All Posts By

Fred Toomer

The Future of Central London’s Housing Market Post COV19

By Investment Advice No Comments

 

Business as we’ve known it has changed and will continue to do so, given the current crisis of COV19 that the entire world is facing. Perhaps however, it is not the question of what we do, but how we do it?

Here and now, COVID-19 has paralysed the conventional “practicality” of conducting business in the property market given the social distancing measures in place. However, when read through the lines we can see strong bouts of opportunity for stable and returning investments.

When I think about the longer term implications from the effect of COV19, the “new normal” and how long (if ever) it could take for working environments to return to the way it was before, a large chunk of the workforce will continue to adopt a work from home style culture. Less people would be comfortable going back to working in large open-plan offices, if the work style is conducive in avoiding this.

This will have massive long term implications to property markets around the world and most so in major cities. Developers and planner will be noticing these changes in working life style and will adapt to building more PRS to adjust to this demand, potentially altering a lot of the city’s landscape.

For example, large corporations in legal and finance will still have their main offices active in the major cities, but employees would not be expected to do the typical 9-5 workdays. Especially with the rate of development in online systems and customer service platforms. London’s residential market by nature will flourish as people would still want to be close to their place of work/office whilst having the vibrancy and convenience of city living. Just the same, the more rural areas of England would also benefit from this emerging style of working.

WFH is a trend that will continue to rise in London, boosting rental values in the residential market
  1. Restricted movements.

The Housing Minister has advised against home moving during this time. Official advice from the government on home moving has encouraged both parties of an occupied property to do what they can to amicably agree alternative dates of moving, to a time that is likely that stay-at-home measures would be lifted. For those of us who are concerned about shifting the terms of lease agreement dates, UK finance have confirmed that in order to support customers who have already exchanged contracts to extend their mortgage offer for up to three months to enable the move to be pushed to a later date. Lenders will work with customers to help manage their finances as a matter of urgency.

Recommendations from the Housing Minister have directly led to a reduced period of activity in both sales and construction. This could temporarily lead to a dip in housing prices. Buying and selling can continue during this period but there must be light given to the fact that this process may take longer than usual.

2. Political certainty

Greater political certainty following the large conservative majority from the election in December 2019 (which was largely considered a “Brexit Election”) saw London property prices rise 2% from Jan- Mid March this year according to Savills Research.

House prices rose at their quickest pace in 18 months in February with the London market in particular rebounding “at an astounding rate”. The charge being led by the Capital where buyers have flooded back since Boris Johnson’s election win. As of mid-March, Rightmove said sales agreed rose by 34.4% to reach their highest figure for this time of year since 2016, whilst house price growth was at its highest since May the same year. “It took fifteen days fewer for homes to sell once they’d been put on the market.” Notably, these price indexes are based on figures prior to Government escalation to their response of the Covid-19 from “contain” to “delay”.

3. Travel restrictions.

However, the market fundamentals are still there and there are optimistic opinions over the virus’ effect on the property market. Once this short term blip is out of the market the suppressed pent up demand that are building from both a buyers and rental perspective will splurge onto the market which will lead to a positive V shape growth pattern. “As an industry, we are yet to see the true impact of Covid-19 on the market. However, if fewer people choose to holiday abroad over summer, we could perhaps see an increase in activity in this traditionally shower period”, said Nick Leeming – Chairman of Jackson-Stops. Furthering from this point is that observing the current state of  the aviation industry, tourism worldwide is expected to be dramatically halted at least until next summer of 2021. Therefore, brits are expected to stay throughout the summer in the UK, and we can expect an increase of property investment once movement controlled orders are relaxed.

4. London’s proven resilience against uncertainty.

No alt text provided for this image

In uncertain times like this the London Property market has proved time and time again its resilience and ability to bounce back much quicker than most asset classes which is why it is so popular for investors around the world. It is also not just safe but extremely profitable. According to Savills’ latest report amid the turbulence of the pandemic, the ONS released its house price index for the very first time showing us data from the last 25 years across England and Wales. It showed us that the London borough Hackneys property market has increased 850% over the last 25 years. At a time like this, where the society and globe as a whole is riddled with fear, panic and anxiety, it is even more vital to keep the bigger perspective in mind. Investors who can see past these short-term bumps in the road are far more likely to benefit from even larger returns, years from now.

Buying at a time like this could be recognised as higher risk when evaluating the current market conditions, however investors would be backing on an accelerated V Shape bounce back in prices and the continued growth that we saw in the market earlier this year.

5. A stronger currency.

The GBP has made significant gains against the USD over the past week and a half,  proving its resilience and ability to rebound quickly whilst other major currencies like the AUS Dollar and Yen have continued to weaken over the same period. As the world continues to collectively fight against the spread of this disease, the next few weeks will be vital in monitoring the currency valuation. Historically speaking, GBP is precariously weak against the USD and is a great opportunity for overseas landlords to buy.

We are to help guide our landlords and potential buyers through this period. Being the underwriter of our developments means that we have the autonomy to adjust price expectations to reflect the current market conditions. Investors should be tuned in at this point in time not be discouraged or fearful!

__________________

Ref:

https://www.homesandproperty.co.uk/property-news/uk-house-prices-surge-london-property-market-brexit-drama-a137041.html

https://www.savills.co.uk/blog/article/298520/residential-property/25-years-of-house-price-growth-reveal-a-highly-localised-market.aspx

https://www.homesandproperty.co.uk/property-news/london-house-prices-coronavirus-stamp-duty-brexit-a137366.html

https://www.gov.uk/guidance/government-advice-on-home-moving-during-the-coronavirus-covid-19-outbreak

Life After Brexit, What is the future for London?

By Investment Advice No Comments

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