GREEN SHOOTS OF RECOVERY
On December 12th a Conservative government was elected for a new 5 year term. The British public relieved the deadlock in the House of Commons and delivered certainty on the direction of Brexit. For these reasons, we expect a boost to confidence that will underwrite stability in London’s financial and property markets for the year ahead.
Buyers slowly returned to the sales market across Central London in 2019. After a long hiatus, buyers have become more decisive, especially first-time buyers, sensing that prices have fallen as far as they are likely to and the time to act, may be now. Perhaps the political and economic uncertainty has finally encouraged the next generation to seek the security of home ownership. Certainly, we see young, well-paid professionals back in the market. Prices did not rise in 2019 but they are no longer falling.
The number of properties for sale remained low throughout 2019. With cheap debt and buyers scarce, or cautious, there is little to motivate owners
to sell. Buyers hoping to negotiate a discount have been disappointed. Those willing to make realistic offers, have been rewarded.
In the rental market, rents did rise in 2019 in Central London, and at the highest rate for almost a decade. In the City, rents ended the year 8% up while the West End and Midtown recorded increases of 6% and in East London and Docklands the uplift was 4%. These rises have been driven by a combination of low supply and higher costs for landlords who now bear all the fees associated with a new tenancy as well as the progressive loss of mortgage tax relief and Stamp Duty surcharges for buy to let investors. With the threat of rent controls hanging in the air in the latter months of the year, tenants as well as landlords will be relieved that this is now off the table.
Over the course of the year, capital values in our markets slipped by around 3% but that downward trajectory petered out in H2 and we do not expect any further falls in 2020. Values for one and two bed apartments have stabilised at around 15% below 2015 prices – though for higher value homes (£1.5 million +), the gap is wider at between 25% and 35%.
The effect of rising rents on reduced property values, resulted in significant yield improvement, nearing 5% by the end of the year. It was not enough to tempt UK investors back to the market but overseas investors recognise the opportunity that London’s pricing represents
Non-domestic buyers have an added incentive as the continued pressure on sterling helps to off-set other costs. There was a return of overseas buyers to our markets in the latter months of 2019. The simple fact that overseas buyers are making commitments to Central London property is a reminder that, at current prices and with the prevailing exchange rate,
London remains an attractive proposition to the international community.
Predictably, interest continues from China and the Far East as well as Turkey and parts of the Middle East. Less predictable, is the presence of European buyers who, irrespective of the current political uncertainty, have strong networks in the UK through work and education. For many of them, this looks like a good time to put down roots, while prices are down.
While market conditions have piqued the interest of overseas investors and first time buyers, UK investors remain disengaged, with the nation in a perpetual state of Brexit-limbo and tax penalties for investors. Ironically, there was a little more interest over the summer, in between Prime Ministers, when there was a semblance of calm.
When Boris Johnson first took office as Prime Minister, he spoke about reducing Stamp Duty but when the prospect of an election became real, the talk shifted to bold spending commitments to support a post-Brexit economy. The latest housing minister, Esther McVey has lent her support to homeownership and specifically first time buyers.
It is difficult to remember a period of political uncertainty to match the past 4 years but during that time London has continued to be a successful economic power. London’s position as a global city remain undiminished and it continues to be a leading financial and legal centre, international tech companies and be magnet for media, design and the arts. As we enter a post Brexit world London enjoys high levels of employment, a world class restaurant scene and offers a warm welcome to the world’s