As the year begins to draw to an end, what has the impact of events had on the prime London property and its rental markets. In a review of statistics by Land Registry for Q2 2016 Prime Central London (PCL) released a comprehensive analysis of the trends in the London area. The report includes the Royal Borough of Kensington & Chelsea and the City of Westminster.
The analysis describes as a ‘rollercoaster’ the past year to date for the property market stating:
Vividly demonstrating the distorting effect of changes in tax legislation, sales volumes have fallen dramatically in all sectors in Q2, following a rush of activity during the previous quarter, as buyers sought to be beat April’s 3% Additional Rate Stamp Duty deadline.
The luxury house market has seen average prices decline by 21% but the Private Rental Sector (PRS) has experienced price growth due to less exposure that has been placed on new residential property with taxes over the past 4 years. The new build sector for Greater London showed a 43% downturn in its sales compared with the previous year with a 25% premium on new units compared with older units has also been hit due to a lack of interest from international buyers.
Whilst uncertainty pre-Brexit resulted in a ‘wait and see’ attitude, harsher salary caps on mortgage lending may have also begun to impede buyers.
Luxury Property Market
The Q1 showed an that buyers were out in the market with hopes of purchasing property before the 3% Additional Rate Stamp Duty went into place. Since then prices have declined 20.9% with a total of 62 sales registered, a 70% decrease for Q1 in 2016.
…the high end ‘Houses’ sector, where the average price now stands at £3.4m, has been hit hard by the introduction of new taxes. It has seen three rises in Stamp Duty between 2012 and 2016, a rise for some purchases from 5% to 15%. In addition, the introduction of the Annual Tax for Enveloped Dwellings in 2013 has particularly impacted top-end property.’
The volatility in the prime property market is expected to continue as economic, political and unstable currency valuations remain. One other issue is that of the non-doms inheritance tax which is expected to start in April 2017.
The Treasury announced in its Summer Budget 2015 new guidelines for non-dom residents who own a residential property in the UK will be subject to inheritance tax from April 6, 2017:
This charge will apply both to individuals who are domiciled outside the UK and to trusts with settlors or beneficiaries who are non-domiciled.
Private Rental Sector
The Flats and Maisonettes’ sector for PCL represented almost 88% of sales for Q2 with average price being £1.32million. Even with the Brexit vote and taxes the report showed growth in Q2 at 6.6% over the previous quarter.
The Private Rental Sector includes one and two bedroom flats which the report shows has a more stable performance than the upper end market.
‘This is a function of the fact that, as an entry-price market, it is generally more accessible and being primarily a rental market, there is a commercial yield-based means of valuation. The price point is also close enough to the ‘domestic’ Greater London market not to get captured by the onerous taxes specifically targeted at the higher end of the market.’ Expectations for Q3, is for the market to perhaps experience moderate price adjustments.
Demands for commercial property has begun to show some signs of recovery since the June referendum. This past summer saw almost £8.7bn invested in commercial property with the average purchase at £13.6m and £1.7bn in sales in London during the same period. These purchase prices have been lower than in the previous years.
Royal Institution of Chartered Surveyors (RICS) Chief Economist Simon Rubinsohn speaking with Reuters said, ‘a rebound in demand for property by firms seeking space for their operations showed the economy was proving resilient, at least for now.’
Foreign investors continue to show interest in the central London commercial property market but domestic firms continue to be wary due to on-going political and economic situations. The concern for British firms is the ability to recruit staff from the EU especially in the automotive and financial services sectors.
RICS Stated: ‘Around 14 percent of commercial real estate agents said clients were considering relocating some activity away from the United Kingdom. The proportion expecting relocations over the next two years hit 47 percent in central London and rose to 71 percent in Northern Ireland.’ Also expecting relocations are Germany, Ireland and Poland.
The FT quoted Mark Stansfield, managing analyst at CoStar Group which issued the data as saying, “Everyone has been sitting on their hands. They are not sure where the prices are and a lot of properties have been withdrawn because the sellers were not prepared to accept the prices being offered, especially in central London where investment is down quite sharply.” One building at 76 Wardour Street was on sale for £90m but later withdrawn from the market. In Q3 FT reported properties across the UK were selling for an average of 6 per cent below their asking prices, having sold for above the asking price for the preceding three years.
By Kevin Murphy: www.kevinmurphy.london