MARKET DEVELOPS EUROPEAN CHARACTERISTICS
The Government seems unsympathetic to calls for Stamp Duty reform on high value homes, preferring instead to give policy support to first time buyers which is more politically expedient when competition for the ‘young vote’ is strong. In our view, concessions on Stamp Duty are the key to restoring much needed confidence to London’s residential property. Failing that, the UK’s traditionally liquid housing market will be fundamentally changed into one that has lower turnover, with homeowners discouraged from moving by high acquisition costs.
The small rise in interest rates is unlikely to impact on our markets where purchasers usually buy with large deposits and
interest rates are still at historically low levels.
With little signs of capital growth returning to property prices in the near future there is less incentive for investors to return to the market, but as we see greater clarity in UK trade talks with the European Union we expect to see the return of owner occupiers. The supply of properties coming to the market remains low and this is likely to help support current prices across Midtown, City and East London. Nevertheless given the reduction in transaction numbers we expect the price of a property under £1 million to slip by 2-3% in 2018 and by a further 5% for homes priced over £1 million. By the end of 2018, it is possible that homes over £2 million will have lost 25% of their value since 2014.
Hopes that demand from overseas investors would be boosted by a weak sterling exchange rate have been largely disappointed and we do not envisage that changing. Overseas buyers have been feeling less welcome since changes were introduced to Capital Gains Tax and the clamp down on corporate ownership structures. Both of these moves were justified in the interests of fairness but the addition of UK-first sales campaigns, campaigning around Brexit vote and continual negative media coverage, have only weakened demand for London property from overseas buyers.
It is reported that the Treasury are looking at ways to make it more difficult for foreign buyers to purchase British property as part of a drive to get more Britons on the housing ladder. They are not happy that so many new homes are purchased off plan by Far Eastern buyers and first time buyers don’t get a look in. There seems to be a lack of realism at Whitehall when it comes
to understanding the price points that central London real estate commands and the genuine requirements of first time buyers
who are looking for starter homes.
We expect to see the continuation of investment by Chinese buyers in 2018. London is not the only beneficiary of Chinese investment but it is an important one. Chinese buyers come in search of high quality educational opportunities and political stability. Their interest looks set to endure for some time yet – and, in our experience, they are keen to take advantage of greater negotiating power in the current sales market.
In the longer term we see the prospect of increased demand from UK and overseas buyers in 2019 as the prospects for London and the UK operating outside of the EU becomes clearer.
On a positive note the government has said that it will work with the Law Society to make the process of purchasing a freehold or extending a lease easier, faster and cheaper. In December Sajid
Javid the Communities Secretary announced that ground rents will be outlawed on all new built apartments which is an extension to previous action promised to outlaw ground rents on leasehold
houses where the rents doubled every 10 years.
The potential for growth in the rental market is driven by the shift from buying to renting. When the motivations to buy are reduced, the alternative is renting and the large influx of new properties to rent in London in recent years has suppressed rental growth, making it an even more appealing option for tenants.
Landlords will seek to recoup the additional costs of tenant referencing, preparing tenancy agreements and inventory fees by
raising their asking rents once the ban on tenants fee becomes law as their returns will be squeezed.
In the longer term, if the Government gets what it seems determined to achieve, there will be an increased number of buy
to let properties coming to the market for sale from landlords who tire of rising costs and taxes. If small landlords do decide to
withdraw from the market in significant numbers then there is a risk that eventually this will reduce supply of rental stock and
exert pressure on rents once more. This would be an unintended consequence of policies designed to attract young voters.
Institutional PRS offers a possible solution to a loss of rental stock but it will take many years to build up portfolios and land values in Central London continues to be challenging for Build to Rent developers.
Meanwhile, the mainstream 12 month AST rental market looks likely to be fundamentally strong in 2018 and we expect tenants to remain in tenancies for longer periods.
As institutional stock comes to the market, tenants will lead increasingly charmed lives with a wide choice of homes, built to
a high standard, with on-site services and a range of amenities from cinema rooms to free WiFi included in the weekly cost. The
likely outcome is that people will stay in rented accommodation until (and if) they are lucky enough to inherit wealth in later life. In a post Brexit-world the UK’s property market is heading for a more European flavour!
Let‘s not forget that one of London’s most ambitious infrastructure projects will be completed at the end of next year. The Elizabeth Line is due to open in December 2018 linking Heathrow to Canary Wharf and improving travel times and capacity across London.
As we approach the end of the Brexit negotiations in March 2019 and with greater clarity on the terms of our new relationship with Europe, we expect that confidence will return to central London’s property market. For this reason 2018 represents a good opportunity for buyers with greater certainty for the economy on the horizon.
Telephone: 020 7250 1012
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