Publication: The Times

The capital as a tax haven

Many more foreign buyers are now exploiting a stamp duty loop hole, reports Susan Emmett.

The Exchequer is losing millions in tax revenue as more top London homes are traded behind scenes through offshore companies. Demand for property in the best postcodes, much of it from foreign investors seeking a safe haven for their money, has continued to push up prices in prime London locations, bucking the national downward trend. Yet many of the highest-value transactions are not recorded by the Land Registry or subject to property tax. With stamp duty land tax (SDLT) now at 5% for homes that sell for more than £1mil, the number of multimillion-pound property deals conducted through offshore companies is rising.

Hamptons international estate agents say that 30% of the homes they have sold in Central London in the past 12 months were traded between offshore companies. Most of those deals were worth more than £4mil, although a number went for far more than that. James Wardle, Director of the Knightsbridge office, says that the stamp duty increases in April is an incentive, but that more offshore companies have been set up as Central London market becomes more global. He adds that even if homes are bought on the open market, some overseas purchasers are incorporating their new property into an offshore company, which means that any future sales are unlikely to be recorded by Land Registry. The absence of these deals from official data suggests that prices in Central London are rising more than records show.

The latest land registry figures indicate that the capital is the only part of the country in which prices have risen over the year, with average values increasing by 2% in the 12months to August. But prices in the 2 boroughs of Kensington and Chelsea and City of Westminster, where the most expensive properties are located, went up by about 10% and 8% respectively. Strong demand for deluxe new developments such as Candy & Candy’s One Hyde Park, where prices stretch up to £130mil, has inflated the figures.

Richard Barber, a partner at W.A Ellis estate agents in Central London, says that the recent sales at One Hyde Park, the “Bulgari” penthouse in Knightsbridge and Roman Abramovich’s purchase of a £90mil mansion in Kensington Palace Gardens emphasise how many wealthy foreign buyers see prime Central London property as “indestructible”, “a safe haven” and a “must have”. These buyers are drawn to London for its relative safety, its schools and universities and its position as a leading financial centre. The weak pound and favourable tax regime are also attractions.

London is also something of a bargain. A recent report by Knight Frank, the estate agent, shows that compared with Hong Kong and St Petersburg, where prices have risen by 16.1% and 12.2% over the past year, price growth in London, at 8.3% is relatively modest.
Although there is no guarantee that the London market will not be adversely affected by the global financial crisis, agents agree that bricks and mortar in the capital’s prime postcodes will continue to attract wealthy overseas buyers. Some groups appear to be more active than others. Chinese investors, for example, are targeting new-build flats in areas such as Docklands and King’s Cross.

Camilla Dell, Managing Partner at Black Brick, the buying agents, anticipates an increase in the interest from the Middle East “There is more confidence coming out of the UAE as the economy stabilizes and a renewed desire to hold a diversified international property portfolio” she says.
But beyond the buzzy London postcodes, prices are falling in the capital’s outer boroughs. Croyden, in South London, has been particularly hard hit, with prices falling 1.8% over the past year. The land Registry also recorded falls in Lewisham, Hounslow, Bexley and Barking and Dagenham.

Declining values have been blamed on shrinking demand as potential buyers find it difficult to raise a mortgage. However, unlike many of the purchasers in Central London, these struggling byers also need to pay Stamp Duty if their property is worth more than £125,000.

Brexit bargains: London’s luxury homes take big price cuts

Wealthy buyers are benefiting from political uncertainty — especially if they are paying in dollars

Five-bedroom house in Belgravia has cut its original asking price by £1m to £8.95m

Brexit uncertainty hangs over London’s luxury property market like a fog. Since the referendum in June 2016, house prices in prime central London have dropped 14 per cent, according Savills. Meanwhile, sales are down 19 per cent, according to LonRes.

However, despite the endless political wrangling, some buyers believe they see the opportunity for a Brexit bargain — especially if they are buying in dollars.

One US-based buyer, who asked to remain anonymous, has just bought a flat in Mayfair for £6m after negotiating a discount of more than 10 per cent. He says the weak pound, attractive borrowing rates and overblown stories about professionals leaving London in their droves all contributed to his decision to buy now.

“London is the default investment locale, not only for the US but for the world,” he says. “The idea that people will pick Brussels, Frankfurt or Paris over London was misplaced.”

The fall in the value of sterling since the referendum has made expensive property in London more attractive to overseas buyers. On the currency play alone, if the US-based buyer had paid for his £6m flat in dollars in October 2015, it would have cost him about $9.18m; this month, the dollar amount would be $7.8m. The buyer expects the strong value of the dollar to fall eventually, making his investment worthwhile.

“In the short term the UK has been disproportionately hurt by Brexit, but in the long term it won’t be at all,” he says. He intends to rent out his apartment and is expecting a 3 per cent yield.

This buyer’s approach is typical of many international purchasers who leverage the currency advantage. New data from LonRes show that transactions on properties in prime central London rose 14 per cent in the third quarter of 2019 compared with the same period last year. 

“There is much more activity than we were expecting in the run-up to the Brexit deadline [of October 31],” says Rory Penn of Knight Frank. He sees buyers taking a long-term view, especially when relocating a family to London for the next five to 10 years. “You can get a much better house than you could a couple of years ago,” he says.

“I don’t think there is any rush to sell but a lot of our buyers have been buying this year because they believe it’s the right time,” says Camilla Dell of buying agency Black Brick. “Brexit is a blip — it will be over soon,” says Ed Lewis, head of residential development sales at Savills. “The further away you are from London, the less Brexit is relevant. If you’re sitting in Hong Kong, Beijing or Shanghai, you look at London in terms of currency value and see it as an exciting opportunity.”

Buyers do not even need to be far away. A 48-year-old Belgian national who also asked to remain anonymous recently bought a smart family house in north-west London after renting in the city for several years.

“If I could, I would have bought two or three years earlier,” she says. “But I am not unhappy because when the market is nervous, it is not a bad time to buy.” 

She paid £2.5m for her six-bedroom semi-detached house near Willesden Green. She bought the home through Sotheby’s and managed to negotiate 11 per cent off the asking price.

Similar discounts — and even larger ones — abound. Several homes on the market with asking prices of more than £5m have had their prices slashed by more than 30 per cent. A six-bedroom house in Chelsea, currently marketed for £5.95m, was listed in 2013 at £9m, according to Zoopla. In Hampstead, a six-bedroom home currently marketed for £5.25m was listed on Zoopla in November 2016 for £6.95m.

Estate agency Arlington Residential is selling a seven-bedroom house in Highgate for £8.65m that was originally priced at £11.95m. Best Gapp is marketing a five-bedroom house on Halkin Place in Belgravia for £8.95m, a reduction of £1m on its original asking price; and a six-bedroom terraced house in Westminster’s Smith Square is on offer for £6.95m, down from £7.85m via Maskells. “I don’t think the market will do anything for a year or two,” says the Belgian buyer. “The next 10 years will turn out to be a good time to buy.”

“It’s not that Labour itself is bad news for the housing market, which usually does well under Labour government,” says Henry Pryor, an independent buying agent, “but Corbyn and McDonnell’s version of socialism frightens clients — they have openly talked about sequestrating long-term empty properties and discussed extending Right to Buy to private tenants.”

“Anyone in the middle and upper class would be badly affected,” says Trevor Abrahmsohn of Glentree Estates, predicting a flight of capital from the UK as “wealth creators” find other places to live. “Corbynistas are trying to make the poor rich by making the rich poor,” he says.

What should you ask to see on a virtual viewing of a property?

Ask the right questions on a video tour and you wont have to visit as many houses

Happy stamp duty holiday! Now that you have a reason to move, you have probably noticed that practically every property you encounter online comes with the offer of a virtual viewing.

Most will be a video call, on apps such as Whatsapp or Zoom, often with an estate agent on the line. These have become popular with buyers who are shielding and others who are simply unwilling to PPE-up for 12 viewings at the weekend. For many it makes more sense to whittle choices down over the phone and save in-person visits for favourites.

Other buyers complain that they don’t feel in control on video calls. The view is dependent on the camera skills of whoever is holding the phone, or the agent just won’t stop talking.

“Buyers have bespoke needs and should be confident enough to ask the questions that will let them see whether the property meets their requirements,” says Phillippa Dalby-Welsh, co-head of prime central London sales at Savills.

Often this means asking about “hidden” features such as underfloor heating, air con, utility rooms, all-important storage (if they have a loft or a cellar, ask to see it) and the boiler. And while you’re there, can you turn the shower on so I can see what the water pressure is like, please?

It may feel distinctly un-British making such demands of others in their home, but if you’re not there then how else will you find out? Outside space is vital too. Don’t just ask to see it. Dalby-Welsh says that you should ask where the sun falls in the morning and the afternoon, where guests are likely to park and, in the countryside, whether there are footpaths nearby as well as where the property boundaries end.

Jonathan Penn, director of the Ipswich branch of Jackson-Stops, advocates asking about schools, neighbours and shopping, and recommends asking to see views from the main windows.

“Don’t be afraid to ask the agent to stop talking and open the windows so you can try and check for street/traffic noise,” says Camilla Dell, from Black Brick, a buying agency. “If it’s a flat, make sure you get to see the common parts, the lift — all vital and will tell you a lot about the quality of the building and how well it’s managed.”

For the seller it’s a chance to listen to what buyers want and, according to Dalby-Walsh, also a chance for “vendors to sell the lifestyle the buyer is looking for, not just the bricks and mortar.”

360 video tour by Pixangle. House in Charlton, SE7, available to rent, openrent.co.uk.

Mum and Dad rent a different class of digs

Mum and Dad rent a different class of digs

By Carol Lewis

The average cost of student digs across the country is about £88 a week, although in some areas of London parents are paying almost 100 times that to secure the best luxury accommodation for their offspring.

James Thornett, the head of lettings at CBRE Residential, says that parents are paying up to £7,000 a week for “super-top end” three to five-bedroom apartments with a concierge, gym, spa and games room. This year 42 per cent of the estate agency’s lettings in Covent Garden have been to students — compared with 21 per cent last year.

“Many are postgraduate students studying business or management at the London School of Economics or University College London. Two thirds of them are from overseas and will have funds from mum and dad. They are security conscious and tend to want to live in a secure part of town with a 24-hour concierge. They are looking at super-prime properties — a far cry from the stereotypical student digs,” he says.

Thornett says that 10 to 15 per cent of the wealthy students he rents to will not have visited the property before they arrive for university, either trusting in virtual reality or video tours. “Often they will pay the whole year’s rent in advance to secure the tenancy and it is usual to start paying rent in June even though they won’t arrive until September for the new term — such is the competition for the best places,” he says.

Often students will want new-build properties or newly renovated places and some will request a “nanny annexe” in which a bodyguard can live. This is despite the increase in private student halls, many of which offer students a higher quality of digs than seen before. According to the website Accommodation for Students, 287 private halls opened in Britain this year, with students in London paying £264 a week on average, or £129 a week for private rental accommodation. Zone 1 is the most expensive area with an average cost of a studio in private halls of £429 a week. The average weekly rent for all properties within Greater London was £395 in September according to Countrywide, the estate agency.

Last month one student accommodation provider, Hello Student, announced that it was teaming up with the Conran Shop to offer luxury furnished “executive studios” to students in Cardiff costing from £233 a week.

Yet despite the high rents some parents are paying there is a lack of property available to students. “Some landlords are cautious about renting to students but we have to think beyond [the 1980s sitcom] The Young Ones image of students partying every night and ruining the place. They tend to leave the place immaculate and rarely, if ever, do we have to deduct anything from the deposit,” Thornett says.

A two-bedroom flat at Merano Residences, on Albert Embankment in London, is to let for £1,125 a week with CBREA two-bedroom flat at Merano Residences, on Albert Embankment in London, is to let for £1,125 a week with CBRE.

Other areas of London popular with wealthy students include South Kensington, near Imperial College London and the Royal College of Music, and St John’s Wood and close to Regent’s Park for the London Business School.

Camilla Dell, a managing partner of Black Brick, a buying agency, says that she has seen an increase in international rental tenants including students. Many have decided against buying because of the increase in stamp duty, the abolition of capital gains tax and inheritance tax breaks for foreign buyers, and the uncertainty caused by Brexit, which means families are less sure that their children will live and work in London after graduating than they were before the referendum.

She says that most of her clients are looking to spend between £700 and £1,000 a week, with safety the key concern — so a 24-hour concierge or porter is a must-have. They also tend to want a one-year tenancy with the option of renewing for the final two years of their course.

Martin Bikhit, the managing director of Kay & Co estate agency, says: “We have seen a spike this year in wealthy students renting, but also in parents buying for their children. Often they are planning years in advance, buying property three to four years before the children need it and renting it out in the meantime. They will buy two to three-bedroom apartments so that siblings can share. Marylebone is particularly popular for its proximity to the London Business School and London College of Fashion. They tend to spend from £800 a week upwards on rent.”

Thornett says that, of his clients, 80 per cent of parents will pay for children to rent while the rest will buy for them. “More than a couple of times we have had parents plan for children who are eight or ten years old. They are buying property for the child to live in in ten years’ time. They treat it as an investment. There is also a small percentage who will start out renting and will then buy.”