7th September 2016
As baseball giant Yogi Berra famously put it, “it’s hard to make predictions, especially about the future”, and never more so when it comes to the current property market. A recent roundup of the latest Prime Central London price forecasts by the PrimeResi website found little consensus about what the next year or so holds. The gloomiest outlook is from the Centre for Economics & Business Research, with the think-tank predicting that the property prices are set to fall 5.6% in 2017, as London loses its status as an international safe haven.
Hamptons expects prices in PCL to stay flat in 2017 although, outside Zone 1, it expects prices to slide 1-1.5%. Fellow estate agency Marsh & Parsons believes, conversely, that central prime London will rise 2% over the next 12 months, but lag 4% growth in outer prime areas.
Property advisor CBRE is holding to its earlier forecast, of a 3% rise in PCL prices in 2017, although it warns darkly of numerous “downside risks”. Knight Frank has ducked the question, for now, with the closely watched estate agency holding off revising its forecast until later in the Autumn, when it hopes the picture will become clearer.
In terms of the wider market, the latest data from the Halifax shows a small dip in UK house prices in August, down 0.2%. But it adds that the economic picture suggests the UK will avoid recession and a significant correction in property prices. On a more positive note, a recent report from The Royal Institution of Chartered Surveyors (RICS) suggests that the post-referendum housing market malaise is wearing off. RICS reports that 12% more of its members had reported house prices rising rather than falling last month, up from 5% in July. Expectations also improved. For the first time since April, a positive balance of surveyors now expect prices and sales to be higher three months ahead compared to now. In all, the data suggests that uncertainty following the Brexit vote is wearing off. That is consistent with the recent improvements in the economic data.
So what does this mean in terms of advice for our clients? First, it’s important to look beyond the headline numbers. There has never been a single homogenous market for PCL property. Some areas and property types do better than others, at various points in the cycle. As we have frequently noted, neighbourhoods and property sizes catering to domestic demand are proving more resilient than the more internationally orientated higher end of the market.
“This means that there are opportunities to be had,” says Camilla Dell, Black Brick Managing Partner. “Property has a place in a diversified investment portfolio, now as much as ever. At present, we would advise investment clients to focus lower down the market; there is value to be had in one- or two-bedroom properties, in the right areas, close to transport and other amenities.”
Second, be mindful of the holding period. Changes to UK property taxation – not least revisions to Stamp Duty – have increased transaction costs substantially. In the current market, where rapid capital appreciation is far from guaranteed, investors need to be prepared to invest over five to 10 years.
Third, of course, is to focus on value. Vendors’ asking prices are notoriously subjective, and estate agents often advise their clients based on local prices that might be out of date, or on broader statistics that lag the market or have little local relevance. At Black Brick, however, we aim to apply much more timely and local intelligence – what has been happening in that neighbourhood, or that street, in recent weeks.
Fourth, know your vendor. Some vendors have a pressing need to sell – either because they are under financial pressure, or they’ve decided to cut their losses, or because they are relocating. Correctly identifying the vendor’s motivation is a real skill.
“For all the uncertainty, we are still seeing transactions move forward, and we’ve got a healthy pipeline under development,” adds Dell. “But it is extremely important to take good advice. It is in markets like these, we believe, where our ethos of acting as an adviser rather than simply as a broker adds particular value.”
Treasury tightens inheritance tax net on non-doms
There’s more bad news for non-doms owning residential property in the UK. New guidelines from the Treasury say that such property will be liable to inheritance tax even if it is held in an offshore trust. The moves were announced in last summer’s Budget but, The Financial Times reports, many advisors had expected the guidelines to be delayed by a year, or even abandoned following the Brexit vote. The new guidelines say that non-dom residents who own a residential property in the UK will be subject to inheritance tax from 6 April next year.
In a further blow, non-dom property owners will be liable for capital gains tax if they seek to ‘de-envelope’ properties held in offshore companies. The Treasury was considering whether to reduce the tax costs of such restructuring, but the consultation document states that the government “does not think it would be appropriate to provide any incentive to encourage individuals to exit from their enveloped structures at this time”.
This is a development that we have been anticipating: we’ve been advising clients for the last few years to take proper tax advice when it comes to structuring their UK property purchases, to avoid complications around enveloping. If you are concerned about how the potential changes may affect you and would like to have an initial discussion about your situation, please get in touch and we will happily recommend one of our expert legal advisors to you.
The death of Gerald Cavendish Grosvenor, the Duke of Westminster and Britain’s third richest man, has shone the spotlight on a property empire that the Duke shepherded over his life with great diligence and some skill. The fortune of the family was built on an arranged marriage, in 1677, to a young heiress to 500 acres of farmland then to the west of the capital. By his death, at just 64, the Duke’s Grosvenor Group was managing £13.1 billion of real estate, including great swathes of prime central London and investments around the world.
The company and the Duke himself can take much credit for the revival of Mayfair as a residential area, reversing its increasing commercialization in the 1980s and 1990s. It’s signature redevelopment of Mount Street, attracting high-end retail tenants, with the Duke’s famous attention to detail, have helped to ensure the area remains vibrant and attractive to residents as well as to business.
Attention now turns to the new Duke who, at just 25 years old, carries enormous responsibility for the family’s estimated £9 billion fortune, and the prospects for the family firm. Fortunately, under his father’s stewardship, the Grosvenor Group appears well positioned to navigate the succession.
Acquisition of the month 1 – Marlborough Mews, Battersea SW2
Navigating the city’s many neighbourhoods is a challenge to Londoners – let alone outsiders – and its poses particular difficulties when trying to compare the value of properties in different parts of the capital, increasing the chances of overpaying. Our client, a Scottish buyer relocating for work, had friends in various parts of London, making it difficult to decide where to focus his search.
We set to work with a budget of £1 million and a maximum 40-minute commute to Baker St. On just the second property tour, we showed our client Marlborough Mews, a 3 bedroom freehold house in a gated mews in Battersea, and negotiated a purchase price of £725,000, or £640/square foot, saving our client £50,000 from the asking price. By carefully assessing our client’s needs, we saved a great deal of his time and gave him the confidence to move ahead with the purchase, ensuring the property was under offer within a week.
Acquisition of the month 2 – 551 West 21st Street, Manhattan, New York City
We are delighted to announce our very first US property closing. Located in West Chelsea, 551 West 21st Street is a brand new Foster and Partners designed building, containing just 44 apartments. Our client was able to gain very early access into this boutique scheme back in February 2015, cherry picking one of the best available units, a 2 bedroom apartment measuring 2425 square feet with stunning views of the Hudson River for $5.75 million. Since that time values in the development have risen significantly. Our client paid $2371 per sq. foot back in February 2015. Since that time sales have taken place at an average of $3361 per sq. foot, showing the advantage of getting in early to a scheme.
New York continues to be a favoured property destination for many of our clients which is why we formed a strategic relationship with one of the city’s top brokerage firms. If you are considering making a purchase in New York then please do not hesitate to contact us as we would be delighted to assist and make an introduction to our US partners. Contact: Camilla.firstname.lastname@example.org
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.