocketing as quickly as his characters’ lives were unravelling. However, by the time the BBC adapted the novel last year, Clapham was no longer suitable, it seems. The film-makers transposed the drama to still-gentrifying Balham and Tooting. By then, Clapham had arrived.
“The best addresses in Clapham have joined the £1,000 per sq ft club,” says Robert French of Knight Frank.
“It’s something that people aspire to join.” According to French, the best streets in this part of south-west London are The Chase, Macaulay Road, Old Town and Clapham Common North Side, which, he adds, have been teetering on the £1,000 price point for some time.
The larger homes on Clapham Common West Side have also reached this price level, says Robin Chatwin of Savills. “A view over the common will add a 5 to 10 per cent premium over properties in adjoining streets.”
Clapham used to be thought of as a “stepping stone before a move out to the country”, says Sophie Chick, associate director of residential research at Savills, but today it attracts buyers who want to put down permanent roots. Chick says more than half of Savills’ buyers and tenants in Clapham in 2014 and 2015 moved from within the area.
The smattering of smart restaurants, bars and cafés along Clapham High Street, combined with access to large green spaces, is making buyers question their desire to move on, says Philip Eastwood, partner at The Buying Solution. “There is also the concern that continued London property price growth means that a move out of the city might well mean you can’t buy back in.”
Not even schooling drives Clapham-based families to up sticks these days. In fact, many families move to the area for its high-performing state primaries such as Honeywell and Belleville, or independent schools Broomwood Hall and Eaton House.
Some homeowners decide to pack their children on the train to Surrey for day schools, says Robin Chatwin of Savills, then “the parents have an easy commute to the City”.
The increased stamp duty on homes priced at more than £937,500 is also encouraging more homeowners to stay put. “We are seeing a lot of families enlarge their properties through basement digs and loft extensions,” says Eastwood. “Ultimately, this reduces the number of properties on the market, which keeps prices high.”
Despite rising prices, some of Clapham’s neighbours are still making it look like good value. According to French, Battersea is 25 to 30 per cent more expensive. “The huge development around Nine Elms is driving values up there,” he says.
The price difference is more marked when comparing Clapham with prime markets north of the Thames. Savills estimates a quarter of Clapham’s buyers come from one of three boroughs: Kensington and Chelsea, Hammersmith and Fulham, and the City of Westminster.
“We are arriving on people’s search lists that we would never have been on before,” says French. “We’re seeing people who say they are searching between Chelsea and Marylebone, then they buy in Clapham Old Town.”
Knight Frank is selling a 3,305 sq ft, six-bedroom house on Orlando Road, just off Old Town, for £3.29m. Savills, meanwhile, is marketing a five-bedroom, semi-detached house on Clapham Common West Side for £3.3m.
What sets Clapham apart from most of central London — and neighbouring Battersea, for that matter — is its buyer demographic. While in the rental market Australians are a prominent bunch, increasingly family owner-occupiers are replacing them, says French — and they’re mostly British. “I’d say 90 per cent of buyers in Clapham Old Town are now British,” he says.
Prices cannot rise indefinitely, though. Some agents feel the slowdown in central London will start to affect Clapham and its neighbours — and sooner rather than later. “Prices in the best areas of prime central London are down 7.5 per cent since the 2014 peak and it’s my belief that what starts in [the centre] will filter out into outer-prime London, which includes Clapham,” says Caspar Harvard-Walls, partner at Black Brick buying agency. “By the end of 2016, I expect the best stock in these outer-prime locations will have seen a price drop of up to 10 per cent.”
If that is the case, perhaps John Lanchester might consider returning to Clapham in a few years’ time for a Capital sequel.
Buying guide
In 2015, the average home sale price for Clapham, Battersea and Wandsworth was £728,000—a third higher than the Greater London average
The most expensive area is between Clapham and Wandsworth commons, which is the only ward in Clapham with an average sale price of more than £1m
Clapham is within the boroughs of Wandsworth and Lambeth. The former, has one of London’s lowest council tax rates. Lambeth has one of the highest
What you can buy for . . .
£500,000 A two-bedroom flat
£1m A two-bedroom unit in a new-build
£5m A six-bedroom family home overlooking Clapham Common
There is no mistaking South Kensington for any other part of prime central London. Where else has so many museums, so many wide, leafy streets and so much French chatter coming from the children on their way to and from school? Right now, however, it shares one overriding similarity with its neighbours — a depressed housing market.
Transactions in 2015 across all price ranges in South Kensington — an area of London famed for its French buyers — were down 17.4 per cent compared with the previous year, according to property data company LonRes. The number of £5m-plus sales in the area dropped 45 per cent over the same period.
It is the same story as in the rest of prime central London. Higher stamp duty on homes priced above £937,500 coupled with economic jitters over oil price falls and slowing economic growth in China have undermined confidence and, with it, the number of transactions.
That malaise has hit prices. Knight Frank says the SW7 postcode has seen prices drop 3.3 per cent in the year to January 2016, making it the worst performing central London location aside from Knightsbridge. The buying agency Black Brick, for example, has just negotiated the purchase of a South Kensington flat for £545,000 below asking price — a 15 per cent reduction.
If that sounds like a bargain, don’t feel too sorry for local owners: they have done rather better over the longer term. Not only have they seen substantial capital appreciation — 45 per cent over the past five years and a remarkable 155 per cent since 2006, says LonRes — but they also enjoy what some describe as the prettiest parts of central London.
Estate agents regard Onslow Square and Onslow Gardens as the most desirable addresses in South Kensington, with their white-stucco period buildings and attractive gardens. Nearby Tregunter Road, The Boltons, The Little Boltons, Pelham Crescent, Rose Square and Harley Gardens are also popular. A few houses are split into flats but most remain family homes overlooking pretty squares.
“South Kensington has a very European feel, complete with a French lycée, good restaurants, the French market and European-inspired architecture,” says property consultant Charles McDowell — who specialises in buying and selling £5m-plus homes in the area.
French buyers remain a significant group, he says, despite the opening of French schools in less expensive areas such as Battersea and Wembley. “Since 2010, there’s been an increase of 40 per cent in the number of French moving to SW7 and it’s going up,” says Amy Rogers of the Carter Jonas estate agency.
Other agents say Italians and Greeks are buying too, adding to the area’s European feel. “It typically attracts fewer Middle Eastern or Russian buyers who prefer modern apartments and houses found in Belgravia,” says Charlie Bubear of Savills.
In fact, the lack of new, premium-priced pads is cited by some local agents as the reason prices have fallen more in South Kensington than in most neighbouring areas.
The dominance of renovated period properties has advantages, though. “South Kensington can offer substantial lateral space not often found in other prime central London districts. Large family-friendly flats offer a natural alternative to traditional Chelsea town houses arranged over five or six floors,” says Simon Rose of Strutt & Parker.
With demand sluggish, there is no shortage of stock. Savills is selling a recently refurbished, three-bedroom apartment in Onslow Gardens for £4.95m. It has 2,214 sq ft of internal space set within a grade II-listed period house. A four-bedroom house — small by the area’s standards at 3,100 sq ft — on Clareville Street is on sale for £6.5m through Lurot Brand estate agents.
At nearby Queen’s Gate, Knight Frank is selling a four-bedroom, 3,000 sq ft apartment for £6.5m, while on Hereford Square, a short walk from Gloucester Road Tube station, a six-bedroom family house is available through Aylesford International for £12m.
Soon on the doorstep of these period properties will be one of London’s biggest residential new-build quarters — and it might just help revive the flagging property market. “Earls Court’s regeneration, just 10 minutes’ walk from South Kensington, will have a huge impact,” says Robin Paterson of Sotheby’s International Realty. “At 80 acres it will be the same size as Soho.”
Rather than tempt buyers away from South Kensington, Paterson says the new district’s high-end retail and restaurants will bolster the area’s appeal. “South Kensington will benefit from being close to a regeneration area,” he says. “And, [in turn], Earls Court will benefit from being so close to one of London’s most prestigious locations.”
Buying guide
South Kensington is home to the Victoria and Albert Museum, Science Museum and Natural History Museum
Average house prices near the Tube stations of South Kensington and Gloucester Road are £2.29m, according to online estate agency eMoov
In December 2015, the crime rate in the Courtfield ward, which covers much of South Kensington, was 9.53 per 1,000 residents, which is less than the borough average of 10.82 per 1,000 residents
What you can buy for . . .
£1m A one-bedroom, ground-floor flat with access to a communal garden
£5m A three-bedroom duplex apartment
£10m A semi-detached family house with four bedrooms
According to the old adage: “When the United States sneezes, the world economy catches a cold.” Recent events have taught us that it is not only American snuffles that can spread far and wide. The Chinese economy has stalled, its stock market has faltered and there is panicky talk of a global slowdown.
Several large commercial property deals that hinged on Chinese investment have fallen through, and in residential property markets there are rumours of several investors pulling out or rapidly flipping properties in redevelopment areas such as Nine Elms.
Aberdeen Asset Management recently stated: “Correlations between the London property market and flows of Asian investment are remarkably high, suggesting that if China’s economy keeps faltering, London property markets could be in for a tough time.”
Data from the estate agency Strutt and Parker on where the money for residential property investment in London orginates supports this view. Asian buyers of resale properties fell from 6.6 per cent of the agency’s sales at the end of 2014 to 4.9 per cent last year.
However, a closer look shows that all nationalities have backed off, including northern Europeans, who have fallen from 7.7 per cent in 2014 to 1.6 per cent in 2015, with the growth coming from British domestic (64.8 per cent of buyers in 2015) and expat buyers (8.2 per cent).
So it seems the speculation might be right and that Chinese money is flowing out of London. This month the luxury developer Banda said its search team had noticed that “the prime central London property market is undergoing a shift in the dynamic of overseas investors as Russian and Chinese buyers seemingly withdraw and Iranians and Europeans seek to invest”.
Louisa Brodie, the head of search and acquisitions at Banda, says: “Despite general scaremongering, we are seeing little evidence of a waning in London’s popularity among overseas property investors. It is still the No 1 destination globally, and where Russians and Chinese buyers are withdrawing as a result of external forces, other investors are quickly plugging the gap.
“Many wealthy Iranian families have strong connections with London, so it feels familiar to them. There are concerns that the recent lifting of UN sanctions could be reversed, so we are likely to see people looking to move their money out [of Iran] fairly quickly.”
Dominic Grace, the head of London residential development at Savills, says: “The number of actual mainland Chinese who buy in London is very small — they still find it difficult to get their money out of China.”
He adds that Chinese purchasers tend to favour new-build properties. Savills figures show that last year 23 per cent of purchasers of new-build properties were from China or Pacific Asia (compared with 53 per cent from the UK); for resale properties in prime London it was 3 per cent (compared with 68 per cent from the UK).
The majority of Chinese money in London comes via Hong Kong and Singapore — countries that have, as Grace puts it “poured buckets of cold water over any froth in their own property markets”. This cold water is primarily in the form of punitive taxes. A Knight Frank study shows that, on a $1 million property, buyers would pay 22.4 per cent tax in Hong Kong and 19 per cent in Singapore, enticing investors to look elsewhere, including London, where, in 2015, they would pay 9.7 per cent in taxes. However, London isn’t the only strong property market catching their eyes. Closer to Asia is Australia, whose housing market has been showing strong capital growth (9.8 per cent last year, with house prices 48 per cent above its financial-crisis low), particularly in Melbourne and Perth, Grace says.
Camilla Dell, the managing partner at Black Brick, an independent property buying agency, predicted in September: “The falls in China’s stock market appear dramatic but it is worth bearing in mind that the country’s equity market is less closely linked to the underlying economy than is the case in most developed economies. Recent years have seen enormous wealth built up in China’s ‘real’ economy and that wealth will become an increasingly important factor in markets around the world in coming decades — including London’s property market.”
However, last week she admitted that she has yet to see “huge numbers of Chinese buyers come our way”.
Sungwei Huang, an agent with Felicity J Lord in Canary Wharf, says the Chinese haven’t lost their appetite for British property but that the government’s changes to capital gains tax and stamp duty, including the forthcoming 3 per cent levy on buy-to-let and second homes, have made buyers hesitant.
Huang is hopeful that measures to make it easier to get money out of China will help. The Qualified Domestic Individual Investor programme, which is set for trial in six Chinese cities, including Shanghai, will enable people with at least one million yuan in assets to buy shares in New York, London or Paris. This could lead to more Chinese money being invested in British property.
However, a similar scheme by the Bank of China was closed, less than a year after it started, because demand proved too high.
Huang says there are two distinct types of Chinese buyers in London: those who are looking at expensive high-end prime central London properties, and a much more active lower tier who are interested in buying two-bedroom apartments for between £450,000 and £650,000 as buy-to-let investments or to use while their children study here.
However, some commentators are already turning their attention away from China and towards the Middle East, where political unrest means that investors are searching for a safe haven.
Dell says: “There is plenty of appetite in Dubai, Jordan and Saudi Arabia, where there is political and economic uncertainty. It is perhaps too early to tell whether Iranian money will land in London; at the moment there are some issues with the banking system and getting money out is difficult, but Iran is definitely one to watch.”
Secret owners
There are about 4,000 owner-occupied homes in England and Wales held in corporate envelopes, according to data from the tax office. Corporate envelopes are where a property is bought under a company name rather than an individual’s name and are often associated with mansion-buying oligarchs seeking anonymity.
It was hoped that the introduction of the Annual Tax on Enveloped Dwelling in April 2013 would raise substantial amounts for the treasury.
Analysis of the latest data by London Central Portfolio (LCP), a residential fund and asset management company, shows that 3,990 properties (0.02 per cent of the UK’s total housing stock) were held in corporate envelopes nationwide in 2015.
The owners of these properties paid £116 million to the treasury last year. The majority of the tax was paid on properties in London (£103 million), while £11 million came from homes in southeast England and the remaining £2 million from properties elsewhere in the UK. “These statistics show that numbers are less than a fifth of previous estimates. While the official numbers will increase when the tax bands extend to lower-value properties [the tax applies to properties worth from £500,000 from April 2016], this is unlikely to be significant as such properties are not usually bought in corporate wrappers,” according to LCP.
Should we be morally outraged by the phenomenon called “buy to leave” or should we dismiss it as a tiny if inevitable consequence of a resilient housing market?
Politicians and estate agents use the term for properties bought as assets, intentionally and permanently left unoccupied until they appreciate and are sold at some later date.
With prime London housing prices rising 73 per cent from March 2009 to November 2014, according to Knight Frank, the existence of buy to leave is perhaps unsurprising.
Yet while the capital’s Evening Standard newspaper claims buy to leave is so prolific it has created “ghost towns of the super-rich”, no one knows for sure how big the problem is, and in the absence of any central database the authorities resort to educated guesswork.
Kensington and Chelsea’s Conservative council, for example, has used 2011 Census data to find 9,169 flats and houses classified as vacant — 10.5 per cent of the borough’s total housing stock. The same authority’s 2012 council tax returns show 10,564 empty homes, which is 12.1 per cent of the stock. Some “empties” may be second homes of people living chiefly out of London or out of the UK; some, however, will be intentionally vacant.
Labour-run Islington, a north London borough, has adopted a Supplementary Planning Document requiring all new homes built within its boundaries to be regularly occupied in an attempt to prevent buy to leave.
“New homes have to, at the very least, be lived in. I think that’s a pretty reasonable thing to ask,” says James Murray, the council’s housing spokesman.
One by-product of this debate is the agreement between political opponents that buy to leave is in some way damaging. Conservative Zac Goldsmith and Labour’s Sadiq Khan — the two leading candidates in May’s election for Mayor of London — have both called for the curbing of buy to leave, with Khan specifying that he would use planning powers to restrict it.
Many property industry players appear to agree that it has had a detrimental effect.
“Buy to leave is endemic in prime central London and the new-build sector. [It is] a grave issue in a city where many people are looking for somewhere to live,” says Guy Meacock of Prime Purchase, the buying arm of Savills.
“The more international an area, the more common it is. There’s an arc from Knightsbridge through Belgravia, Mayfair and up as far as St John’s Wood and Hampstead where this has been especially popular,” says Roarie Scarisbrick of Property Vision, a buying agency.
“One Hyde Park must be the most high profile. It’s only 30 per cent occupied at any one time and some of the apartments have never been occupied,” says Mark Parkinson of Middleton Advisors, another buying agency.
The temptation to leave properties empty is enhanced not only by stubbornly low interest rates on traditional savings and investments, but also by relatively poor rental returns for those letting out units with high capital values. Knight Frank claims that gross rental yields in prime central London fell to 2.93 per cent in the second half of 2015, with reduced demand for units from the financial services sector, a key customer. In these circumstances, some investors rely on long-term capital appreciation without the hassle of letting out a property.
The practical effect of buy to leave is not restricted to the night-time phenomenon of blocks of flats with few lights on, however. “I was struck by how shabby Knightsbridge is looking with shops closing down. Now at night it’s a pretty dull place,” says Mark Parkinson.
Buy-to-leave purchasers prefer new-build units in managed blocks but for owner-occupiers in the same buildings, services can be impaired if most properties are empty. “It can really demotivate porters and other service providers if they’re sitting in what is essentially a deserted building all day,” says Jo Eccles of buying company Sourcing Property.
Not every part of the property industry is against buy to leave, however.
I was struck by how shabby Knightsbridge is looking with shops closing down. At night it’s a pretty dull place- Mark Parkinson
In the local consultation surrounding Islington’s anti-buy to leave planning policy — which insisted any new-build unit should not be left empty for more than three months — estate agency Savills registered its concerns “on behalf of a client”.
It said that a consequence of the new rule might be reduced contributions by developers towards more affordable housing. “Our key concerns centred around the ability of investors to secure development finance and for buyers to secure mortgages with such onerous obligations imposed (that is, the three-month vacancy measure),” a Savills spokesperson said. According to the estate agency, buy to leave is a sideshow to the main story: the lack of affordable housing.
Meanwhile, last summer the Canary Wharf Group, embarking on 3,200 new homes plus offices and community facilities in one of London’s two main financial centres, marketed one 345-unit block to “UK-based buyers first”. The group wanted to counter any criticism of allegedly excessive overseas ownership and to counter any portrayal of the scheme as having empty flats.
Those anticipating that buy to leave may have been stopped dead by prime central London’s stark housing slowdown after the late-2014 introduction of higher stamp duty for properties above £937,500 appear to have been proved wrong.
In the year to December 2015 prices in Knightsbridge fell 6.1 per cent, according to Knight Frank. In South Kensington they fell 3.7 per cent and in Chelsea 2.7 per cent.
Yet buy-to-leave purchasers appear more concerned by plummeting oil prices and falling, according to those who help them find London investment properties.
“Investors want a safe haven and real estate in London falls into that category,” says Caspar Harvard-Walls of buying consultancy Black Brick.
As if to prove the point, Sam McArdle, of The Buying Solution, says he has just assisted a Bahraini purchase a £2m home in Chelsea. The client will not be using it, as he prefers hotels during visits to London. “He’s merely seeking market stability — unlike in his home region,” says McArdle.
Is that an outrage given London’s housing shortage, or a logical investment? Perhaps it is both.
London’s beleaguered first-time buyers are facing a fresh challenge: an onslaught of investors swooping on property in a rush to beat an increase in stamp duty for buy-to-let homes scheduled for April 1. Sealed bids are back and cash is king if you want to close the deal.
According to Connells estate agents, the number of buy-to-let valuations carried out in December leapt 86 per cent year-on-year after Chancellor George Osborne announced the tax hike in his Autumn Statement.
Buying agent Garrington reports registering 38 per cent more buy-to-let clients so far this month compared with January last year.
The unforeseen impact has been what buying agent Sara Ransom, director of Stacks Property Search, described as a “mini bubble” as investors rush to buy property before the deadline, hiking prices and increasing competition for first-time buyers already struggling with tough mortgage conditions and high deposit demands.
“Most popular are flats and small houses priced between £300,000 and £450,000, which appeal to first-time buyers and investors alike,” says Jeremy Leaf, principal at Jeremy Leaf & Co estate agents. “Consequently, prices for this type of property are hardening.”
Some less-reputable estate agents are said to be ignoring best practice. First-time buyers are telling Homes & Property that agents are finding it so easy to sell property, they fail to attend booked viewings and will only accept sealed bids with no negotiation. Even when prospective buyers do make the highest bid, it is claimed they are often thwarted by investors making last-minute cash offers.
One first-timer told us she put in a “final offer” having been advised by the agent how much to bid to be successful, only to discover the agent had organised more viewings for the next day. She was outbid by someone in the second wave of viewings.
In Surbiton, Amy Claydon, branch manager of Leaders estate agents, said investors are on the hunt for one- and two-bedroom flats priced between £250,000 and £450,000. One recent contest over a flat was won by an investor because, said Claydon, her vendor was impressed by their “urgency to purchase in the next eight weeks, compared to a first-time buyer having no deadline to work to”.
Buying agent Caspar Harvard-Walls, partner at Black Brick, agrees investors’ ability to move quickly is putting them in the driving seat when it comes to sealing a sale — particularly if they can pay cash. “The other issue from the first-time buyer’s perspective is that the agent might prefer to sell to a buy-to-let investor as they could benefit from letting and managing the property on an ongoing basis,” he added.
Another issue is the “greenness” of first-time buyers. Barclay Macfarlane, head of Strutt & Parker’s Fulham branch, said nervy novice buyers sometimes let sales slip through their fingers. “I handled a sale where a cautious first-time buyer was put off a purchase because of some damp that was picked up in a structural survey — an experienced investor was offered the contract and completed the purchase in just 10 days,” he said.
The good news for first-timers is that experts agree the current situation is a temporary one. “The balance of power should shift toward first-time buyers after April, as demand from buy-to-let investors recedes,” said Paul Smith, chief executive of Haart estate agents.
Jonathan Hopper, managing director of Garrington property finders, agrees that buy-to-let demand will “fall away”. “With many existing landlords likely to start selling up in the run-up to next year’s reduction in mortgage tax relief, much more stock will come on to the market,” he added.
And Sam McArdle, investment property buyer at The Buying Solution, believes there might be particular bargains to be had in the new-build sector, where about 60 per cent of homes have historically gone to investors.
“It is most likely that this market will be hit hardest,” he said.
But while this could mean widespread discounting on new homes in the short to medium term, he believes period homes — “where first-time buyers and owner-occupiers living and working in the city are and always will be transacting on” — could be a safer investment for buyers.
