A slower sales market in London’s super prime lettings sector over the past 12 months has boosted demand as tax changes have led to greater price sensitivity among buyers.
In particular higher rates of stamp duty have altered the dynamics of both the lettings and sales markets in prime central London so sales have slowed but lettings have risen, the latest analysis from real estate firm Knight Frank shows.
The super prime £5,000 plus a week sector has benefitted the most as the stamp duty on the purchase of a £15 million property is £1.7 million, which is the equivalent to three years rent and this is driving demand, according to Tom Smith, Knight Frank’s head of super prime lettings.
‘Given the higher running costs buyers also face, stamp duty can be a concern unless they plan to be in a property for the long term. This is particularly the case while uncertainty surrounds the short term prospects for price growth,’ he said.
The number of super prime lettings transactions increased 16% to 109 in the year to September 2016 compared to the previous year, according to LonRes data. Meanwhile, the number of viewings increased by 6% over the same period, Knight Frank data shows.
Transactions were spread across central London, with a focus on areas including South Kensington, Knightsbridge, Mayfair, Regent’s Park and Holland Park and Smith explained that as demand intensifies landlords do not always appreciate the requirements of tenants in relation to specification and finish.
‘A common mistake is to think the requirements of a tenant are less stringent than they are if they were buying the house. It means that bathrooms and kitchens need to be kitted out with the top brands. It is no coincidence that those properties generating higher rents and yields are those originally destined for the sales market,’ Smith pointed out.
The analysis report says that yields can reach between 3.5% and 4% for best in class super prime properties due to their relative scarcity, which compares to less than 3% across prime central London as a whole.
It also shows that the number of houses let compared to apartments has increased over the course of the last 12 months in a sign of growing demand among families. Houses represented 64% of transactions in the six months to September compared to 60% in the first six months of the year, a trend further exacerbated by a lack of large lateral flats.
‘It is also a reflection of the current uncertainty in the sales market. A growing number of high specification houses destined for sale and are moving across to the lettings market,’ Smith pointed out.
The growth of the super prime lettings market is providing increased competition to hotel suites, however it is a more cost-effective way of having a base in London. On the basis that a top London hotel suite costs £5,000 per night and a property costs £5,000 per week, renting it is seven times better value for money.
‘A lettings property is also a home. Super prime developments are typically linked up to the concierge service of a top hotel, which means tenants can pick and choose to get the best of both worlds,’ he added.
