Ask commentators about the cause of London price reductions post-2014 and most will point to tax increases designed by George Osborne to take the heat out of the top end of the London market: stamp duty, a new annual property tax (ATED) and extra taxes for private landlords. These factors coincided, though, with numerous others, including new anti-money laundering laws. Together, these led to a reduction, according to Home Office figures, of over 80% in the number of foreign investors moving to Britain in the year to March 2016. The gushing flow of foreign money pouring in to central London and rippling out as sellers took their gains elsewhere, stopped. Prices – rents and capital values – inevitably fell.
The picture today is very different. Since 2014, the US dollar has risen almost 30% against sterling. Prime London rents are down anything from 5% to 20% and capital values, anything from 10% to 30%. If your money is in dollars, this makes a huge difference: an apartment which would have been, in 2014, $1,900 per week, now equates to around $1,200 per week. Even more spectacular, a house for sale in 2014 at say, $8.5 million, would now cost around $4.8 million. Not quite half price, but close. Unsurprisingly, our dollar-based tenants and buyers are much happier and we have no doubt that this is a factor in rents and capital values increasing. We firmly expect rental demand to grow further. Much less certain is whether dollar-based buyers are now held back by the legislative changes referred to above, or whether they are waiting for a measure of political certainty (a big part of the appeal of London having always been its solid, safe haven status). If they are awaiting greater political certainty then, if and when it is regained, they will look to act swiftly, before prices and exchange rates erode their current advantage.
Lettings: a new stability
There remains strong demand at the top end of the rental market and at all rent levels. Landlords, far from being discouraged from continuing with their letting investment, have been retaining or even growing their portfolios. The fact is that despite lower returns, there are still few better investments.
We are witnessing a stronger market which may well see the year end with a modest jump in central London rents. Across central and more suburban markets, demand is healthy and the number of deals done, for us at least, is greater than last year. Looking ahead, we are watching the student market (which, again, is important in all areas) and at what the impact of growing institutional investment in large scale ‘build to rent’ projects might be.
Sales: strong where the Brits are
Prices in central London are holding firm. In areas favoured by overseas and ‘top 1%’ buyers, this is at least partly because availability is so low. Outside such exclusive areas, prices are holding firm because the demand is there. Selling prices on deals agreed via our Pimlico and Westminster office, for example, have so far this year averaged 98% of asking price, with volumes on a par with last year. Looking south west (which does have its share of top 1% buyers, mainly for the most favoured SW19 Common-side spots and the dizziest heights of St George’s Hill) the picture is similar. Sales are tending to take longer, because this is more of a family market with the dependent sales, mortgages and ‘off-stage’ disruptions which that involves. Yes, the spark of a boom market, boosted by overseas money flowing from the centre of town is not there. But it remains positive, driven by normal people needing to buy and sell in the normal way.