Is now the time to buy property in London?
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The UK property market bounced back exceptionally strongly from the depths of the pandemic last year.
This year March was the busiest month for property transactions in at least 15 years with total spend over the preceding year reaching its highest level ($280 billion) since before the Global Financial Crisis.
This is according to Tom Bill, Head of UK Residential Research for Knight Frank, who says that as a result of all the recent activity in the sector, house prices are rising sharply. The Nationwide House Price Index shows that house prices registered their biggest monthly gain since 2004 in April this year, taking annual house price growth of 10%.
“In simple terms, we are seeing price distortion due to a lack of supply. The first two months of the year were marked by uncertainty over new Covid-19 variants, which meant that new sellers were reluctant or unable to list their properties. When demand escalated sharply in March, supported by the stamp duty deadline, the best properties sold quickly and as those properties disappeared from the market, sellers hesitated, which exacerbated the supply shortage and placed upward pressure on prices.”
The relief on stamp duty – tax on the sale of the home, which is usually set at £125 000– was increased to £500 000 pounds by the British government in July 2020 with the aim of making it easier for those who may have been financially impacted by Covid-19 to purchase property and to ultimately boost a battered economy. The initial deadline of March 2021 has since been extended to September and applies to both residents and non-residents.
“However, one reason to believe that the supply and demand imbalance will correct is that the number of market valuation appraisals is rising,” Bill says. “This is a good leading indicator for supply.”
He notes that there has been a return to annual price growth in prime central London (PCL) for the first time in five years. “This serves as a reminder that there has been a long overdue return to growth in PCL that was beginning to pick up before the pandemic struck.”
Camilla Dell, Managing Partner Black Brick Property Solutions, explains that much of the “growth and madness in the property market has been taking place outside of PCL”. “When analysing property in certain parts of city centre, there is good value and interesting buying opportunities”.
She says that across PCL, property prices are down just over 20% since the peak of the market at the end of 2014. She echoes Bill’s sentiments that PCL is due some sort of price growth, which was starting to play out just after the general election and after the pandemic started.
She says that there is a window of opportunity for buyers in PCL currently. This, however, comes with a caveat: that PCL has never been a very high yielding asset class.
Dell has helped a mix of clients from across the African continent purchase property in London, ranging from clients relocating after having sold their businesses through to clients choosing to educate their children either at boarding school or university, and investors, ranging from those buying single, buy-to-let properties all the way to larger clients investing in larger property blocks.
“For many African clients, owning real estate assets in the UK and in particular, Prime Central London is about wealth diversification. Many of the families we advise have made their wealth in much higher risk countries and they continue to view property in London as a safe-haven asset class. There are other strong pull factors, including education and business.”
She says that the point of investing in a London property is “long term capital growth and in that regard, the forecasts are looking positive with Knight Frank forecasting 25% growth over next five years”.
Sanah Gumede, Head of Standard Bank Wealth & Investment South Africa, says: “the coronavirus pandemic has brought about a shift in societal conduct and investor confidence. It has caused unrest and fears about economic stability, which is currently almost impossible to anticipate. However, investors seeking core assets continue to flock to regions such as the UK, which capitalises on its reputation as a safe haven for foreign investors.”
Like any investment, it is important to gain a thorough understanding of the market dynamics and potential risks associated. Non-UK residents who are looking at acquiring property in this jurisdiction should consider additional costs associated with the purchase price. This includes the new 2% non-resident surcharge for Stamp Duty Land Tax (SDTL), which was introduced on 1 April and that foreign buyers must contend with.
“This is yet another blow to the London property market,” says James Quarmby, Partner and Head of Private Wealth at Stephenson Harwood LLP. “Much of the prime London property market relies on interest from foreigners and, with this latest increase, the top rate of SDLT now stands at 17%, almost reaching VAT levels. This is a disincentive to invest in UK residential real estate.”
Despite this higher cost, the current London market presents opportunity for foreign buyers at present. The tax relief does relief can be used to maximise a potential investor’s budget in the current market. Quarmby explains that “the rate for commercial building remains sensible”, which is good news for business owners looking to set up operations in the country.
“At Standard Bank we aim to guide our clients through the maze of issues surrounding finding and securing a property acquisition,” says Adam Hunt, Head of International Wealth and Investment at Standard Bank. “We work with companies like Black Brick to assist our clients to locate and negotiate their required property. We then work alongside them to arrange finance for the acquisition and, with firms such as Stephenson Harwood, how to structure ownership suitable for their requirements.”
Those who are interested in gaining deeper insight into key trends shaping activity in the UK property market and a more comprehensive understanding of legal aspects to be cognisant of, can download the free to view webinar here, recently held by Standard Bank Group.