March 2021

Indian Summer

The UK government has now laid out its reopening plans and the Chancellor has announced how the Treasury will support the economy during this last crucial push to freedom. Our March newsletter will outline our thoughts on the Budget, the outlook for a busy Autumn selling season, our ‘top tips’ for buy-to-let investors, and the growing property ‘greening’ trend. We also welcome our newly-appointed Head of Managed Sales, Hamish Bruce, and introduce to the market a fantastic freehold block of flats in Bayswater.

This month, we are delighted to participate in the FT Weekend’s Spring Festival. Camilla Dell, Black Brick Managing Partner, will appear alongside James Pickford, FT Money Deputy Editor; Lucian Cook, Savills Head of Residential Research; and Ayesha Ofori, rental property investor, to debate ‘What next for the global property market?’ The panel will take place at 15:05-15:40 GMT on Thursday 18th March. To register for the event: https://ftweekend.live.ft.com/

Something to look forward to

The London property market is teed up for a buoyant resurgence in the Autumn as Covid is increasingly brought under control, the economy reopens, travel restrictions are eased and buyers are able to access pent-up property supply. Foreign buyers returning to the Prime Central London market will entice more sellers to list property for sale, boosting transaction volumes and supporting buyer interest. Data from Savills shows just how tight the supply-side of the market is at the moment – while new instructions rose by 37% in H2 2020 compared to 2017-19 averages, they fell by 7% in January and by 6% in the first two weeks of February as lockdown impacted sellers desire to bring their properties to the open market.

Black Brick’s Caspar Harvard-Walls is looking forward to a much busier market in the Autumn: ‘Our on-the-ground intelligence suggests sellers are waiting until September. We are still not out of lockdown and we won’t be free until the Summer. Sellers do not want to commit for fear of under-selling, hanging on for the end of lockdown, which is creating a tough market from a property availability and stock perspective. In the Autumn, we expect more stock to come to market as sellers anticipate the return of international buyers, potentially with vaccine passports. The traditional Spring market will shift to an Autumn market. Buyers in the mid-to-high-end price range will need to be realistic in the face of a potential explosion of positivity and sharp upward moves in asking prices.”

Adds Camilla Dell: ‘We are not in a lockdown where we can’t work, but the market is still in suspended animation, waiting for those overseas buyers. We thought Q1 would be the moment for their return, but now it seems to be Q4.”

 

Budgeting for the recovery

Camilla Dell, Black Brick Managing Partner, reacted to the news on stamp duty:

“The extension of the SDLT holiday until 30th June is welcome news and will inject renewed positivity into the property market. The extension means anyone completing a purchase on a main residence costing up to £500,000 before 30th June will not pay any stamp duty. More expensive properties would only be taxed on their value above that amount. Landlords and second-home buyers are also eligible for the tax cut, but will still have to pay the additional 3% of stamp duty they were charged under the previous rules. Buyers no longer face a “cliff edge” to try and get their transactions through before 31st March. However, for prime Central London, where property values are much higher than the rest of the UK, the saving equates to £15,000 so not a significant game changer. What’s more relevant for PCL is the surcharge coming in on April 1st for overseas buyers.

The SDLT saving, whilst being seen as positive by buyers and sellers alike, has mainly benefitted sellers. We are hearing reports of sealed bids and properties selling for well in excess of the asking price on lower value properties around the UK. For many buyers, the SDLT saving has been eradicated by the rise in house prices as evidenced by the recent Halifax house price index which showed that House prices in January 2021 were 5.4% higher than the same month a year earlier.

A better approach would have been to make the SDLT holiday only available to first time buyers rather than all buyers. The Chancellor seems to be giving with one hand and taking with the other when it comes to overseas buyers, allowing them to have the benefit of the SDLT holiday, but then introducing a surcharge from 1st April.”

Stamp duty is not the only tailwind helping to give momentum to the UK property market – the underlying liquidity position of UK households plus easing mortgage conditions could help to propel the market further in the Autumn. Higher LTV mortgage products are returning to the high street and consumer confidence is turning a corner as the reopening approaches. Meanwhile, households have built up a ‘nest-egg’ of savings during the crisis. The Bank of England’s Chief Economist, Andy Haldane, expects this savings pile to rise from £125bn to perhaps over ‘£250bn, or 20% of annual household spending, by the end of June.’ While there are hopes this cash will find its way into additional household spending, the uneven distribution of the cash – skewed towards wealthier households – suggests it may find its home in new investments or property down-payments.

 

How to navigate the London rental market

The London rental market has had a much tougher time than the sales market in recent months. As noted by Camilla Dell, Black Brick Managing Partner: “The rental market was most affected by Covid. From the point of view of an investment landlord, rents are much lower now and tenants have a lot of choice. For example, a £650 per week one-bed flat in the City might now rent for £450. Travel restrictions have pushed short-let stock into the long-term lettings market. We are sceptical that this represents a permanent structural change, however, and we are happy to advise what landlords should be doing to improve occupancy prospects in the meantime.”

In stark contrast to the sales market, renters have been switching outer London for inner London in recent months. Notes Liam Bailey, Global Head of Research at Knight Frank: “The number of new prospective tenants registering in prime central London who came from outside the area was 35% between June and December 2020, up from 26% in the same period in 2019. Furthermore, their average distance from the boundary of PCL more than doubled to 3.1 miles from 1.5 miles over the same period.”

Savills recently updated their mainstream London rental forecasts, expecting rental growth of 1.5% in 2021 and 5.5% in 2022, with a five-year outlook of 19.3% overall. The Savills team expect 2021 to be ‘a year of two halves’: “Although we’re starting to see the recovery of supply levels to pre-Covid levels in some London markets, there’s still an oversupply of unlet properties due to changing tenant preferences. As it will take time to erode that excess supply in 2021, we expect much stronger rental growth in 2022. In later years, we are likely to see a return to income growth acting as the main driver behind rents, both nationally and in London.”

Against this challenging, but improving, backdrop, Camilla and Caspar outline their ‘top tips’ for buy-to-let investors.

For existing landlords: Having a tenant in situ is the most important thing. A temporary rent reduction is better than a vacant flat. If you need to, this is a great time to get work done and builders are already very busy in anticipation of the September market. At Black Brick, our property management service can help to keep your investment in tip-top condition, with a black book brimming with trusted contacts and suppliers.

For new entrants: New buyers could easily be put off in this market – rents are down more than capital values. But now could be the time to pick up a ‘bargain’ portfolio of those temporarily out-of-fashion Zone 1 one-beds. We would not recommend shifting to investing in houses for rental, even though stronger demand in this market might make the move tempting in the short-term. When looking for a new property portfolio, our top tip would be to look at how long tenants have been in situ – the longer the tenancies, the happier the tenants are likely to be, making it less likely to suffer rolling void periods in a high turnover building.

 

Greening the London property market

One of the themes for 2021 highlighted in our December newsletter was the prospective ‘greening’ of the London property market and how it might affect buyer preferences. As we noted at the time: Buyers will become more sensitive to whether a building is “green” – building materials, carbon footprint, energy efficiency rating (a factor which is already important for landlords). Developers will need to look at how they can incorporate this growing trend into their schemes and ‘super-prime’ developments are likely to be marketed on this basis. “Being green will overtake being swanky,” according to Camilla Dell, Black Brick Managing Partner.

This is a theme we will be following closely and there are already signs it is picking up momentum. This month, the Guardian reported that ‘the UK’s first homes to be fitted with boilers and hobs that run on hydrogen rather than fossil fuel gas will be built in Gateshead by April’. And mortgage lenders are starting to feel the pressure to ‘green’ their loan books – Natwest, for example, has started offering better mortgage rates to homebuyers where the property has an Energy Performance Certificate (EPC) rating of A or B.

“While commercial developers have been very aware of the need to produce more sustainable stock, the residential sector has been slower to catch up,” says Camilla Dell. But with policy makers keen to reduce emissions and the buildings sector being such a huge contributor, expect further ‘nudges’ to developers from government and regulators in future. Adding sustainable features to your list of property desirables could be an increasingly smart investment move.

 

 

Welcoming Hamish Bruce, Head of Managed Sales

We are delighted to welcome our new joiner, Hamish Bruce, to head up our Managed Sales service from 1st March 2021.  The appointment has come as a result of significant increased demand from our client base to complement our successful award-winning property buying expertise.

Bruce has worked for the past 7 years as a Negotiator and Sales Manager for Marsh and Parsons and brings with him a wealth of experience, having worked in numerous areas of London in some of the most testing markets. As a Negotiator, he has sold in excess of £100 million of property and, as a Manager, he has built a reputation for achieving fantastic results for his clients.

Before working in property Hamish lived in South Africa and set up a successful Chinese Food Delivery business as well as a charity events company, specialising in White Collar Boxing. Hamish was brought up in Fulham but currently lives in Queens Park and, when he is not in the office, he enjoys playing golf, football and padel tennis.

“We are delighted to welcome Hamish to our team,” says Camilla. “He brings a wealth of experience having been one of Marsh and Parsons top performers in challenging markets. Hamish will lead our Managed Sales Service, a growing and exciting part of our business where we have already received close to £100 million of new sales enquiries since the start of 2021. There is clearly a huge appetite from sellers for a more boutique, personal approach when it comes to selling, and we look forward to delivering some outstanding results for our clients this year”.

“I couldn’t be more excited to have joined one of London’s most formidable buying agents”, says Hamish. “While Black Brick is renowned as a buying agency, they have always had a very good sales side to their business, born out of historic clients relationships. I’m looking forward to getting started and helping to grow the managed sales side of the business to achieve the massive potential that it has, exploring different avenues and building new relationships as we go.”

If you are considering a sale, now or in the future, please contact Hamish.Bruce@black-brick.com

Managed sale of the month: 3-5 Westbourne Gardens, Bayswater, W2 5NR – £11,000,000

We bring to market this month an attractive period residential investment block in Bayswater, comprising eight self-contained residential apartments. The asset comprises of four 3-bedroom and four 2-bedroom apartments, across the lower ground, ground and four upper floors. The property comprises 7,651 sq. ft / 711.41 sq. m of residential accommodation (GIA of the residential flats combined, excluding common parts) and benefits from an internal lift to all floors. This freehold building commands total passing rent of £266,135.84 and is currently owned in an SPV as a single asset. There is an opportunity for an incoming purchaser to enhance the rents further.

The nearest underground stations are Royal Oak (Hammersmith & City Line, Zone 2), which is approximately 250 yards to the north. Bayswater (District & Circle Lines) and Queensway (Central Line) both provide access to Zone 1 underground connections and are accessible within approximately 0.5 miles to the south. Nearby Paddington mainline rail station is also on the Crossrail line.

Bayswater is currently benefitting from significant investment and regeneration, including the £1 billion re-development of Whiteley’s shopping centre by Foster and Partners, into The Whiteley London, a new luxury residential and retail development. Bayswater’s Park Modern, a new luxury development of 54 apartments by Fenton Whelan, is seeking asking prices in the range of £3000 and £5000 per sq. foot.

To arrange a viewing, please contact Camilla.Dell@black-brick.com or call +44(0)7887 827 176.

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