London residential market to improve in 2H2021
Home to one of the world’s leading real estate markets, London has not been spared the effects of Covid-19. Nonetheless, with the planned reopening of its economy after the lockdown in June this year and the UK government’s goal of vaccinating all adults by the end of July, the overall outlook for the capital looks rather optimistic.
During a Benham & Reeves webinar in London on April 28, panelists agreed that the London market is seeing increasing demand with stable transactions and rents, especially after the government announced the easing of foreclosure measures in April. The panelists were Benham & Reeves Director Marc von Grundherr, CFO Vidhur Mehra and Country Director (Malaysia) Melvin Koh as well as EcoWorld London Senior Sales Director Lucy Hedley.
“As we come out of life on lockdown, the London property market continues to surprise us all. House prices in London have climbed 6.2% since our first lockdown a year ago, which is the first house price hike on record [during a recession] in modern history. While GDP fell 10%, the total value of London properties actually rose during the pandemic to £ 1.8 trillion (RM 10.3 trillion). It’s a clear endorsement of the resilience of London property, ”said Von Grundherr.
“The average cost of a house in London rose to around £ 500,000 in January, with buyers desperately seeking zero stamp duty on the offer. According to Rightmove, one of the UK’s largest property portals, the average asking price rose 2.1% in April, the second time in the past five years that it has risen so much in a single month. It has been the strongest spring seller’s market in a decade, ”he added.
Von Grundherr pointed out that all segments appear to be operating steadily, especially properties priced under £ 1million. “During the last quarter there was also an increase [in demand] 52% for properties under £ 1 million. “
He said there had been a sharp increase in transactions, with more than 147,000 UK residential transactions in February – an increase of 48.5% year on year and 50% above the average for the past five years, according to HM Land Registry. “The number of sales agreed to by Benham & Reeves in the first week of March increased 12% from last year, with 50,000 sales made in the capital since the first lockout and 65% in sales in addition in the peripheral districts.
“The super-rich bought properties in London more than anywhere else in the world. They are drawn to the weakness of the pound sterling and the conclusion of Brexit. Despite travel restrictions and three lockdowns, overseas buyers have spent £ 4bn on properties in central London. [for properties that are priced above £10 million], “he noted.
According to the panelists, things have improved since the announcement of the British budget in early March. “The stimulus package announced by the government includes an extension of the stamp duty holiday, government support for 95% LTV (loan to value) mortgages, historically low interest rates, premier vaccine deployments plan in the world and a non-lockdown roadmap, ”said Von Grundherr.
“This has resulted in renewed confidence that the business will remain vibrant for the foreseeable future and savvy investors continue to recognize this as a window of opportunity. If activity slows down, the severe shortage of available inventory should prevent price declines. In addition, households here have amassed £ 100 billion in savings that are helping fuel the country’s economic recovery, according to the chief economist at the Bank of England. [Andy Haldane],” he added.
Meanwhile, in the rental market, although supply continues to be oversupplied with short-term travel restrictions – which has led to moderate rents and slightly longer empty periods – “in our 18 rental locations, we saw a 19% increase in inquiries. during the last two weeks of March of this year. We expect the rental market to recover and rents to return to pre-pandemic levels, ”the panelists said.
“The lockdowns have led people to reassess their needs. For example, proximity to green spaces is considered more important than travel [distance]. High speed internet is at the top of the wish list, as are balconies and terraces. A lot more people are working from home and they see it as the future. We anticipate that these trends will be present in the long term and if you are buying as an investor you should keep these things in mind, ”said Von Grundherr.
“London is an international hub for business and a rock-solid investment; the capital has an extremely strong economy with flourishing business prospects and a thriving job market. These are among the many reasons people choose to live and work here, along with life, restaurants, theaters, and safety. They are also attracted by transparency and long-term capital gains. ”
Consulting firm Knight Frank UK expects international buyers to return by the end of 2Q2021. “A 2% stamp duty supplement for foreign buyers will come into effect from April. In the absence of a price increase due to the absence of international buyers in recent months, the surcharge was effectively priced before its introduction. However, foreign buyers may factor the charges into price negotiations. This can lead to a short-term business disruption during a price discovery period. “
The speakers agreed on the issue of stamp duty. “Apart from the fact that London is a great place to live, what is an important factor is the fact that we have a clear and transparent tax system here, which makes it easy for investors to understand what to expect from their investments. real estate investments, ”said Benham & Vidhur de Reeves.
“In terms of Land Stamp Duty (SDLT), there will be an additional 2% charge for non-UK buyers on the purchase of UK property, announced in last year’s UK budget. It applies to anything completed after April 2021. The incentive must be disclosed if the government waives the SDLT and a developer offers the stamp duty in return. It must be deducted from the purchase price to calculate the amount that can be borrowed, hence the person’s overall mortgage, ”he added.
“The stamp duty holiday has been extended until June 30 (up to £ 500,000 at 0%). Then, for another three months, [it is] at a reduced rate (up to £ 250,000 at 0%). UK residents and certain non-residents are entitled to a personal allowance – an amount exempt from income tax. The current allocation for 2021 and 2022 is £ 12,570. Meanwhile, the Bank of England is not going to raise interest rates, the current base rate being 0.1%. “The interest rate restriction has been fully in place since 2020/2021,” Vidhur said.
The panelists seemed convinced that the market was heading in the right direction and that pent-up demand is being released. “We have received inquiries about the types of properties that investors are looking for,” Koh said.
“There are certain areas that investors gravitate towards, particularly Zone 3 and Zone 4, like Mill Hill East, where the apartments are bigger and taller in size. Developing units in the Mill Hill East area tend to rent out faster than those in Paddington; we managed to hire a dozen in two weeks, ”he said, adding that rental rates for The Claves in Mill Hill East by EcoWorld London range from £ 1,400 to £ 1,500 per month (for 1 bed 1 bath units), £ 1730 to £ 1830 per month (for 2 bed, 2 bath units) and £ 2300 to £ 2400 per month (for townhouses and meows).
“We actually have about eight apartments available at The Claves that will be completed. [before the end of the] stamp duty holidays, ”said Hedley of EcoWorld London. “Given the positivity of the market and the stamp duty holiday, now is the right time to invest [in London properties] now.”