April 2018

Maximising yields in a tough market

London has been a tough market for landlords over the last couple of years. Rents in Prime Central London fell 2.1% year-on-year in February, representing two years of rental declines in London, according to Knight Frank. However, the estate agency sees the market beginning to turn, as an uptick in the sales market is leading to a reduction in supply of rental properties.

Nonetheless, it remains vital for landlords to maximise the yields they can achieve from their property, and we thought it timely to remind clients of the advice we give to landlords using our property management service.

“Get the price right,” says Camilla Dell, Black Brick Managing Partner. “It might sound obvious, but too many landlords resist dropping their prices a few percent, and instead find their property goes unlet for several weeks or even a couple of months.” An empty property isn’t earning a penny, meaning that even a fairly short empty period is worse in yield terms than a modest reduction in rent.

This point can be particularly important for owners of properties in new-build developments, where service charges can be relatively high – and which still need to be paid if the property is lying empty.

The choice of agent can be critical as well, says Dell. “One of the advantages of our management service is that we don’t find tenants directly, but instead we give our clients transparent and independent advice on the best agents for the location and the type of property.” For example, in a new development, it can sometimes make sense to avoid the main rental agent or agents – they will have a huge amount of supply initially, and your property will just be another number. Using a different rental agent can open up your property to a different market and they may value your property more – especially if it gives them an “in” into a new development. Again, it’s important not to be obsessed by fees: an agent who can quickly find a tenant justifies a higher commission.

We also advise our landlords to be flexible on furnishing. Presenting the property unfurnished will save on costs, but it’s important to be prepared to furnish the property if required. We work with a number of furniture staging companies and interior designers who can transform an empty property into a “show flat” at very competitive prices.

Finally, it’s important to be able to trust your agent to find the right quality of tenant. They should perform checks to comply with the right to rent regulation – to ensure that all tenants over 18 are entitled to live in the UK – and follow up on at least two references. A good agent will also find tenants who will pay rent in a timely fashion, and be respectful of the property. Our property management service also includes ongoing repairs, maintenance and refurbishment to ensure that properties hold their rental and capital value over time.

“It might be a tough market for landlords, but with the right advice there’s no reason that they can’t maximise the rental yields they can achieve on their properties,” says Dell.

Brexit deal turns down uncertainty dial

Without doubt, the uncertainty surrounding Brexit has been weighing on the London property market since the referendum in June 2016. Last month saw some real progress, however, in the negotiations between the UK government and the rest of the European Union on the shape of the post-Brexit relationship.

On 19 March, the two sides reached a conditional agreement on the UK’s transition from the EU. The transitional period will last from 29 March 2019, the date the UK officially leaves the EU, until the end of 2020. During that period, EU citizens arriving in the UK will enjoy the same rights as at present, as will UK citizens travelling to the UK.

The negotiations will now move to the future relations between the UK and the EU after 2020, including on trade.

There are some difficult political issues left unresolved – notably the status of Northern Ireland, and legal oversight – but this pushes back fears among business of a ‘hard Brexit’ next March. Crucially, however, the progress made is not set in stone: nothing is agreed until everything is agreed, according to EU negotiating practice, although the plan is for a deal to be sealed in the autumn.

“We’re not there yet, but this agreement does move us a lot closer to an ultimate agreement on what the UK’s relationship with the EU will be after Brexit,” says Caspar Harvard-Walls, Partner at Black Brick. “And we’re now looking at more than two and a half years of business as usual. That’s got to inject some confidence back into the property market.”

And London keeps its top spot

Meanwhile, London has retained its top spot in another closely watched indicator of the city’s position in the world. The Global Financial Centres Index (GCFI), published by think-tank Z/Yen, has London in first place, followed by New York and Hong Kong.

But, New York is closing the gap. Only one point – out of a total possible score of 1,000 – separates the two cities, after New York rose 37 points compared with a rise in London’s rating of only 14 points.

“The uncertainty created by Brexit has influenced London-based respondents who are significantly less confident about London’s future than respondents from Paris and Frankfurt feel about their home centres,” Z/Yen said.

It quotes one London-based investment banker: “I wish that the Brexit negotiations would speed up. We seem to be in the same position of deep uncertainty as we were a year ago.”

“We certainly share that frustration,” says Dell, “but we’ve been encouraged by the resilience shown by the City of London, and by the fact that predictions of a great exodus of financial sector workers to other European cities have proven overdone. We’re confident that London will retain its role as a leading financial centre, and that it will remain as a more attractive place to live than any of its rivals.”

How prime markets stacked up in 2017

Knight Frank has published its latest edition of its PIRI 100 index, which tracks the performance last year of the world’s leading prime second home and city residential markets. Overall, the index was up 2.1%, compared with 1.4% the previous year, with two-thirds of cities and regions tracked either steady or higher than in 2016.

The runaway winner last year was Guangzhou in China, up 27.4%, followed by Cape Town at 19.9% and Aspen, in Colorado, up 19.0%.

Four of the top-ten cities were in Europe: Amsterdam, Frankfurt, Paris and Madrid. This compares favourably to 2016, when many prime residential markets on the continent were still in recovery mode, Knight Frank notes.

It won’t come as a surprise to many readers to find that London didn’t perform very well – it was ranked at number 72, declining 0.7%. However, this was an improvement on the prior year, when it was in 92nd place.

In terms of affordability, London is in fourth place, behind Monaco, Hong Kong and New York: $1 million buys 28 square metres of prime London property, compared with 16 sq metres in Monaco.

The agency concludes that the outlook for 2018 is that “economic growth will continue to support prices, but performance could be tempered as more central banks start to raise interest rates.”

Black Brick in Hong Kong – 24th to 26th April 2018

Black Brick Partner Caspar Harvard-Walls will be visiting Hong Kong later this month. He will be meeting with both existing and prospective clients, private banks, law firms, accountancy firms and other professional intermediaries. If you are based in Hong Kong and would like to arrange a meeting with Caspar to discuss your property requirements or working with Black Brick in a business to business capacity, please get in touch.

Email: chw@black-brick.com or tel: +44(0)203 141 9864

Acquisition of the month – Blenheim Road, St John’s Wood, NW8, £4,400,000.

Our clients, long-term residents of Maida Vale, decided that recent reductions in prices and the availability of cheap lending provided an opportunity to upgrade to a larger family house. They were looking for a property suitable for them and two older children, with adequate bedroom and living space, in good condition, and close to the tube. While the initial search generated 30 potential houses, the reality was that only a very few were both sensibly priced and suitable.

After an abortive transaction on a Grade II listed house where we discovered that the owners had failed to obtain the necessary planning consents, we finally managed to identify a much better alternative. With four beds, all en-suite, ample entertaining and reception space, outside space and off-street parking, the house ticked all our clients’ requirements. The vendors were relocating, and thus highly motivated – and we were able to view the house before it came to market.

Our early viewing led to a price being agreed at £4.4 million – well below the planned asking price of £4.75 million. We saved our client 7.3% from the asking price, equating to a very competitive £1,600 per sq. foot. Recent house sales in the area have been achieving as much as £1865 per sq. foot. 

Managed sale of the month – Ebury Street, Belgravia, SW1, £1,895,000.

We’ve been instructed to sell a fantastic two-bedroom second-floor apartment in a purpose built development in the heart of Belgravia. Located in a building with a 24-hour concierge, the property boasts two bathrooms, underground parking, and is in immaculate condition.

The development is close to the shops and restaurants of Sloane Square and Knightsbridge, and to the transport links at Victoria Station. It comes with a guide price of £1.895 million.

For further information or to arrange a viewing please contact tom.kain@black-brick.com or call +44(0)20 3141 9861.