June 2009

Plunging in: Buyers are taking a fresh look at the property market

June is traditionally a month which sees Englishmen donning their best pair of shorts and dipping their toes into the icy waters of the nearest seaside resort. Enthusiasm for another traditional English past-time – house hunting – was notably absent from the UK property market last summer, but this month it seems that would-be property owners are lining up to take the plunge, despite the broader economic temperature remaining decidedly cool.

Black Brick receiving unprecedented numbers of enquiries

Here at Black Brick Property Solutions, the team are experiencing unprecedented levels of enquiries from existing and new clients, for whom the prospect of securing attractive discounts on prime Central London property outweighs concerns about the challenging economic background. Camilla Dell, Managing Partner, explains: “We expected the prime Central London market to stage a relatively swift recovery, but we have been pleasantly surprised by the extremely high levels of interest being registered from new buyers over recent months. Inevitably, the sheer number of people returning to the market in search of a heavily discounted property is creating fierce competition for the best on offer, meaning we are working harder than ever to secure preferable deals for our clients”.

Positive news abounds from the industry’s leading institutions…

It seems that many buyers may be taking their cue from the more positive sentiments expressed by the industry titans. As the Nationwide Building Society reported on a 1.2% rise in May prices, the biggest one-month increase since late 2006, the Royal Institution of Chartered Surveyors (RICS) released its most upbeat survey in several years, announcing that April’s benchmark report of surveyors’ price reviews showed a “marked improvement”. With new buyer enquiries picking up for the six month in a row, the news that actual sales were also on the rise – albeit at a slower rate – was broadly welcomed by the industry.

…and from agents on the ground

Reports from the country’s estate agents give encouragement to those waiting anxiously for signs of life in the sales market. The National Association of Estate Agents (NAEA) said recently that the average agent agreed 10 sales during April, up from eight in March and a low of just five last August. Hamptons International reports that the number of sales rose 27% in April compared with the previous year, and vendors are now three times more likely to secure a sale than a year ago, while Knight Frank’s summer review points out that in November last year, like-for-like sales rates in central London were running at around 60% below their five-year average but by April this had improved to a reduction of 34%.

Sub-£1 million market outshines super-prime, as investment buyers make a comeback

A closer look reveals some interesting trends. Knight Frank’s sub-market analysis indicates that on a three-monthly basis, price declines in the prime areas of Chelsea and Mayfair have showed the fastest reversal. The group also says that three-monthly prices have been most buoyant in the sub-£1 million price band, demonstrating that the entry-level prime market is currently in stronger shape than its ‘super-prime’ (£10 million plus) counterpart. This could be due in part to increased interest from the investment buyer market – a trend that the Black Brick team believes is making a real difference to current transaction levels at this lower end of the prime sector. Having been the first and hardest to fall in the early stages of the downturn, it seems that that prices are stabilising rapidly as investors snap up the cheaper prices on offer.

The story of the moment – a lack of supply

But as sales slowly recover, the force behind the current wave of positive sentiment seems to be a fundamental shortage of stock. The RICS sales to stock ratio, considered a key guide to the future price trend, registered its fourth month of successive rises in April, while a report from the property website Rightmove has revealed that May saw the lowest level of property coming to market in May for six years.

Seriously limited stock in prime Central London…

And in Prime Central London in particular, supply is coming up seriously short. As demand from potential buyers has risen, the number of new properties coming to market is down 45% so far this year compared with the same period in 2008, according to Knight Frank.

…fuelling fierce competition for the most desirable properties

Such an imbalance in the supply/demand dynamic can only fuel competition for the best properties, a trend which has been the standout feature of this market throughout the early summer. Camilla Dell explains: “As a buying consultancy, our objective is to obtain superbly located – but sensibly priced – properties for our clients in some of London and the South East of England’s most desirable areas. Such opportunities are scarce at the best of times but right now they are very few and far between. When they do come up, we are seeing multiple bidders, many of whom are fast-moving cash buyers.” The increased presence of cash buyers is confirmed by estate agent Chesterton Humberts, which recently reported that 17 out of 18 of its sales so far this year had been made in cash.

Finding off-market properties is a key advantage

With gazumping and sealed bids returning to haunt the prime areas of the market, the challenges of a competitive landscape highlight the advantages that a buying agent can bring to the table. “We have extensive resources in the property industry and we are sending all of them into battle on behalf of our clients” says Camilla Dell. “In the present market conditions the biggest advantage we can offer is our ability to identify attractive properties before they appear in estate agents’ windows. We are mining our network of contacts, which includes the insolvency departments of law firms and banks, to identify forthcoming sales and assess them against our clients’ requirements ahead of the competition.”

Looking ahead: Industry leaders appear to be softening their view…

After many months of deliberately subdued forecasts, is it the case that industry leaders are finally cheering up? Speaking recently at the Building Societies Association annual conference, RICS’ chief economist Simon Rubinsohn said that he expects house prices to stabilise from the middle of this year and thinks that reports of a 45% decline in prices were overlypessimistic. “I think the overall decline will be more like 25%-30%,” commented Rubinsohn. There is optimism too from Knight Frank, which highlights a recent pick-up in the corporate lettings market – widely considered a lead indicator of a strengthening or weakening economic outlook for London as a whole – as a sign of better times ahead. In its summer newsletter, the property group says that by April this year, demand in the sector was only 18% below the same level as experienced in 2007 just before the peak.

…but problems in the wider economy can’t be ignored

The view from Black Brick is relatively measured. Whilst there has been a marked return to confidence in London, there are plenty of factors at work in the wider economy that will create ongoing opportunities for buyers in the coming months. Historically low interest rates have so far enabled many people to afford their existing mortgages but as mortgage deals come to an end, we may see a wave of further repossessions as homeowners struggle to refinance against a backdrop of falling property values. Rising unemployment could also lead to an increased number of distressed sales over the coming year, while some commentators have pointed to the potential for the market to falter once again as cash buyers use up their funds and drop out of the game. Given these continued uncertainties, we believe the coming year is ripe with opportunity for investors.

Bruton Place: A unique residential property fund

This July, Black Brick is offering investors the opportunity to capitalise on the prevailing market conditions with the launch of Bruton Place, a specialist residential property fund that aims to maximise long term returns through a focused portfolio of properties purchased at depressed levels, but which we believe can rise significantly in value over time. The Fund, a joint venture between Black Brick and Cinnamon Capital Management, will occupy a unique space in the UK market by being the only vehicle of its type to be listed on AIM – a feature rarely seen in this type of product and one that will give investors a higher level of liquidity at a time when this is of particular importance to many.

Tax advantages for both overseas and domestic investors

“We are hugely excited about this opportunity.” explains Camilla Dell. “Bruton Place will give its investors exposure to what we believe will be a dynamic growth market over the longer term.” The Fund should appeal to individuals seeking a diversified approach to prime residential property investment. Its Cayman Islands domicile makes the fund accessible for overseas investors, particularly those from the US, but as its returns will be in the form of capital gains, it should also be of interest to higher rate UK taxpayers.

London – a long term investment opportunity

“We firmly believe that London property is a play on capital appreciation, rather than on yield,” says Dell. “If you believe in the long term prospects for London, then it makes sense to look at the current downturn as a rare opportunity to gain a foothold in one of the world’s most established property markets.” For further information on Bruton Place, please contact Camilla Dell on +44 (0) 203 393 6090 or +44 (0) 7887 827 176.