Summer surge or summer lull?
This is the question on most property professional’s lips right now. As it currently stands, travel restrictions remain unpredictable, with travel quarantines being introduced at short notice, leaving travellers guessing which countries will be next. The return to the office is likely to be limited for several months to come and, right now, many regional tourism chiefs across the UK are reporting a boom in UK ‘staycationers’. Therefore, it would seem that the Prime Central London property market is not going to get the V-shaped bounce-back many had hoped for.
“The lack of international travellers means London feels quiet and pleasant to stroll through right now,” says Black Brick Managing Partner Camilla Dell. “It has always been a very pedestrian-friendly city, but some might say that the buzz isn’t quite back yet.”
Certainly, analysts are becoming more cautious in their price forecasts. At the top end of the market, agency Savills cut its Prime Central London five-year forecast in mid-July from 20.5% to 15.7%.
That’s not to say that the market hasn’t picked up at all; in fact in June, Savills also reported a 67% increase in transactions above the £1 million threshold this year, recording 2,682 sales in the four weeks of business since the re-opening of the UK property market, a healthy 49% higher than the same period last year.
Dell adds: “Much like the British weather we have had this summer so far, we’re seeing a ‘simmering summer’ in the property world; that is, a steady return from mainly domestic buyers who have their own pressing circumstances to move and a renewed determination to buy at an attractive price, and from buyers who have reset their goals and property needs, as we stare down the barrel of the fourth quarter.
“With any luck, the property market can hope for an Indian summer come September,” she continues, “when the ‘new normal’ will have stabilised and many large companies will be starting to resume some office contact time, as well as the government’s promise for schools and higher education to return. For buyers that are continuing their house-hunting in August and are able to view, there is the potential advantage of less competition.”
The rise of the ‘midweek pied a terre’
Despite the government’s plea for workers to return to the office, this looks unlikely to happen any time soon, and certainly not in the pre-Covid sense. Goldman Sachs have asked all but essential staff not to return to the office until 2021 and most large corporates are planning for rotating ‘core days’ in the office. Whilst the twenty-somethings may be missing the office community and water-cooler chats, commuters are saving money on their season tickets and enjoying freedom from cancelled trains and suspended Tube lines.
Over the last four months, this group have enjoyed their escape to the Shires and taken stock of their working week. Those in their thirties, forties and fifties are seeing the benefits of spending more time with their families and less time commuting.
As a result, Black Brick Partner Caspar Harvard-walls says: “We are seeing a significant spike in demand for what we are calling a ‘midweek pied-a-terre’ – a bolthole in the city for part-time commuters.”
He continues: “As we move past the pandemic, many professionals are likely to come into central London for a couple of nights a week, getting what they need to get done and their dose of high-octane city life, and then retreating to their primary residence in the Home Counties or beyond. In many cases, city workers up to their mid-40s are often happy to flat share, or to have a base in the city and short-term let their London apartment on Airbnb at the weekend.”
This trend could mirror the habits of MPs around Westminster and Pimlico, who flat-share close to Parliament in the middle of the week and head back to their constituency come Thursday night. “The areas we can expect to see this trend establish itself are those close to our financial and creative city-centre hubs such as Mayfair, Soho, Bayswater, Shoreditch and the Barbican,” says Harvard-Walls.
A significant transient mid-week population would change the character of parts of London. “The traditional Thursday night drinks may become Wednesday night catch-ups, as people spend only a few nights in town,” says Harvard-Walls. “And barber shops and cafes may need to operate more flexible staffing rotas to accommodate a mid-week peak in footfall.”
For those who haven’t deserted the city, the demand for adaptable homes with efficient WFH (working from home) spaces is evident. According to Savills, 79% of agents report an increase in demand for a separate work-from-home space within a property. A further 96% of agents are also seeing gardens or other outside spaces become an essential, and 50% of commuter-belt agents report an increase in competitive bidding.
Paddy Dring, Global Head of Prime Sales at Knight Frank, says people across the board – and around the world – are rethinking long- and short-term needs. “There have been lots of people tucked up in the city, and they want space outside,” he says. “But they’re not abandoning the city, either. They’re prepared to invest in something in addition to their city home, either in the country or further afield.”
Who could replace PCL’s biggest spenders after China and Russia face diplomatic shade?
Deteriorating diplomatic relations with China and Russia – countries that account for significant demand for PCL property – means we are expecting to see a shift in enquiries from other parts of the globe in the coming months. In particular, we expect to see Middle Eastern and North American buyers represent a larger proportion of PCL buyers.
Whilst the usual influx of Middle Eastern visitors escaping the desert heat is subdued this summer, for those looking for property at a competitive price, in a world-class city, there are deals to be done. “Middle Eastern buyers have always been very prolific in PCL and at present, the future of this region is uncertain both politically and economically,” says Dell. “Oil sales have plummeted as demand has reduced due to lack of travel, and clients from the region have been looking to diversify for many years as oil-driven economies have a limited future.”
She continues: “Property markets in the Middle East are often unstable, there have been issues with people not paying their rent, and many empty buildings. By contrast, London is seen as more certain, tried and tested – and a safe haven. Despite travel restrictions, we have been extremely busy servicing the needs of several investor clients from the region, and recently completed on the purchase of six apartments in Shoreditch for one such investor.”
Regarding demand from North America, Dell adds that “a combination of factors are pulling them towards the UK. The weak dollar, a looming election and controversial President, climate change and domestic tax reforms all mean that London is seen as a geographically secure location. We see US buyers continuing to account for significant demand for PCL property for the rest of 2020 and into 2021.”
‘Till lockdown do us part’
One of the unfortunate consequences of the lockdown has been a rise in the number of relationship breakdowns. Between March 23, the day lockdown was announced in the UK, and mid-May, Co-op Legal Services reported a 42% increase in divorce inquiries compared with the same period in 2019. Financial woes and the strains caused by close confinement are being cited by couples seeking divorce advice, according to Tracey Moloney, head of family law at Co-op Legal Services.
Sandra Davis, Partner in the Family team at Mishcon de Reya, says that “lockdown has provided an opportunity like no other to consider what’s important to us. That might involve a reset, rather than a complete restart.”
This is also reflected in property search enquiries, Dell reports. “Property searches are being fuelled by lockdown separations and, in many cases, couples are sadly divorcing. Typically, we get enquiries after the summer holiday period and in the new year from couples who need separate properties, so it would be reasonable to expect to have more enquiries in Q4 and Q1 of 2021, as the full effects of lockdown are felt.”
Harvard-Walls added: “Typically we see established houses coming onto the market in family-friendly areas such as Fulham and Parsons Green, when a divorce is driving the sale. Whilst supply will be an issue into autumn, we often find that buyers can be matched with a motivated seller to ensure a swift transaction.”
Swings and roundabouts on Stamp Duty changes
In a move broadly welcomed by the property industry, the government announced in July a temporary rise in the Stamp Duty threshold to £500,000 of all properties in England and Northern Ireland. The payment holiday – which applies to both first homes and subsequent properties – will run to 1st April next year, saving buyers up to £15,000.
“This is great news, especially for first-time buyers,” says Dell. “It’s unlikely to have much of a bearing on a decision to buy a £5 million property, but healthy markets are driven from the bottom up. Anything that drives activity at the lower end of the market will benefit buyers and sellers higher up.”
Dell also notes, however, that the government has also confirmed that overseas buyers will face a 2% Stamp Duty surcharge from 1st April next year, with a view to making property more affordable for domestic buyers.
The market is likely to respond differently to this surcharge than to previous Stamp Duty hikes, she believes. “Earlier changes affected everyone, and we essentially saw those rises being absorbed by the market, with asking prices falling to take the increased Stamp Duty costs into account. I’m not sure we’ll see this happen this time.”
While pricing may come down in specific areas and developments that have heavily depended on overseas buyers, strong domestic demand will support prices in many parts of Prime Central London. “For the more popular areas and for best-in-class properties, the strength of demand from local buyers will support prices,” she says.
“That underscores the advantages for overseas buyers of acting quickly – if they can find the right property. The combination of price falls, sterling weakness, the Stamp Duty holiday and the looming surcharge means that it makes a lot of sense to buy before the end of next March,” she says. As the table below shows, a combination of the end of the Stamp Duty holiday and the introduction of the surcharge will add £130,000 in taxes to the purchase of a £5 million property from next April.
Acquisition of the month: Clarges Mayfair, W1 – £10,500,000
Our US client wanted to purchase an apartment in Mayfair on an ‘off-plan’ basis, with a minimum of three years between exchange and completion, as well as a staged payment schedule, to allow him the time to fund the transaction.
Although we undertook extensive research into the developments in Mayfair which would be completing within that timescale, it became clear that the ideal solution would be an apartment in Clarges Mayfair. Specifically, we found a two-bedroom unit of 1,991 square foot with incredible views over Green Park, available off-market for £11 million.
Clarges is widely regarded as one of the best boutique buildings in London with only 34 units, as well as meeting the client’s requirements for 24-hour concierge and first-class leisure facilities. The issue was that the development has been completed, precluding payment over an extended period.
Nevertheless, we structured an unusual offer to the owner, namely that our client would rent the property via a series of one-year tenancies, up to a maximum of three years. We would agree the ultimate purchase price at the outset, and our client would pay the owner each year for an option to purchase the property, at that price, at any point during those three years. If our client walked away after the rental period, he would lose the option payments; otherwise, these payments would be deducted from the final purchase price.
While the negotiations were far from straightforward, we eventually agreed terms, namely that the purchase price was fixed at £10.5m to be paid within the three years.
However, the impact of Covid-19 meant that our client wanted to extend the timeframe of the deal, given the degree of economic uncertainty ahead. We went back to the seller to renegotiate to extend the term of the transaction to five years. After another extensive period of negotiation, we were able to agree revised terms. This both meant that we were able to keep the transaction together during a very testing time, while ultimately securing the best possible outcome for our client.
Managed sale of the month: Elgin Mansions, Elgin Avenue, W9 1JG – £1,200,000
We have been appointed on the sale of a three bedroom apartment of this beautiful red brick mansion block in the heart of Maida Vale.
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Chambers High Net Worth 2020 recognition
Black Brick is delighted to have been ranked in Chambers HNW Guide 2020 for the fifth year in a row, as one of London’s top buying agents. Often referred to as ‘the gold-standard’, Chambers delivers insight and analysis on the global legal profession that is unrivalled in its reach and depth. Its independent research collects information about organisations, individuals and the marketplace.
Here’s what the guide had to say:
“Camilla and the team are really superb, the team are very talented and tenacious. They negotiate hard and they really do stand out. They know the market incredibly well…Camilla Dell is good; she is a good person to work with and she knows how to pitch.”