September 2018

The case for taking a deep breath – and the long view

As we get closer to the EU summit pencilled in for final agreement between the UK and the EU, and the 29th March date Britain is due to leave the EU, fears are growing of a ‘no-deal’ Brexit, with the profound economic consequences that would bring. Economic analysts are beginning to factor such an outcome into their forecasts, with some housing market specialists talking of the risk that would bring of a property market crash.

Certainly, we would argue those fears are overblown, and a compromise – which is in the interest of both the UK and the EU – is likely to be found. But uncertainty around Brexit is, without doubt, causing some buyers to hold fire.

“This is understandable, but it may be unwise,” says Camilla Dell, Managing Partner at Black Brick. “The amount of pent-up demand in the market means that waiting until everything is resolved would likely put buyers on the wrong side of a big relief rally – and getting the timing right is going to be very hard.”

For example, there is every possibility that agreement will emerge well in advance of the March 29th Brexit date – while, conversely, it is also possible that, if agree can’t be reached on exit terms, Parliament would block a no-deal Brexit, drawing the process out for several more years.

“It’s also important to bear in mind that, for many buyers, they’re looking at a making a long-term investment. They shouldn’t be deterred by potential market volatility around Brexit,” she says.

Dell adds that, despite figures showing overall transaction levels down, deals are taking place – in August alone, Black Brick acquired more than £30 million of property for clients.

Also, there are signs that demand is returning to the top end of the market, as repricing tempts buyers back. Data cited by Knight Frank shows the number of sales of properties above £10 million was 28% up in the three months to the end of July, compared with the same period in 2017; meanwhile, sales of £20 million-plus properties doubled.

We are seeing some of this activity, having just closed a £21 million transaction for a client seeking a family residence in highly competitive Notting Hill Gate. Here in W11, prices have risen 2.1% in the year to June, according to Knight Frank. The estate agency attributes this to “needs-driven buyers such as those moving for schooling or family reasons”, while we would add that it boasts some of the most desirable family homes in the capital, especially those backing on to communal gardens.

“The market is moving,” adds Dell. “There are people that need to sell, because of death or divorce, and those that have simply given up waiting for the market to rebound and who are prepared to offer a substantial discount.”

This is generating real opportunities. Caspar Harvard-Walls, a Partner at Black Brick, reports a recent transaction closed by Black Brick where a buyer secured a property for almost 40% below the price at which it was first marketed in January, and 17% below the price the seller paid for it in 2010. “Whatever happens in the months to come, that buyer has secured real value,” he says.

He adds that, for those buyers seeking to move up the property ladder, with a growing family for instance, the “gap between the rungs” is as small as it’s been for years. “It’s a great time to upgrade.”

Equally, overseas buyers are showing growing interest in jumping back into the London market, including at the top end of the much-mauled buy-to-let sector (see below.) “If you’re looking at an asset that’s going to be generating income for 15 years or more, it makes sense to somewhat discount events over the next year or two,” adds Dell.

Niches open up in buy-to-let

The impact of changes to property taxation over the last few years has had an undoubted impact on the popularity of buy-to-let. However, we are seeing investors looking at the super prime end of the lettings market. 

According to research from Savills, demand from prospective tenants is strong for “best in class properties”.

“Properties that continue to see strong demand, particularly from super-prime tenants (with a budget of more than £4,000 a week), are those that offer the best amenities, are of the highest specification, or offer something unique,” says Savills. “Properties in an immaculate condition can command a premium of almost 17% above the average rent for the prime central London market.” 

This trend is confirmed by Knight Frank, which reports a 29% increase in the number of £5,000-per week letting deals in the year to May, compared with the previous 12 months. Meanwhile, the agency sees supply tightening – with the number of lettings listings down 16% in the year to June, as landlords opted to sell properties in the face of a series of tax increases. Reduced supply is likely to increase yields on remaining properties.

At Black Brick, we are fielding a number of investment enquiries from abroad, notably from Middle Eastern clients, who value the relative political, economic and legal stability of the UK.

We are also seeing niches opening up in the buy-to-let market that offer net yields that are considerably more attractive than those available from deposit accounts or low-risk bonds.

“One effect of the hikes in Stamp Duty on more expensive properties has been to make it uneconomic for expats on a two or three year posting to purchase an apartment for the duration,” says Harvard-Walls. “This is creating rental demand for high-end furnished properties, often with a relatively long-term lease.”

He gives the example of a recent transaction for a Black Brick client, purchasing a one-bed apartment in a new, high-spec development in South Kensington, with a tenant already lined up prepared to pay rent of £175,000/year with a two-year contract. The investment yielded 3.54% net.   

“A lot of new build developments offer fantastic services and amenities, and tenants can turn up with a toothbrush and an overnight bag and they’re off,” he adds. “That appeals to a certain type of international executive who doesn’t have the time or inclination to find, furnish and fit out a property for a year or two, and who certainly doesn’t want to wave goodbye to hundreds of thousands of pounds of Stamp Duty for the privilege.”

Acquisition of the month – Stock House, Elephant and Castle, SE1 – £507,500

Our client, a young first-time buyer relocating from Germany, was looking for a new-build development in Zone 1, preferably with an onsite gym and concierge. Having just started a new job in London, and without an in-depth knowledge of the market or the best areas to consider, our assistance was required to explore, educate and advise.

We identified a stunning one-bedroom apartment set within a new development with all facilities she required. However, the previous owner had already agreed a rental offer on the property, but thanks to our swift negotiations we managed to not only convince the owner to sell to rather than rent, we also managed to negotiate £22,500 off the asking price (over a 4% saving).

Our client was delighted with the service: “We had not expected to achieve our goals in such a short time frame and in a very satisfying way,” she said. “Alex realised very quickly our priorities and criteria, and proposed very relevant properties. It’s a challenge to discover the – sometimes unmentioned – wishes of customers, and to permanently fulfil them.”

Managed sale of the month – Ebury Street, Belgravia, SW1 – £1,800,000

Our client was looking to sell this two-bed, two-bath apartment in Belgravia, in the face of stiff competition from other sellers in the area: there were five other similar units for sale in the same building, and many more in the wider area.

We approached every resident in the building, making them aware of the sale. As a result, we found a resident with a friend interested in purchasing the apartment. We then conducted viewings with their representative and negotiated the subsequent offers, agreeing the sale at £1.8m, just £50,000 below the asking price.

On the market – Hanover Street, Mayfair, W1 – £2,395,000

In addition to the services we offer property buyers, we also offer a managed sale service, and we have been recently instructed to sell this prime London property.

This stunning, interior-designed two-bed, two-bath apartment is in a boutique development of just six other flats, in the heart of Mayfair. An ideal pied-à-terre, the apartment is just off Regent Street. The 840 square feet property boasts an open-plan kitchen/reception with balcony, as well as lift access, and comes with a long (245-year) lease. 

To arrange a viewing, please contact: chw@black-brick.com or alex.oliver@black-brick.com or call the office on +44(0) 3141 9861.