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Today’s blog is a guest post from Charlie Rosier, Director of our Investment Property partner Blackfish.
2015 has been a tumultuous year for the UK property market. December 2014 saw changes to the Stamp Duty threshold, which gave tax relief to over 97% of properties, but increased tax for the most expensive. The impact was a price spurt for properties under £1 million and a dip for those in excess of £2 million.
Prime property prices continued to suffer as we moved into spring. First was the change in Capital Gains Tax treatment for overseas buyers and then the UK held a General Election in May; both events cooled the market considerably. With the threat of a Labour government and Mansion Tax, properties in a higher price bracket struggled to sell and the general uncertainty caused a malaise amongst buyers.
The Conservative win however saw the market bounce-back. Investors flocked to London in their droves; which in turn saw house prices in the capital jump 17% over the space of a fortnight (£767,777 on 6th May – £898,882 on 14th May according to Rightmove & Zoopla). Positive sentiment filled the papers and everyone breathed a sigh of relief. That was until “Greexit” in July, which questioned the future of Europe and the UK’s economic outlook given our strong ties to the continent. Unsurprisingly London saw an increase in Greek investors and many other European countries looking for a “safe-haven” but on home soil, the market was slow. Data from the Land Registry shows prices in Greater London appreciated 1.7% over the summer months between July and August (sadly the figure was even worse for England & Wales – 0.6%) compared to 2.5% the previous year.
So as we enter Q4 where does the market sit? Living in Asia it is difficult to get a real sense of what the market is doing. Every day there are conflicting stories in the press, on one hand property prices are crashing; on the other, developers report an unending appetite from buyers, both owner occupiers and investors. Fortunately I spend about 50% of my time on the ground, speaking to everyone from taxi-drivers to tax-advisors, agents to architects and also have access to hard data. From this I guess I have a good vantage point from which to comment, although none of us have a crystal ball.
To me London will always be Number One. Of course there are sub-markets within the UK which are doing better right now. The south and east of England have outperformed London year-to-date. A recent article in the Telegraph noted that “growth accelerated in the commuter areas outside London with properties worth 9.5% more than they were in September a year ago.” However all long-term forecasts demonstrate that London will outperform between now and 2019 (25.8% growth vs. 23.4% South East, 22.2% East, 14.2% North).
There is a clear reason for this. London is the world’s most transparent and liquid property market. The latest Investment Intensity Index from JLL, which compares the volume of direct real estate investment to the economic size of a city, ranked London in the top spot. A robust technology sector, high quality of life and strong environmental credentials were cited as being “increasingly important, either explicitly or implicitly, to investment strategies.”
London, unlike other large metropolitan areas, has a robust and growing economy. Within the next 30 years London’s population is expected to reach 11 million people, or an extra 2.4 million residents – the equivalent of twice the population of Birmingham. Balance this against the city’s endemic shortfall of new homes and prices will continue to track steadily upwards at a sustainable rate – perfect conditions for the longer-term five to 10-year investment play most investors would be wise to take.
So for me, London is still the granddaddy of all havens. Whilst guaranteed returns and other sales gimmicks make investments in the north look attractive; the numbers don’t lie. The gap in average home prices between the South and the North of England is at a record high, with average prices in the South now twice as high as those in the North. The pace of price growth in southern England has consistently outstripped that seen in the North for the last six and a half years. And whilst Chancellor George Osborne “pleas” to Chinese business to invest £5 billion in Greater Manchester, investment into London keeps on coming.
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