After six consecutive years of rises, what does 2015 hold in store for prime Central London (PCL) property prices? At first glance, the global backdrop hardly seems positive. Renewed concerns about the Eurozone, heightened geopolitical risks and a plunging oil price; add in the changes to Stamp Duty Land Tax (SDLT) announced in the Chancellor’s Autumn Statement in early December and it is not hard to see why vendors are now having to be more realistic.
According to Savills, prices across London fell 2.6% in the final three months of 2014 and by 4.2% in the more expensive areas of prime Central London. It is no co-incidence that the falls at the top end of the capital’s property market equate roughly to the additional 5% in Stamp Duty Land Tax (SDLT) that buyers must now pay. Importantly, while price adjustments have been the order of the day for deals already in progress, there has been scant evidence of deals falling through due to the SDLT changes. Though clearly early days, we believe this bodes well for the market’s ability to absorb the higher tax rates and adjust accordingly.
Clearly however, current market conditions favour buyers. And with vendors increasingly nervous about the prospect of further tax changes affecting high end property after the election, we continue to believe that the current backdrop provides an excellent opportunity for those with a long-term perspective. Nearly all sellers in London are now open to negotiation including developers.
At Black Brick, the SDLT changes and the fast-looming general election have not deterred continued interest in PCL property from our geographically broad client base. With budgets varying from below £1m to above £10m, so far this year we have signed new clients from Hong Kong, Saudi Arabia, Russia, Cyprus, the UK, India and Ghana in recent weeks.
Short-term supports include sterling’s recent weakness, particularly against the US dollar. The 14% decline in the value of the pound against the US greenback since the summer is clearly a significant boost to many overseas buyers with dollar assets.
Meanwhile, the SDLT changes are providing a welcome fillip to potential property buyers at lower price bands. According to major mortgage lender Halifax, house prices across the UK rose 0.9% in December, ending the year with a 7.8% gain as borrowing rates fall to record lows.
Borrowers with a 40% deposit or equivalent equity are now able to fix their mortgage rate below 3% over a ten year period for the first time ever. According to Halifax, housing demand “should continue to be supported by a growing economy, rising employment levels, still low mortgage rates and the first gain in ‘real’ earnings for several years.”
Chinese interest in London property continues to grow apace. According to figures recently released by the government, the number of so-called ‘investor’ visas granted to Chinese nationals ploughing at least £1m in the UK doubled in the year to end-September. Chinese nationals accounted for 43% of all investor visas, the highest proportion of any country. Successful Chinese applicants accounted for just 10% of investor visas granted by the UK five years ago.
To qualify, foreign applicants are required to invest £2m or more in UK government bonds, share capital or loan capital in active and trading UK registered companies. Although the investment threshold was raised from £1m to £2m in October, international law firm Pinsent Masons sees no slowdown in demand for UK assets.
Jill Turner, Senior Associate as Pinsent Masons, says: “A lot of Chinese HNWs have had almost all their wealth linked to the fortunes of the Chinese economy. That has served them very well but with Chinese economic growth slowing after a tremendous run some HMWs are rebalancing their portfolios away from China.” Recent research commissioned by Pinsent Masons estimates that Chinese annual investment flow in the UK is set to rise to £30 billion p.a. in 2025. Over half of this investment will be directed at infrastructure and real estate, according to the research.
Nick Rollason, Partner and Head of Immigration at Kingsley Napley added: “As well as the increase in of the investment level to £2m, the changes to the Investor rules in November 2014 saw the closing of the loan option, under which foreign investors could secure their UK visas on the basis of having at least £2m in net assets and a £1m loan from a UK bank. As a result of the Chinese government’s tightening of currency controls in 2014, the loan option was extremely popular, making it easier for Chinese investors to invest through loans made by Chinese banks in the UK, rather than by moving capital out of China. After the last minute rush for £1m investor visas before the November 2014 increase, we expect to see a drop off of applications from moderately wealthy Chinese applicants but continued strong demand from HNWs and UHNWs from the mainland. Other factors such as very high pollution levels in major Chinese cities and the current economic climate continue to make the UK an attractive destination”.
Directly addressing these trends, we are delighted to announce that Grace Ding joined the Black Brick team in late 2014 to focus on assisting Black Brick’s fast-growing Chinese client base and on developing our business network across Asia. Importantly, Grace speaks fluent Mandarin and holds an advanced diploma in translating and interpreting, making her the perfect point of contact for all our Chinese-speaking clients. With Grace’s arrival, we are now better placed than ever to fulfil the UK property ambitions of our Chinese clients.
Grace brings to Black Brick a huge amount of experience in dealing with international clients and is best known for her friendly approach and total understanding of clients’ investment and cultural needs. Prior to coming to the UK, Grace worked in Australia and China in both the private and the public sectors where her role was focused on client relationships.
The London Borough of Kensington & Chelsea, home to some of the most prestigious addresses in the capital, is to introduce new measures designed to curb the proliferation of multi-level basement extensions. Under the new regulations, already signed off by the government and expected to be approved by the Council in early 2015, basements will still be permitted but strict guidelines will now severely limit their scale. The new rules include a reduction in how far basements can extend under the garden, a restriction to a single storey extension in most cases and an outright ban on basement developments under listed buildings.
Kensington & Chelsea is the first Borough to limit so-called ‘iceberg’ developments, but others are expected to follow suit in Central London. As far as trends for 2015 go, we believe that homeowners with existing large basement extensions will now be able to command a significant premium over neighbouring properties given the restrictions announced on future development.
Since we last wrote to you we have completed on a number of transactions. However, January’s Property Acquisition of the Month demonstrates how we go the extra mile for our clients. At 9.30pm on December 23rd – when the majority of London’s real estate community had already shut up shop for Christmas – we completed on a £12.7m apartment in Eaton Square SW1, one of central London’s most sought after enclaves, for our owner-occupier client.
A 2,500 sq/ft lateral two bed flat, we were able to secure the property for some £1.8m below its original asking price despite interest from other parties. Our reputation played a key role in securing the deal – and this is the second year in a row that we have completed a transaction very late in the Christmas period while other agents have closed for the holiday. Please click here to view the case study on our website.
And finally. In the prestigious Estate Agency of the Year Awards sponsored by the Times and by the Sunday Times newspapers Black Brick won the Gold award in the Best Buying Agent category. The judging panel said that Black Brick offers “an impressive range of services to their clients and it is clear that these have been developed organically to meet clients’ requirements as they developed, with the end result being that clients can feel confident of a fully managed, end –to-end service. Their relationships with agents is excellent and built on a strong foundation. Black Brick is a truly professional agency.” We couldn’t have said it better ourselves!