8th March 2016
As our readers in the UK will be all too aware, the long-awaited EU referendum campaign is finally underway. On 23 June, British, Irish and Commonwealth citizens resident in the UK will be asked to vote on whether the UK is to remain in the EU, on new terms negotiated by Prime Minister David Cameron, or exit the union – the so-called ‘Brexit’ option. Such a referendum has been on the cards since January 2013, when Cameron first pledged to hold a vote in a bid to address long-running divisions in the Conservative Party over the UK’s membership of the EU. But while the conclusion of Cameron’s EU negotiations has ended speculation over when the poll will be held, it marks the start of months – and potentially years – of uncertainty that will raise questions for London’s prime property market.
The 2014 Scottish independence referendum is instructive: then, as Knight Frank points out in a recent note, there was a slowdown in market activity in the run-up to the vote. The Scottish experience shows that the slowdown would be likely to reverse rapidly in the event of a ‘remain’ vote.
If the UK instead votes to leave, the questions multiply: under Article 50 of the EU treaties, the UK and the remaining EU states will spend two years negotiating the terms of an entirely new relationship. At present, campaigners for Brexit have suggested a variety of models, with varying degrees of access to the EU’s market, and varying degrees of harmonization with EU rules and regulations.
“At this point, speculating on the effects of ‘Brexit’ on the London property market is just that – speculation,” says Black Brick Managing Partner Camilla Dell. “There are so many factors in play that it’s impossible to know how the market would react, and ultimately settle, should the UK vote to leave the EU.”
One immediate impact of prospect of Brexit has been to hit sterling. Between the end of 2015 and late February, UK currency lost 6% against the dollar – over 18 months, the currency has slid almost 20% against the greenback. This serves to make UK property more attractive to dollar-based buyers, notes Black Brick Partner Caspar Harvard-Walls. “As is so often the case, opportunity is the other side of the coin to crisis. If you add currency moves to the 7-7.5% falls we’ve seen in, for example, prices in Knightsbridge, then prices are more than a quarter lower in dollar terms than they were 18 months ago. It’s certainly tempting some overseas buyers back into the market.”
Certainly, the financial markets are leaning to the negative on the near-term impacts of Brexit – as was demonstrated by sterling’s dip when charismatic London mayor Boris Johnson came out for ‘leave’. Indeed, US asset management giant BlackRock has warned that Brexit would also hit UK equities and London’s commercial property market.
But it also adds that London’s attraction to international capital and tourism would be unlikely to be diminished. “London is going to retain its attractiveness to wealthy international buyers regardless of whether the UK remains in the EU,” says Dell. “It’s cultural attractions, geographic location, legal system and concentration of talent mean that there will always be demand for prime central London property.”
It was announced last month that London’s new Crossrail line is to be named after Queen Elizabeth. Canny investors might want to consider the effect on property prices promised by Crossrail 2. The Elizabeth Line will run from Reading in the west to Shenfield and Abbey Wood to the east of London, linking Heathrow, the West End, the City and Canary Wharf. It will boost capacity of the Tube by 10%, and carry an estimated 200 million passengers each year. As is usual for any major infrastructure investment, Crossrail 1 is lifting property prices well ahead of its 2018 opening date. Research for the City of London Corporation, for example, found that residential property prices around Crossrail stations are set to rise 25% above baseline projections between 2012 and 2021.
The smart money is looking at likely effects of Crossrail 2. The project – which would become operational in 2030 – would run from north to south. Within London proper, it would join Dalston, Kings Cross, the West End, Victoria, Chelsea and Victoria, extending into London’s suburbs at each end.
“There’s a long way to go before Crossrail 2 gets off the drawing board,” says Dell, noting that consent is unlikely before 2018-19. “But as we saw with Crossrail 1, local markets will rise in anticipation of any final decision.
We are already seeing a lot of interest from investors in areas such as Tottenham Hale where the regeneration of Tottenham and nearby Walthamstow are made even more appealing by the potential for Crossrail 2.”
With just weeks to go before the introduction of a 3 percentage point hike in stamp duty payable on buy-to-let and second home acquisitions, we are, as predicted, seeing a rush among buyers to complete on transactions before 1 April. Certainly, for buyers who have had offers accepted or who have exchanged, there’s still time – and obvious motivation – to get deals signed and sealed before the tax rise. But we should sound a note of warning: for those clients yet to find the right buy-to-let investment, they should weigh up the costs and benefits of trying to rush through deals this late in the day. We have seen cases of vendors seeking premiums in exchange for getting transactions done before 1 April – premiums that, in some cases, substantially erode the tax benefit involved.
It’s also worth bearing in mind that, as with previous increases in stamp duty, this latest rise will feed through into asking prices. We would expect prices for buy-to-let properties to soften after 1 April, as vendors’ expectations align themselves with the yields demanded by investors.
One of our advantages at Black Brick is our ability to offer a complete end-to-end service for clients seeking investment opportunities. We have recently acted for a repeat, Africa-based client seeking a property offering a good rental yield and promising longer-term capital growth. The solution was a property in Nevern Square, near to Earls Court Olympia, and therefore set to benefit from its redevelopment. The 891-square foot, two-bed, two bath third-floor flat benefits from lots of natural light, views over the communal gardens and a lift in the building.
The property should rent for approximately £875 per week, giving our client a gross yield of 3.3%, which is above average for the area. We will be managing the property, which not only offers the client peace of mind, but also makes the property easier to let. High quality, reliable tenants tend to favour letting through a professional agency rather than an overseas landlord.
At Black Brick, we mainly act for property buyers. We do, however, sometimes act for clients who are looking to sell properties through our dedicated Managed Sale Service. Unlike estate agents, our properties are not openly advertised and are mainly off market. This month, we are seeking buyers for two outstanding prime London properties:
Arundel Gardens, Notting Hill. This stunning six-bedroom freehold house has direct access to private communal gardens. Designed by Michaelis Boyd architects and subsequently updated by our clients, the property benefits from amazing volume and natural light. Guide Price £11.5m
Lowndes Square, Knightsbridge An interior designed, air-conditioned three-bedroom apartment with direct views from all of the principal rooms over the gardens of Lowndes Square. Located in the heart of Knightsbridge, it offers access to the very best of London’s department stores, restaurants and Hyde Park. Guide Price £8.5m
For more details, or to arrange a viewing, please contact Caspar Harvard Walls firstname.lastname@example.org or call +447827277741.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.