27th July 2017
With the school holidays underway, and minds turning from work towards beach getaways, property market buyers could be forgiven for deciding to take a break until September. But, as in many markets, it can often pay to take the contrary view.
For a start, with fewer other buyers active, they face less competition for attractive properties. Second, psychology is on their side. Those vendors who have not secured a sale before July will often assume that they are stuck until after the summer, when they might face tough questions about how long their property has been on the market: an offer in July or August can be attractive from that point of view.
Without doubt, there are good reasons at present why buyers might be cautious. Continuing post-election uncertainty, and an ongoing lack of clarity around the Brexit process, are giving some buyers pause. Recent price falls in Prime Central London are also leading potential buyers to ask whether further declines are likely. This blog post from PwC’s chief economist is a useful reminder that fundamentals of interest rates, population growth and supply and demand will continue to underpin London property prices.
On the other hand, we are seeing vendors become more realistic about asking prices and, for buyers and agents that can tap into the off-market segment, activity levels are higher than the headline figures might suggest – certainly, we have closed a higher number of transactions than last year. This increased activity is a function of the current market: feedback from our clients is that the relative lack of transparency is encouraging them to use a buying agent as a means to access market intelligence.
“It’s more difficult and more time consuming to get a good sense of where the market is,” says Camilla Dell, Black Brick Managing Partner, who adds that the higher transaction costs involved in buying a property, especially as a result of increases in Stamp Duty, increase the costs of getting it wrong. “Using a buying agent is a bit like taking out an insurance policy: it can help protect buyers taking a hit from the wrong decision.”
The foreign ‘buy-to-leave’ investor has become one of the favourite whipping boys of those concerned about London property prices. They complain that overseas buyers are driving up prices, and then leaving their properties unoccupied, exacerbating the city’s housing problems.
London Mayor Sadiq Khan commissioned the London School of Economics to study the role of overseas investors in London’s residential market. It found that while a “significant proportion” of total sales (around 10%, when including affordable and social housing) were to foreign buyers, it found almost no evidence of buy-to-leave. Instead, more than 70% of properties were let out to local renters, with the rest used for family members (often students, or for work or holiday visits). These statistics coincide with own data – so far this year only one of our transactions to overseas buyers has been for a second home, with the majority being primary residences or buy to let.
Crucially, the report also looked at the role of these buyers in helping builders undertake new developments. It found that off-plan pre-sales to overseas buyers, often two or more years before completion, play an important role in financing new housing development in London. At the same time, overseas investors have been heavily involved in many of London’s large-scale Build-to-Rent developments. Overseas buyers and investors, then, have enabled developers to build faster than otherwise would have been the case.
“That the UK in general and London in particular is open to overseas buyers does introduce more competition into the market, but it also offers clear benefits,” notes Black Brick Partner Caspar Harvard Walls. “It is helping to get properties built and Londoners housed. Hopefully this report will help to take some of the heat out of the debate about the role of foreign buyers in the London market.”
The government is to ban builders of new homes from selling houses as leasehold, and on charging more than peppercorn rents on leasehold flats. The move is designed to prevent cases where buyers have found ground rents rising to onerous levels over time.
We welcome this development. It will add protection and additional certainty to buyers of new builds. When purchasing any property, new build or not, with a long lease, the ground rent should always be peppercorn, but it does come down to the conveyancing process and for the buyers solicitor to carefully check the sales contract and ensure the buyer’s interests are protected.
“I have been witness to some very unfair clauses in sales contracts for new builds, where the ground rent escalates disproportionately over time – in one instance the ground rent became equivalent to the GDP of a small EU country over the period of ownership,” says Dell. “Luckily our client’s solicitor picked up on this point and negotiated it out of the contract, but some buyers will have been caught out. It does reinforce the need to always engage a good lawyer.”
We are pleased to announce that ePrivateclient, the leading website and news service for private client practitioners, has named Black Brick one of its top 25 Residential Property Buyers for 2017 – marking the third year in a row that we’ve received the award.
The publication surveys and assesses around 65 property buyers, based on data including number of buyers, the number of staff, fee structures, fee income and the company selling policy.
“We are delighted to receive this accolade for the third time,” says Dell. “This award is testament to our dedicated approach to deliver a bespoke service to our clients, sourcing the finest properties across London at the best values.”
This month’s featured acquisition is somewhat of a departure, given its not only a commercial transaction, but an unusual one at that. Our client runs IBV International Vaults, a market-leading safety deposit box company with vaults in countries including Switzerland and South Africa. He was seeking a location to expand his VIP service to London, and needed a prestigious location.
The challenge is that there are very few bank vaults still in operation, and even fewer that are willing to sub-lease or sell to a third party. Nonetheless, we were able to work our connections to unlock the doors to an off-market opportunity – a Barclays branch, next to the Dorchester Hotel in Mayfair, in the perfect location.
We negotiated a long lease with the bank, and a significant rent free period as our client intends to carry out significant works to improve the vaults. The 2,077 square foot vault will open in November 2017 and will be completed to the highest standards, providing 3,300 safety deposit boxes for discerning clients.
For landlords, a property doesn’t need to be empty long for their investment yield to drop significantly – so we were pleased to find our client a tenant for his apartment in the Battersea Power Station redevelopment.
We had acquired the property for him off-plan in January 2016, finding an apartment in one of the best positions in the scheme. This advice has proved invaluable in ensuring that we are able to rapidly source tenants in a high-density part of London. Our property management service involves us identifying the best rental agencies (to ensure we are not conflicted) and we were able to rapidly complete the search and the necessary contractual details within two weeks, minimising our client’s void period.
In 2009, we sourced our clients this stunning freehold house in a prestigious Kensington development for £5.4 million, or £1,752 per square foot. In 2014, we found them a larger, unmodernised property in Belgravia that, once completed, would become their primary residence. With the new home ready for occupation, we were instructed to sell the Kensington house.
In a challenging market, we agreed terms with an Italian buyer at £6.5m, or £2,093 per square foot – a 20% increase in capital value during the period of our client’s ownership. The transaction was very complicated, taking months to complete, spanning the Brexit vote and the General Election – during which time the buyer sought to renegotiate the price. Despite these pressures, we were able to hold the deal together and avoid any price renegotiation, finally exchanging contracts at the agreed level.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.