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Why the new stamp duty hike could stamp out long-term demand for new homes

The UK’s Government’s decision to raise the stamp duty levied on buy-to-let or second homes, as stated in the November Spending Review, may have investors rushing to complete a property purchase before the change kicks in, but by and large the UK property industry has reacted negatively to the announcement.

Here are snippets from a selection of leading voices in the London property scene, highlighting why the rise could be bad for London’s property market.

Lucy Morton, Head of Residential Agency at WA Ellis and JLL: “It is very disappointing that the Government is discouraging buy-to-let investors by increasing stamp duty land tax (SDLT) on such purchases… The investment community, particularly the individual buy-to-let landlords, will not trust this policy and it could have a negative impact on the demand for off-plan purchases and new homes.”

Andrew Langton, Chairman at Aylesford International:
“In my view this will seriously reverberate on the price of second homes and inevitably lower the prices achieved on property within these sectors. In the longer term such harsh measures could come back to bite the government, as the volume of property transactions will surely slow down resulting in reduced revenue for the Treasury.”

Tony Wright, partner and national property consultant at Carter Jonas:
“Less residential investment activity is traditionally seen in the winter months. However, this new legislation could create a surge in demand, as landlords look to beat its implementation date. Conversely, once it comes into effect, this, coupled with other recent legislative changes on the reduction of tax relief on buy-to-let mortgages, could deter all but the most determined non-professional buy-to-let investors from expanding their portfolios.”

Marc von Grundherr at Benham & Reeves Residential Lettings:
“For years, buy-to-let has been touted as an alternative to pensions. Today’s move will force many to leave the sector altogether, increasing their dependence on the state and diminishing the overall number of properties available to tenants. This, in turn, will invariably lead to increased rents and falling property standards. The Chancellor has unilaterally decided that buy-to-let landlords are responsible for pushing house prices beyond the reach of first time buyers. This is ridiculous. A lack of homebuilding has pushed up prices and we also have to look at first-time buyers themselves. We’re also seeing a shift in expectations from the Millennial Generation. They’re less willing to go into ungentrified areas, renovate properties themselves or even save for years for a deposit. I couldn’t afford to buy in Chelsea as a first time buyer, either. Don’t blame buy-to-let landlords who are simply trying to supplement their derisory pensions.”

Low-end prime London rentals down, while three-beds are in high demand

As the lettings market in London continues to thrive, a leading national estate agent reports a strong demand in the more expensive end of the rentals market, as well as a shortage three-bedroom homes.

Owning a three-bedroom property is good news for landlords in London in 2014. They make a safe investment thanks to having such broad appeal – prospective tenants include young couples, small families and older couples looking to downsize. At a time when there has been a surge in working from home, having a spare room to use as an office is also very attractive to tenants.

“The demand for three-bedroom homes for rent in central London is seemingly insatiable,” said Zoe Rose, Head of London Lettings at Strutt & Parker at the end of October. “As soon as we get a good one on our books, it lets in a flash. We recently let a three-bedroom lateral top floor apartment on Cranley Gardens in South Kensington for £1,300 per week within two days on its first viewing – and similarly we let a three-bedroom apartment on Ladbroke Gardens within one week for its asking price of £1,500 per week.”

Meanwhile, Strutt & Parker’s latest figures for lettings transactions in the third quarter of 2014 indicate that it’s the larger, more expensive properties that are performing most strongly. When compared to the same period last year, transactions are up 18.4 per cent for properties between £2,000-£2,999 per week, up 14 per cent for properties between £3,000-£3,999 per week and up 16.7 per cent for properties over £4,000+ per week.

However, lower priced properties costing less than £999 per week to rent, were down 7.5 per cent on last year – and properties between £1,000 and £1,999 per week were also down very slightly by 1.4 per cent.

Zoe Rose predicts that 2015 will be a good year for landlords with property in prime central London: “We are anticipating a slight uptick in lettings prices in prime central London for 2015 – a 2.5 per cent increase; and we’ve already seen two per cent growth for lettings in 2014. This slow but steady growth will be underpinned by the simple fact that there are still so many people out there that can’t afford to buy a home in London and these people will continue to rent. Not to mention the large number of people who enjoy the flexibility of renting – global, nomadic types who we refer to as ‘Glomads’. The threat of rising interest rates rising will also play an important contributing factor.”

£2.5m-£5m London market seeing most activity in 2014

Prime Central London (PCL) property transactions are stabilising, according to a leading property consultancy, with sectors of the market recording year-on-year growth.

Research by consultancy W.A.Ellis shows that between January and August 2014, there were 1,242 PCL transactions compared with 1,288 for the same period in 2013, which represents a year-on-year reduction of just 3.5 per cent.

Whilst the Damoclean sword of mansion tax continues to hover over the PCL market, these figures suggest that it has not as yet impacted. Indeed, sales between £2,000,000 and £5,000,000 have increased by 11.7 per cent this year, added W.A.Ellis.

However, sales of properties over £5,000,000 have diminished by 5.5 per cent. The reduction in activity in the £5,000,000-plus bracket is perhaps indicative that the foreign investor may tolerate a tax of £15,000 per annum (based on the current ATED charges) but not the more punitive £35,000 charge per annum currently applied to properties held in company names with values in excess of £5,000,000.

Meanwhile, in the London lettings market August had a surprisingly high level of activity in what is usually a very quiet month – according to W.A.Ellis, there was a 14 per cent increase in tenancies starting compared to the same month last year.

A spokesperson said: “The seasonal student market is in full swing, with students focusing on finding accommodation for the upcoming year and demand exceeding supply. We agreed two ‘Face-Time’ deals this month… in South Kensington and Hertford Street.

“This highlights a new breed of techie tenants who are savvier than ever before in their approach to the property market. We are also noticing an increasing trend of tenants coming back to the market and looking for new rental properties as a result of their landlords opting to sell ahead of the new capital gains tax, which is set to affect foreign owners from 6th April next year.”

Landlords in prime London relying more on tenants in the technology industry

Rentals in prime London remain fuelled by corporate employees, but demand is shifting from tenants in the finance industry to those in the technology industry, according to a leading London property consultancy.

Over the next five years it is estimated that there will be an additional 368,000 employees in London, reported Savills in July. Around 25 per cent of these will be accounted for by the technology industry, which is set to become the largest industry in central London, with growth in the sector across the UK expected to outstrip that of California’s ‘Silicon Valley.’

Compared to employees in the financial and insurance industry, who from 2007 to 2013 increased by six per cent (underperforming the London average of 10 per cent growth), tech industry employees grew by 19 per cent over the same period. The latter, however, have on average 25 per cent less budget when relocating. This disparity naturally impacts on where they choose to live in London, resulting in a locational shift.

The tech industry has traditionally been concentrated around Old Street and has dispersed outwards from there. Consequently, areas such as Highbury and Islington have benefited from a rental perspective, with 22 per cent of employees living in these areas working in the sector. This is due to their easy accessibility from the core technological hubs and excellent transport links.

Areas surrounding and easily commutable to King’s Cross, the location of Google’s new headquarters, are likely to enjoy similar success and Savills predicts a nine per cent increase in office based employment here by 2018. Financial services employees on the other hand prefer living in prime central London locations such as Chelsea or near to their work, in Wapping.

London’s property market reaching for the skies as high-rise back in vogue

London is experiencing a resurgence of high-rise living – driven by a need to build up rather than out – with 13,600 residential units currently under construction in new towers in the capital, according to a leading property consultancy.

CBRE also revealed that there a further 70,000 units now in the planning pipeline, enough to meet the Mayor of London’s housing target for two years. The move towards constructing taller residential towers has been ignited by an upsurge in land values in London, with a consequent need for developers to be more efficient with their sites.

Tower developments are increasingly synonymous with luxury living and being higher up can add substantial value to units. This means that end values can more frequently support the higher build costs attached to towers.

Research also found that towers are emerging in clusters, a trend driven in part by planning policy, which drives tall buildings to the central activity zone and opportunity areas. It also guides them away from sites in the viewing corridors designated in the London Plan, which guard views of the river and existing skyline. Clustering is driven by local values, with locations close to the river particularly attractive to buyers and, therefore, to developers.

Said Jennet Siebrits, Head of Residential Research at CBRE: “Despite the higher build costs associated with developing high-rise, developers have recognised the increased premium that these developments can expect to enjoy, making them increasingly viable. Through examining the unit by unit pricing of 15 current and recent schemes across a range of price points and specifications, CBRE has calculated an average price premium per floor of 2.3 per cent. The largest ‘tower premium’ was achieved on the highest specification and value product, ranging between 1.3 and 3.25 per cent.”

Buy-to-let growing in London, with prime central homes attracting wealthy foreign tenants

London has recorded a sharp increase in buy-to-let investors over the past two years, according to a leading estate agency in the city, who added that in the first quarter of 2014, 26.2 per cent of its buyers in Chelsea were purchasing property for investment, compared with just 2.3 per cent of buyers in Q2 2012.

“The rental landscape in prime central London is fast changing,” said Zoe Rose, Head of London Lettings at Strutt & Parker. “Investors are no longer fixed on chasing high rental yields and are happy to invest for the capital growth alone. Consequently, investors are incorporating larger family accommodation into their portfolios, resulting in more family houses coming to the market.”

According to Strutt & Parker, their tenants in London rent on average for 29.8 months, far longer than the national average of 20 months (according to ARLA), with the majority in London in their 20s and 30s.

The ultra high-end sector of the ‘trophy’ prime central lettings market is also active – examples include a 10,000-sq-ft penthouse in Knightsbridge and a nine-bedroom newly refurbished property in Rose Square in Chelsea, both currently available for £25,000 per week.

This sector of the market is increasingly fast-paced with the most coveted rental properties going to sealed bids and even being let without ‘physical’ viewings – mirroring the buoyant sales market in London.

Seventy per cent of Strutt & Parker’s landlord base is British, whereas 75 per cent of its tenants are international – often from France, Italy and Spain – which is driving some interesting changes in the marketplace.

“Renting is the norm in prime European cities like Paris, Milan and Barcelona,” added Ms Rose. “And the influx of young and affluent international tenants flowing into London is driving up standards in the capital as their expectations of rental property are very high. We describe this tribe as the ‘GloMads’, Global Nomads who are open to travelling from place to place over longer periods of time, often for employment.”

London’s $101.5million luxury property market makes it the world’s No.1

London has topped the rankings of luxury property markets in the world, recording the highest value sales during 2013, according to a report from a leading international property consultancy.

Christie’s International Real Estate report presents in-depth analysis of the world’s top 10 luxury property markets, namely France’s Côte d’Azur, Hong Kong, Los Angeles, Miami, New York, Paris, San Francisco, Sydney, Toronto and London. Each market was ranked across key metrics, including record sales price, prices per square foot, percentage of non-local and international purchasers, and the number of luxury listings relative to population.

London topped the Index with the highest record home sales price of all the cities investigated – at $101.5 million. Square foot prices in London were also higher than any other city in 2013, averaging $4,683, which is significantly greater than the second highest found in Hong Kong at $2,578.

Furthermore, the entry price point for luxury property in London was found to be the highest of any market analysed, at $7.8 million. London also saw a 20 per cent year-on-year rise in the number of luxury property sales in 2013, racking up 5,693 properties in total.
Price increases and supply constraints did little to detract buyers in prime Central London as 2013 recorded the highest number of home sales since the 2006 peak, with significant growth in high priced transactions.

Second home buyers accounted for 48 per cent of buyers in London – attributed to a surge in high net worth individuals from turbulent markets looking to move equity into stable and currency-favourable locations.

Sales of prime London property still rising in 2014, fuelled by Asian buyers

Appetite for luxury real estate in London continues to rise, after a report by a leading property consultancy showed that 834 homes were sold in Prime Central London (PCL) during the first quarter of 2014, representing an 8.3 per cent increase over the quarterly average for the past ten years.

In the first three months of 2014, the sub-£2million market saw a slight dip – likely to be due to the late Easter holiday – whilst the £2million-plus didn’t appear to be affected, said Strutt & Parker in its report.

Stephanie McMahon, Head of Research at Strutt & Parker, said: “Although the sub-£2m market stalled this quarter, the £2m-£5m and £5m-plus have seen exceptional growth both in values and volumes compared to the same period last year. We have seen a dramatic 47.2 per cent increase in the value of homes sold during the first quarter compared to the quarterly average for the past ten years.”

Nearly 45 per cent of all Strutt & Parker buyers in central London in the first quarter of 2014 originate from overseas. Comparing this quarter to the first quarter of 2013, there was a 31.4 per cent increase in buyers from Asia (highest in the Knightsbridge and Belgravia area) and a 20.8 per cent decrease in buyers from the Middle East.

Chelsea, South Kensington and Fulham have seen the greatest quarterly value of properties sold since 2001. When looking at the quarterly averages for the past ten years, Chelsea, South Kensington & Fulham saw a 65 per cent increase in values, with a 17 per cent increase on the number of properties sold. Kensington & Notting Hill also performed strongly, whilst Knightsbridge & Belgravia surprisingly saw a slight dip with a 1.1 per cent decrease in value of transactions, and a 26.7 per cent decrease on the number of homes sold.

Lettings slowed down slightly on last year with 2,912 lets agreed, representing a 2.2 per cent decrease. One reason for this could be that tenants who secured good rental levels a year ago have seen no motivation to relocate to new properties with potentially higher rates. There has also been a reduction in corporate rentals likely due to larger companies evaluating internal viability. Notable was a significant increase of 6.6 per cent in houses let in Chelsea, South Kensington and Fulham compared to the first quarter of 2013.

PCL prices are expected to rise by around 6.5 per cent in 2014, but to drop back to 2 per cent growth in 2015, as political uncertainty emerges ahead of the General Election. These forecasts are a stark contrast to 2010 and 2011 when PCL house prices surged by over 13 per cent year-on-year.

2014 asking prices still soaring, with growth rate in London close to pre-crisis levels

Asking prices in London hit a new record high for the second consecutive month in March, climbing by 3.6 per cent (£19,818) and recording year-on-year growth of 15.9 per cent – the highest since November 2007, according to the latest Rightmove House Price Index.

The Index also shows an upward trend and year-on-year rise of 13 per cent in the number of properties coming to market in London in 2014, with demand still outstripping supply and fuelling prices. There is also evidence that the London ripple effect is continuing to spread into commuter belt and second home territory, creating upward price pressure in the southern regions.

The average price of property coming to market in London is now £572,348, a jump of £78,713 compared to this time last year and a level not seen since November 2007, before the credit crunch.

Miles Shipside, Rightmove director and housing market analyst comments: “Records keep tumbling in the capital, with a new asking price record being set in London for the second consecutive month. With the annual rate of increase now running at nearly 16 per cent, buyers in the capital considering purchasing an average property will see a price tag nearly £80,000 higher than this time last year. The last time they were going up at this rate was over six years ago, shortly before Lehman Brothers went under and the credit crunch really kicked in.”

Shipside adds: “A strong ripple effect is spreading out from the capital, causing a new wave of record prices for property coming to market in the South East, the South West and East Anglia. Some of this will be buyers who will commute into London, while others will be those looking to invest some of their London property gains further afield, perhaps with a second or retirement home in East Anglia or the South West. Unfortunately for those looking for better value and affordability in the rest of the south, new seller asking prices are on the up there too.”

Sub-£2million flat market spearheading increased activity in London in 2014

Competition is strong for investment property priced under £2million in London, with demand for flats in this price bracket showing considerable growth in 2013, according to a leading property consultancy.

Richard Barber, partner at prime Central London estate agency W.A. Ellis said in January: “We have agreed some very encouraging sales in January and sentiment remains strong. Soon after launching an unmodernised one-bedroom flat priced at £625,000, we had 30 viewings and the property attracted 8 sealed bids. It’s also interesting to note that we’re seeing a variety of potential buyers, including investors, owner-occupiers and buy-to-let purchasers. Competition is strong with a mixture of cash buyers and those requiring finance.”

According to W.A. Ellis, the volume of transactions in the prime SW postcodes shows a consistent house sales market within the core market of £1,500,000 to £7,000,000. In 2012, 211 houses were sold in this price bracket and in 2013, 221. The flat market, however, shows an increase from 2012 of 270 flats to 359 in 2013 (Lonres.) The demand for flats can only be a good sign for the development stock coming on to the market this year.

Added Richard Barber: “We have recently been instructed on two extremely well-located houses. Firstly, an unusual ‘coach’ house in the heart of Chelsea, which is arranged on only two floors and would suit an older couple extremely well. Alternatively, planning consent could be applied for to create a mansard extension on the second floor and a basement, providing a further 1,150 square feet of accommodation. We are asking £3,950,000 for the freehold which includes attractive views over St Luke’s churchyard.

“Meanwhile, 20 Yeomans Row is also an unusual house, being wider than average, arranged on three floors only and enjoying attractive views over Egerton Place gardens. The house has been immaculately refurbished by its current owners and also offers scope for further extension into the basement if required. We are certain that two such high quality houses will sell quickly.”