Prime property investors are overlooking Brexit uncertainty and exploiting the dip in the market to acquire some of London’s best residential offerings at very attractive rates. Tiger Financial investigates.
The capital’s prime residential market is showing early signs of bottoming out, as rents have fallen by an average of 9.6% since the referendum. Despite this, the annual rate of decline slowed down to just 0.8% in 2018, according to the Savills prime London rentals index. The negative impact caused by Brexit is predicted to put a recovery on pause for another 12 to 18 months, while political and economic uncertainty continues to loom over the markets. Growth is expected to remain subdued in the following periods, given rising supply and shrinking corporate budgets.
Cash Investors Likely to Replace The “Accidental Landlord”
The negative trend is concentrated largely in London’s central postcodes, where rents have fallen by as much as 19.7% in the period between the referendum and the end of 2018. This situation has incentivised ultra-high net worth individuals to actively pursue the purchase of prime residential properties in the capital. As a result of the weaker Sterling, the search for “bargains” is seen mainly among international investors. Of the total buyers in the second half of 2018, 57% were from this particular group; a figure up from 39% in the second half of 2016 and an average of 40% before the EU referendum. Between 2016 and the second half of 2018, an EU buyer would have received a currency exchange boost of around £124,000 on a property valued at £1 million. The improving performance of the sales market and the subsequent depletion of supply is likely to result in a decline in accidental landlords, who will be replaced by cash investors.
The Savills index report forecasts an average 11.5% rental increase over the next five years, with 12.6% across the prime commuter zone. This robust demand is being generated mostly from smaller prime properties. On the other hand, ultra-high net worth purchasers have focused their attention on ‘super-prime’ properties, worth £15 million and above. Savills cited 73 sales at this level in 2018 with a combined value of £2bn, representing a 43% increase over 2017 figures. Given the predictions of a prolonged recovery, as well as the fact that recent tax changes have had minimal impact on prime property investment in the capital, this sector is likely to continue presenting new opportunities at bargain rates. It should remain an attractive investment option for high net worth individuals, even after the Brexit deadline on March 29th.