Sales in the prime central London property sector are still relatively depressed but the market is beginning to assimilate the effects of the stamp duty increase that was announced two years ago.
While values have fallen, by as much as 13%, over the last two years the market is now bottoming out, according to the latest analysis report from JLL.
The impact of the stamp duty rise has been most profound at the upper end of the London market, most notably within the family house sector but there have recently been some significant sales at the very top end of the market where the tax becomes less relevant.
The report explained that when sellers are willing to price realistically, there is reasonable turnover, particularly between £1 million and £3.5 million, but rates per square foot achieved have diminished and are now averaging around £1,800.
‘What is most apparent within the market is that sentiment remains cautious over the long-term effects of Britain’s imminent departure from the European Union, but the devaluation of sterling has caused a further influx of foreign investor buyers into both the traditional and the new homes sector,’ said Richard Barber, director at JLL.
‘Demographically, it is apparent that where investors once sought trophy houses and flats within traditionally established locations, they are now more willing to divide their investment and purchase less expensive units within developing areas where they can foresee considerable capital growth and yield,’ he explained.
But he pointed out that the firm’s new developments team have had considerable success recently both in the UK and overseas with a number of high profile launches for developments such as Landmark Pinnacle, The Residence and West End Gate.
‘Early sales to investors on these initial phases have been sourced both within the UK and from overseas, but regardless of purchase location, we have witnessed that the sales have been driven by overseas capital benefitting from sterling’s current weakness,’ said Barber.
‘China in particular has been one of the strongest global markets in terms of volume of sales. This capital flight has been a bone of contention for the Chinese Government who have recently announced a tightening of currency controls which will come into full effect in July. It remains to be seen however what effect, if any, this will have on the purchasing power of the Chinese,’ he added.
Looking ahead, Barber believes that whilst there is likely to be some uncertainty over the next two quarters as the first reaction to the trigger of Article 50 has an impact, there is still interest from foreign buyers.
But Brexit has had an impact on the lettings market, according to Lucy Morton, head of residential agency at JLL. ‘The lettings market has been particularly affected as companies are assessing their options and holding back on relocating employees and their families,’ she said.
‘This change has created an imbalance between supply and demand in the lettings market; supply currently exceeds demand although the pace of new properties being launched onto the market fell in the first two months of this year,’ she pointed out.
The worst hit area for oversupply has been the two to three bedroom market between £1,000 and £3,000 per week, but JLL anticipates an increase in demand in the second quarter of the year as corporates move towards taking high end pied-a-terre flats for their senior directors as opposed to buying.
In a tenants’ market, landlords need to ensure their properties are well presented and competitively priced, to minimise voids and secure a tenant, according to Morton, and while the uncertainty surrounding Brexit is unsettling London remains popular for several reasons including the ease of doing business, geographic location and time zone, language and legal system.
‘However, as one of the most expensive European cities to relocate employees to, and with Dublin being seen by some as an attractive option, the Government would be well advised to at least reduce the corporation tax from 20% to be more in line with our neighbours across the Irish sea,’ she explained.
Meanwhile, the super prime lettings market remains strong as some hesitant buyers prefer to rent while they wait to secure their ideal property while also keeping an eye on the direction of the sales and mortgage markets.
‘Our clients in this market tend to have budgets of £20,000 a week, on average. They are after an easy lifestyle, so properties that are furnished and interior designed are a must, though not too flamboyant, as they prefer to personalise them, for example, to showcase an art collection. The increased demand in ultra-prime lettings has filled the gap where corporate lettings has reduced,’ Morton added.
