June 2018

Unrealistic PCL buyers expecting hefty discounts across the board

It’s usually vendors who are accused of having unrealistic expectations, but buyers hoping for huge reductions on top-notch PCL instructions are facing disappointment, according to one consultancy.

Buying agency Black Brick notes that purchasers are seeing press reports of prices falling 15% since their peak, and applying that kind of hefty discount to all properties – even the best-in-class variety.

The problem is that average figures mask a “huge variant in how the market is performing”, and the most desirable properties are still very much being fought over, says Caspar Harvard Walls, a Partner at the firm: “Properties that are the best in class – not necessarily the most the expensive – are doing really well, and we are not seeing any discount on these properties at all.

“On the other hand, properties that are compromised but would usually be doing well in a booming market are not performing as strongly, and it’s these homes which are being discounted.

“One of the reasons for this is because transactional costs are high and stock is low, so buyers are taking a long term view when considering their purchase. So, when something really special comes us, buyers look upon these units positively as a long term option.

“Buyers need to be wary of entering the market thinking there will be a big discount across the board, because actually there is a lot of competition for the best stock.”

Shards of light in the gloom

Just as individual properties are bucking the market trend, so too are certain areas of London and segments of the market. The latest numbers from LSL Acadata shows prices in London as a whole during March down 2.5% year on year – the worst annual rate since 2009.

But, while more expensive boroughs are bearing the brunt (with Westminster down 13.3%, Wandsworth down 13.6%, and the City of London off 31.4%), Kensington & Chelsea has bucked the trend. The borough, London’s priciest, is up 23.7%, largely the result of a relatively small number of mega-deals.

In March, LSL Acadata tracked seven transactions over £10 million. “These deals show that we’re starting to see confidence return to the top-end of the market,” notes Camilla Dell, Managing Partner at Black Brick. “This segment has been hit hardest by the increases in Stamp Duty, so it’s to be expected that confidence would return here first. Hopefully it’s a sign of things to come.”

This is a conclusion reached by property data firm Lonres, in its latest update: “Positive news on the health of London’s prime markets has been in short supply recently. While the market is still challenging, buyers do appear to be returning at the upper end.” It finds that the number of new homes coming to market in the first quarter of 2018 is up 11% on the first quarter of 2017.

It also notes a greater proportion of owner-occupiers compared with investors and second-home buyers. “Buyers appear to be seeing value and are becoming less cautious of short-term price fluctuations on what they hope will be a longer-term hold,” Lonres notes.

Finally, the latest market analysis from agency Strutt & Parker sounds a cautiously optimistic note: “We maintain that from 2019 onwards it is extremely difficult to forecast the housing market with any certainly, but we would expect some bounce back and a return to growth once more stability has returned to UK politics and the economy.”

It sees potential for up to 23% price growth in the five years to 2023, under its “best case” outlook. But it’s hedging its bets: its “downside risk” scenario would see zero price growth by that point.

Downshifters driving demand

Another part of London where prime property is moving fast is Marylebone, which bucked the trend of falling prices with a rise of 3% in the year to March. A big reason, according to local agents, is an influx of older people downshifting to flats in the area, attracted by its concentration of private health care providers.

The area also benefits from a number of new build, modern luxury lateral apartments, which appeal to older buyers who wish to avoid stairs, and benefit from 24 hour concierge services as well as the upmarket shops and restuarants. But it’s not without its challenges, says Harvard-Walls.

“Marylebone is a tight market – there’s not a huge amount of stock coming on,” he says. “Buyers need connections to get early access to properties,” he adds.

But it’s certainly part of a trend we’re seeing at Black Brick, as older ‘empty-nesters’ look to sell large family houses, instead buying more manageable apartments close to attractions – and clinics.

“We can offer a complete solution for downsizers,” says Harvard-Walls, “with not only finding an onward property somewhere like Marylebone, but also selling the existing family house through our dedicated Managed Sale Service”.

Buy-to-Let is dead, long live buy-to-let!

Reports of the collapse of the buy-to-let market continue to emerge, with a recent survey by the National Landlords Association finding that one in five owners of rental properties plan to reduce the size of their portfolios.

The sector has been the target of tax changes designed to encourage owner-occupation, most notably the phasing out of the right to claim higher-rate tax relief on mortgage interest. The Intermediary Mortgage Lenders Association calculates that higher rate taxpayers with less than 25% equity in a property, and paying mortgage interest of 4%, can no longer profitably let a property in any region of the UK.

But that doesn’t mean buy-to-let investment has entirely halted: instead, it’s changing its shape. One trend we’re seeing – and which we have commented on recently – is parents buying directly for their children. “In the past, they may have bought a property as a rental investment, and let their children live there; now, parents are instead simply buying for their children and gifting them the property,” says Dell.

There is also interest from overseas buyers in larger buy-to-let acquisitions; purchases of six or more units qualify as a commercial transaction and, as such, are not liable for residential rates of Stamp Duty: this equates to an instant saving of at least 5%, Dell says.

Meanwhile, some of the buy-to-let investment interest has morphed into buy-to-develop – where buyers seek unmodernised or otherwise run-down properties they can refurbish and either rent out – anticipating a nice capital gain when they come to sell – or immediately flip.

“Even in the current slow market, there are some fantastic opportunities out there,” says Dell. “We recently found a freehold building in Marylebone on the market for £1,100/square foot. It needed a lot of work, but once modernised, it could expect to fetch £2,500/square foot. That’s an attractive prospect for the right buyer.”

3rd Wealth Adviser award for Black Brick

Black Brick has been voted Best Property Adviser by the readers of Wealth Adviser, a leading publication for the wealth management industry. It’s the third year in a row that Black Brick has been recognised by the publication, and we’re delighted to receive the award.

The winners were determined by the votes of Wealth Adviser’s readers, who include wealth managers, IFAs, fund managers, family offices, law firms, accounting firms and other industry professionals.

Acquisition of the month – Harman Drive, Cricklewood, NW2 – £3,400,000

Our client was looking to relocate from busy Kensington to a more tranquil part of London. The property needed to have easy access to both Heathrow and Luton airports and, importantly, our client wanted the master bedroom to either be located on the ground floor, or with very few steps leading to it.

We identified a newly developed, five-bed, five-bath house on a quiet and sought after cul-de-sac in an area known as The Hocrofts. Arranged over three floors, with the majority of space on just two floors, it was the ideal solution for our client.

The house originally came to market with an asking price of £3.85 million. It was then significantly reduced. We beat off competition from a corporate tenant to secure the property for our client and also managed to save them £75,000 from the reduced asking price, paying £728 per square. foot. Previous sales in the street had achieved £837 and £824 per square foot.

Managed sale of the month – York House, Chelsea, SW3 – £700,000

We were appointed by a Jersey-based trust company to assist in the sale of an apartment in prime Chelsea. Trustees find real value in our dedicated Managed Sale Service as it can be extremely difficult for them to co-ordinate a successful sale when not physically based in London

However, what should have been straightforward sale of a good-sized one-bedroom apartment in a popular portered block was complicated by a major dispute between leasees and the freeholder over necessary works, and a pending tribunal regarding enfranchisement. In an already challenging sales market, these unknowns posed a real issue for any potential buyer.

Nonetheless, we were able to find a purchaser willing to take a view on the unknown level of works the building required and those related costs, but also on the unknown outcome of the tribunal. In a challenging sales market, this was no mean feat and our clients were thrilled with the result.