A market in recovery? PCL and COVID-19

Alpa Bhakta is chief executive of Butterfield Mortgages Limited

Over the last decade or so, the prime central London (PCL) housing market has undergone a significant transformation. An influx of foreign investment and successfully executed development schemes has resulted in a market alive with activity. As a result, the PCL has become a vital part of the wider property market.

However, nothing could have prepared the city for the economic impact of COVID-19. This pandemic, and the ensuring UK-wide lockdown, have drastically affected the real estate sector, including PCL property.

Having overcome the initial disruption caused by the pandemic, things are looking positive for the PCL market. In what is proving to be a year of economic stagnation, property transaction levels in the capital have been one of the UK’s few lockdown-economy success stories.

This is partially a direct result of the initiatives implemented by the UK government during lockdown to support real estate market transactional activity. Schemes such as the Stamp Duty Land Tax (SDLT) holiday, which allows all buyers to save up to £15,000 on property transactions, have proven successful in coaxing buyers back to the market post-lockdown. Consequently, high market activity has incurred the fastest rate of house price growth in over four years.

But there are also other factors at play. Through my experiences helping Butterfield Mortgagees Limited’s clients navigate the PCL real estate, I’ve observed numerous trends that will no doubt shape the future of the market moving forward.

Now, with the UK in the midst of a second nation-wide lockdown, many are now seeking to hedge against future uncertainty by acquiring resilient assets in stable markets. The PCL market ticks both theses boxes.

The PCL market and COVID-19

When it comes to explaining why the £5 million + London property market has been one of the most active sectors of the UK property market in 2020, we must discuss overseas buyers.

After representing over half (55%) of all PCL property purchases in the second half of 2019, foreign investors have been responsible for much of the capital flowing into London real estate over the past decade.

But such buyers now have an even greater incentive to acquire British property, and soon. Earlier this year, British Chancellor Rishi Sunak announced that the UK would be introducing an overseas-buyer-surcharge for those wishing to acquire British property from abroad.

Due to be implemented on 1 April, 2021, this added 2% tax will incur substantial costs. As such, much of the heightened level of PCL property transactions witnessed in recent months can be ascribed to foreign buyers hoping to complete on transactions before the key deadline passes, and the tax bill for UK property investment increases.

Speaking of the potential future of the PCL market, earlier this year some commentators were discussing a potential collapse of the capital’s real estate market as a consequence of working from home. As employers worldwide ask their staff to no longer be physically present, people suspected that London’s professionals would begin to seek larger, more comfortable properties further from the centre of the city.

Consistent buyer demand

Although some evidence of this has been identified, namely a shift towards more suburban areas, in figures revealed by Rightmove buyer enquiries, this has not resulted in any noticeable market impact.

In fact, across the entirety of the UK’s £5 million + real estate market, over half of all sales this year have been located in the same five central London postcodes, according to global property specialists Savills.

After such an impressive year for the PCL property market then, I foresee this sector only continuing to demonstrate value growth for investors in the year ahead. Based on recent vaccine announcements, it’s possible that we may return to normality by Spring 2021. This is good news, particularly given the importance of real estate as a driver of economic productivity and growth.

For the reasons listed above, I anticipate market activity will remain consistently strong. Buyers will be keen to take advantage of the SDLT holiday while it is still in play. What’s more, international investors seeking resilient assets in stable markets will be drawn to London’s diverse range of property opportunities.

In this period of uncertainty, there are clearly some positive signs for the future.