Despite being one of the world’s most expensive cities to live in, London has attracted many foreign property investors. But in the wake of the recent election, what can we expect of its housing market?
by Cheryl Marie Tay
Ask anyone who has lived in London what he thinks of the city, and you will most likely get either a glowing review, or an unenthusiastic response that includes some complaint about the drab weather.
As it happens, the same can be said of the London property market. A recent Savills research report showed that London’s prime housing market values increased by an average of 1.6 percent in the second quarter of this year, but remained 0.7 percent below their level one year before, thanks to higher stamp duty rates and unsold stocks preventing a bounce in values after the election.
Residential property in prime central London saw a negligible net house price growth of 0.3 percent in Q2, signalling a 4.3 percent year-on-year decline. This was mainly because of changes to the stamp duty in the 2014 Autumn Statement, as well as the uncertainty of a mansion tax in the lead-up to the general election.
After the Conservative Party victory, however, there is no longer any threat of such a tax, though the higher stamp duty remains an important consideration for buyers. According to Savills, “this has restricted any significant boost to prices and transaction numbers”.
Dark side of the boom
According to Brett Alegre-Wood, property author and Chairman of YPC Group (a London and UK research and property consultancy specializing in new build and off-plan property), the London and general UK property market “are a mixed bag right now”. He adds: “There’s a lot of negative news about London Zone 1 and 2, and certainly, at the higher end of the market, things are not looking very good.”
The main — or even sole — factor affecting the UK property market is change; specifically, changes in the recent buy-to-let tax charges, which, Alegre-Wood says, “haven’t really hit home as they are so complex to understand”.
Certain change, uncertain market
Generally, people are resistant to change. This is especially true of potential investors in the property market. Apart from the changes to buy-to-let taxes, other changes impacting the UK property market at the moment include property tax changes, non-domicile reforms, and mortgage review.
Alegre-Wood opines: “Change is never good for the property market. People want certainty. And when they’ve got certainty, they act. All these things are playing a part. There’s a lot of change, a lot of uncertainty. And that is affecting the market.
Such changes also give potential investors pause because of increased residential prices. Alegre-Wood offers this example: “When you look, at say, a £6 million property, there’s about £750,000 worth of property fees attached to buying it. That’s not an amount you can borrow; it is money you have to pay out of your pocket.”
Optimism amid the odds
Still, the general outlook amongst analysts is positive, despite London’s prime housing market expected to stay rather subdued for the rest of the year. The market is predicted to recover in the first quarter of 2016, with industry-watchers projecting that values will increase by 22.7 percent over the five-year period of 2015 to 2019.
International real estate consultancy Cluttons predicts moderate house price growth of two to three percent in central London this year, before hitting almost five percent next year and stabilizing at approximately four percent per annum from 2017 to 2019. Subsequently, such growth is expected to result in nearly 18 percent cumulative capital appreciation over the next five years.
Still, a property market boom over the next decade or so is imminent, with production being ramped up across the country. In fact, in Q3, home prices in London shot up 9.6% year-on-year, signalling a market recovery and possibly inspiring more confidence in its Asian investors.
Despite the uncertainties brought about by changes in the property market, the negatives are only temporary. The current outlook for Zones 1 and 2 in London may be bleak, but throughout Zones 3 to 9, things are decidedly different.
Alegre-Wood assures us: “A lot of the fears people are talking about are actually unfounded and aren’t being seen on the ground. Overall, things are still quite upbeat, just with many things happening (at the same time).”
At the same time, although the profitability of buy-to-let properties might discourage some landlords, the impact is highly unlikely to be significant enough to see a mass exodus of investors. Furthermore, the buy-to-let market is the UK’s most lucrative property sector.
Faisal Durrani, Head of Research at Cluttons, also has a positive outlook on London’s property market: “There is no doubt that the results of the general election have helped to re-inject confidence into the market, which had receded early on this year.
“Our outlook for the rest of the year is for increased stability in the market, and a return to a more normal state of activity, as buyers and vendors have returned to the market, following a conspicuous absence of activity.”
While London still holds strong appeal for investors, Bath has caught up. According to a research report from Knight Frank, prime property values in Bath have surpassed the UK’s wider prime market in current market conditions.
Knight Frank’s index, which tracks prime property values in Bath, showed that the average price of a residence there saw a 2.8 percent increase in the first half of this year, and a 5.3 percent year-on-year increase.
According to the report, this means values in Bath have “outperformed the wider prime market in the UK, where prices have risen by 1.8 percent so far this year, and by 2.3 percent over the 12 months to the end of June”.
The report also attributes rising property prices in Bath to the shortage of prime properties for sale, as well as great demand for homes in prime urban markets that feature renowned schools and good infrastructure.
Dipping their toes
Knight Frank says the number of people seeking homes in Bath via its website in Q1 this year was 40 percent higher than last year, and this activity shows no signs of ceasing or even slowing down in the near future.
The city’s upcoming regeneration projects could very well boost activity in its residential property market, with the local council planning to increase its economy value by an additional £1 billion by 2026 (an estimated £620 million annually), resulting in about 10,000 new jobs.
Knight Frank says, “Perhaps the notable project is Bath City Riverside Enterprise Area. Covering a total area of 98 hectares, it has the potential to accommodate up to 9,000 new jobs and 3,400 homes along the river corridor, and in central and western Bath.”
Prices and predictions
His scepticism regarding the UK property market notwithstanding, Alegre-Wood concedes that there are upsides and future potential for investors.
Although house prices are still increasing, he believes this rise will be minimal compared to that in previous years. “They’re still going up. Sure, you’re going to have variances, but you’re going to find that actually, house prices won’t go up as much now.
“Why? Because it’s cold; it’s not great weather. People don’t want to go out as much to view properties, so this may mean prices will start to cool off a bit, as we usually expect each year.”
He also predicts an overall rise of around six percent next year, with the market remaining ahead of property markets in Asia. As such, London is expected to continue attracting investors from Singapore and other parts of the region.
This certainly bodes well for London in the long term. As Alegre-Wood says, “Overall, it’s good news, even though there is a little uncertainty now, with various happenings. The question you have to ask is if anything in Asia is going to do better, and it appears for now that’s not on the cards.”
CITY FAST FACTS
Population: 8.6 million
Total area: 1,583 sq km
Currency: Pound sterling (GBP)
GDP per capita: US$40,968
GDP growth: 2.3 percent
Future transport: Crossrail railway line, due to open in 2018
Home values: Up 9.6 percent in the past year
Distance from Singapore: 10,867km
NEW PROJECTS – LONDON
Royal Wharf (Phase 2)
N Woolwich Rd, London
Type: Condominium Complex
Developer Name: Oxley International Holdings, Ballymore
Tenure: 999–year leasehold
Nearby Key Amenities: London City Airport, Asian Business Park (upcoming)
Nearby Transport: DLR station at Pontoon Dock, Crossrail Station (upcoming)
An upcoming township development in London, Royal Wharf will offer 3,385 residential units. These consist of a variety of apartments and townhouses, ranging from one-bedroom units to a four-bedroom duplex.
The 36.3ha waterfront development, which will also feature 15,000 sq m of office space and 5,000 sq m of retail and F&B spaces, boasts a 500 m south-facing riverside walk along the River Thames. It will offer a lifestyle facility that will include swimming pools, outdoor gym facilities, and a 14,000 sq ft leisure centre, among others.
Royal Wharf offers quick access to central London via the Underground, DLR and the future Crossrail, as well as excellent connectivity via the London City Airport.
Royal Wharf has launched Phase 2 for booking. The development is scheduled for completion by 2017.