Life After Brexit, What is the future for London?

With Brexit in the bag for Boris, what can we expect to see in the near term and more importantly, how has this been an opportunity for overseas buyers to capitailse on the uncertainties?

 

Firstly, there is a returned confidence in prices not plummeting. Many analysts and real estate agents are speaking of the London market “bottoming out” now that the risk of leaving the EU without a deal and crashing out of the union causing a potential panic in the UK economy is much less than what it was. Is this post-Brexit bounce here to stay?

 

  1. Confidence returns:

For the first time in two years, house prices in every region of the UK have increased. Specifically, in London, prices have seen a jump to 2.3% year on year in December 2019, the strongest rise since October 2017. The Office for National Statistics (ONS) mentioned “Increased London house price growth may reflect a larger shift in the type of properties being sold than usual, with more sales of very high value properties”.

 

These figures evidently prove London’s resilience as a place for secure investment, despite the uncertainties prior to the final verdict for the results of Brexit.

 

In fact, Howard Archer, the chief economic adviser to the EY Item club also mentioned that latest sales data from the Halifax and Nationwide pointed toward a further firming in house prices as of January 2020. “There is absolutely a fair degree of evidence that the housing market has got an initial leg-up from increased optimism and certainty following the decision from the general election result as well as greater near-term clarity on Brexit, with the UK leaving the EU on 31st January, with a deal.”

 

Durham, an economist at PWC states “Price growth in London in particular has rebounded, and has been trending upwards since the middle of 2019. It appears that increased certainty in the economy, particularly related to the Brexit agreement and GE results have unlocked pent-up demands and helped push prices up,”

 

Homes in London have now seen their rise to £484,000 (ONS). “Assuming that everything goes smoothly during this transition period, and the economic environment remains resilient, we expect continued positive housing price growth for the rest of 2020.

 

  1. The pound

Overseas buyers should find lower prices than in recent years, particularly if their spending is in US dollars. Savills state that the average price in prime central London has fallen by about 21% since it peaked in 2014, which means that once currency exchange is factored on, US dollar buyers now can reap a discount of about 38% than compared to 5 years ago.

 

Even more so, recent published data have shown that the UK economy contracted more than expected in November 2019, adding further pressure on the Bank of England to lower interest rates. The prospect of a rate cut has weakened the sterling – attracting overseas buyers in search for a good bargain.

 

  1. Mortgage approvals

 

The latest Bank of England data shows us that mortgage approvals for house purchases rose markedly in December 2019 to 67,241 – the greatest monthly level since July 2017.

 

Mortgage approvals in December were likely to be lifted once again by increased confidence and reduced uncertainty both amongst buyers and sellers after the general election results.

 

  1. London – The top tech hub for overseas expansion

Ever since the creation of the ‘Tech City’ project in 2008, London has affirmed its position as a global super hub for international tech investment and talent, with evidence showing that over the last 10 years London has received over 900 tech foreign direct investment projects – more than any other major tech city globally. This in itself has created greater than 28,000 jobs.

 

Despite uncertainty from the previously unknown results of Brexit and the referendum, data from 2019’s London Tech week by London & Partners show that London is the top destination for international tech companies looking to set up or expand operation outside of their own company. Between mid 2018-19, 91 international tech firms chose to expand or set up operation in London with total investments worth £864m – more than the likes of other major cities such as Singapore (79), Paris (46) and New York (32).

 

Sadiq Khan, Mayor of London said “London is Europe’s leading tech hub, helping to create more jobs and investment for the capital and greater UK economy. As our city’s tech ecosystem continues to grow it is important that we encourage greater inclusivity and diversity across the tech sector and ensure that London stays open to investment and talent from around the world”.

 

A great number of the globe’s greatest tech companies have made long-term expansion announcements and investments into London in recent years:

 

  • Apple – the tech giant is set to open a new London campus in 2021 worth £9bn within the large Battersea Power Station redevelopment project, which caters to 1,400 staff.

 

  • Google – plan to open a new headquarters in Kings Cross, housing up to 4,500 staff.

 

  • LinkedIn – as of January 2019 have moved into its new UK headquarters in Farringdon.

 

  • Spotify – In April 2019 announced a new innovation and research hub in London, creating at least 300 new jobs.

 

  • Facebook – made an announcement that they have chosen London as a base for developing WhatsApp payments, hiring at least 100 people. Further, also announcing their decision to lease three new offices also in London King’s cross area, doubling their UK headcount in London with room for at least 6,000 staff.

 

  • Microsoft – opened its first European flagship store located in Oxford circus as of July 2019.

 

  • Amazon – Amazon UK announced their plans to double the capacity of their London development centre, creating room for more corporate and R&D roles across their London offices.

 

Prime minister Boris Johnson has also pressed on his plans for an £800m research facility in developing top-secret technologies to give Britain the edge when it comes to defence and security. The new research facility will be based just outside what is called the “golden triangle” of London, Cambridge and Oxford.

 

Perhaps this move in the direction towards attracting more tech firms will diversify London’s reliance on the financial sector which in turn could set the city for more long-run stability.

 

Foreign investors – the time is now.

 

It is important to note that especially for overseas buyers, the recent rush for prime London sales is indeed an indication of renewed confidence. However, analyst Neal Hudson says the uptick could be short lived for foreign buyers depending on how long it takes for Brexit policies and negotiations to be implemented. Foreign investors are speeding through their purchasing to beat a discussed additional 3% premium on foreign sales from already high 12% rate.

 

 

Whitechapel – A place for investment?

Boris Johnson stated in his Brexit speech last July that his wishes are for Britain to work towards becoming a world leader in both science and medical research post-Brexit.

 

This could lead to areas such as Whitechapel turning into investment hubs for exciting urban planning. Furthermore, Whitechapel is also home to the Royal London hospital which currently has Queen Mary University building a sophisticated new medical research centre.

 

 

Sources:

Financial Times

The Week

CityAM

The Guardian

London & Partners

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