July 2018

A changing prime property market

As we have cautioned many times, relying on forecasts of how London property is set to perform is fraught with danger. Much more reliable is a backward look at the decisions that people have actually made in terms of buying and selling London prime property.

With that in mind, we recently reviewed the transactions we have carried out for our clients over the last 12 months to see how they are approaching the market and what their motivations are. We then compared them with transactions in 2014, before a raft of tax changes were introduced. The findings are instructive – and striking.

While the number of deals is broadly similar the mix is quite different. In the last year, more than half (53%) were looking for a pied a terre, compared with 24% in the earlier period. And slightly more were looking for a family residence in 2017-18, at 42%, compared with 34% in 2014.

But the most striking change is in the collapse of demand for buy-to-let properties. In 2014, more than a third (38%) of our searches were for rental investment properties. Last year, the figure had fallen to 5%.

This will come as no surprise to regular readers of this newsletter. The previous government set out to discourage buy-to-let investment in favour of owner occupancy and, with changes to Stamp Duty and mortgage interest tax relief, they’ve succeeded in spades.

On the other hand, rather than deterring purchases, in our experience the government has mostly succeeded in changing the purpose to which properties are put. Instead of seeking to earn buy-to-let income, our clients have instead opted to use properties as a second home, or have instead gifted them to children. This allows them to remain exposed to the London property market, without the hassle and expense of letting the property.

Another change we are seeing is greater interest in dilapidated properties that offer development potential. We are seeing properties come to market that may have been with one owner for 30 years or more, and which are in need of considerable cosmetic work, or which have the potential for extension. In the current market, developers are struggling to see the margins they would require to take on such properties, leaving an opening for owner-occupiers.

“For a buyer prepared to invest some time and money, these properties offer great potential and a sure-fire way to add value even in a sideways-moving market,” says Camilla Dell, Managing Partner at Black Brick.

We recently found such a property in Kensington for a client with a growing family. It needed renovation, but also had permission in place for extensions to almost double it in size. We secured the house for £4.85 million – a 19% discount to the asking price.

This time of year can also be good time to make a move, notes Caspar Harvard-Walls, Partner at Black Brick. “As with the run-up to Christmas, summer is a great time to buy – people are distracted by holidays and, this year, the World Cup – there’s less competition for the best deals.”

“Now is potentially a great opportunity to pick up some good stock, but buyers need to be strategic: they need to be very careful where and what they buy,” he says. He adds that there are a growing number of buyers out there who take the view that, once there is more certainty regarding Brexit, London property will see strong growth. “What we’re seeing time and again is that, despite the negative sentiment, there’s amazing demand for good quality properties.”

More signs of a market on the turn

Notwithstanding our caution, above, regarding industry forecasts, two recent reports suggest that prices in prime central London might be on the turn, reinforcing recent signals.

According to the latest research from JLL, prices across the whole of PCL grew 0.3% during the first quarter of 2018 – the first quarterly rise for a year. Its data shows that price growth has been strongest for two-to-three bedroom houses, typically in the £2-5 million price range. “Furthermore, prices in the submarkets of Mayfair, Chelsea and South Kensington have been firmer in Q1 than elsewhere across Prime Central London,” it adds.

While JLL’s analysts are cautious, given continuing uncertainty, they are on balance optimistic:  “We expect a small proportion of owners will put their homes on the market soon, as this new phase begins. Encouragingly, this will at least create a slightly more active marketplace. So we expect transaction levels in the sales market to remain low but nudge up gradually for the remainder of the year while prices remain largely static.”

Similarly, Knight Frank’s latest update finds the number of prospective buyers rising, with a 13% increase in new buyers registering since January 2016, “as asking prices more fully reflect higher rates of Stamp Duty.” The ratio of new prospective buyers to new sales listings, which is an indicator of the strength of demand versus supply, has strengthened in the last two months.

However, the agency notes that “buyers are scrutinising the market more closely amid wider political uncertainty,” meaning that viewing levels rose 35% over the same period and the average number of days on the market rose by a quarter.

Overseas investors bet big on London

In evidence of the continuing attractiveness of London’s prime market for overseas investors, two large deals have been announced in recent weeks.

Indian real estate developer ABIL Group has paid more than £90 million for 5 Strand, a 73,000 square foot building next to Trafalgar Square. The property, currently a mix of offices and retail, comes with consent for a new development with double the square footage, of which half would be prime residential apartments.

Meanwhile, Saudi investor Arbah Capital has announced up to £50 million in financing for the £500 million Regent’s Crescent project in central London, in a vote of confidence in the capital’s prime residential market. The project will see the rebuilding of the Grade 1 listed building, built in the 1800s and designed by John Nash, the architecture who built Buckingham Palace.

The development comprises 76 high-end units, overlooking Regent’s Park, and is scheduled to be completed in the first half of 2020.

“These investors are backing London’s prime property market,” says Camilla Dell, Managing Partner at Black Brick “but it’s worth noting that, in a lot of high-end projects such as this, developers are considerably more cautious than in previous years, providing opportunities for buyers.”

“Given the uncertainty in the market, they are often looking to take some risk off the table, and we’re finding that they’re often willing to do off-market deals at a discount to reduce their exposure to future prices,” she says.

She adds that, a few years ago, developers of big schemes would often not allow buyers to take more than one property: “Now, we’re seeing a willingness to do bulk deals. This can be an attractive way of investing, particularly for high net worth clients, who can buy into schemes at a heavily discounted rate, and can also benefit from lower rates of stamp duty when purchasing six or more units”.

Rental search of the month – Rathbone Square, Fitzrovia, W1 – £6,500 pcm

Our Rental Search Service allows clients relocating to London to get to know the city before committing to buy – while helping them avoid some of the pitfalls that can be found within tenancy agreements. In this case, our client had relocated from Hong Kong and was looking for a modern, two-bed apartment, in a portered building close to Euston in central London, and with good views.

We identified a brand new two-bedroom duplex apartment measuring over 1,000 square feet, in one of the best new developments in W1. The development includes a 24-hour concierge, swimming pool and cinema room. Located on the 4^th floor, the apartment has an attractive balcony overlooking a courtyard garden, and also benefits from underfloor heating and air-cooling. We managed to secure the apartment at very short notice, when a previous tenancy agreement had fallen through, and we managed to negotiate additional furniture items our client wanted prior to moving in. We also managed to save our clients money: they originally had given us a budget of up to £9,000 per month to work with, but we managed to secure this apartment for £6,500 per month.

Managed Sale of the month 1 – Cranley Gardens, South Kensington, SW7

Asking price: £3,450,000

We are delighted to be bringing to market a classic first floor flat on one of the best streets in South Kensington. Cranley Gardens runs between the Old Brompton Road and Fulham Road, close to a wide range of restaurants, shops, cafes and boutiques.

The 1,333 square foot apartment, which has been recently refurbished, has two bedrooms, both with ensuite bathrooms, and a spectacular reception room with floor-to-ceiling windows and a balcony with views over beautiful communal gardens. First floor flats in this area rarely come onto the market; this is a unique opportunity to purchase a very special property.

To arrange access please contact: Caspar Harvard-Walls on chw@black-brick.com or call +44203 141 9861

Managed sale of the month 2 – Norland Square Mansions, Holland Park, W11

Asking price: £850,000

Our client is looking to sell an apartment bought through Black Brick several years ago and which has performed well as a rental investment. 5 Norland Square Mansions is a well-proportioned one-bedroom property within a popular portered block in Norland Square, one of Holland Park’s most popular private squares. The east-facing flat has direct views over the square and tennis court.

It is currently tenanted at £550pw, offering a 3.3% yield at the asking price, although the tenant can be given notice (two months) if required. The flat is in very good condition and could continue to be let, or would make an ideal pied-a-terre.

To arrange access please contact: Caspar Harvard-Walls on chw@black-brick.com or call +44203 141 9861