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Investors betting big on London property market despite huge fall in BTL investment

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In a bid to shed light on how investors see the current London property market, Black Brick recently reviewed the transactions it carried out for clients over the last 12 months, and then compared them with transactions in 2014, before a raft of tax changes were introduced.

Camilla Dell, Managing Partner at Black Brick, comments: “While the number of deals is broadly similar, the mix is quite different. In the last year, more than half (53 per cent) were looking for a pied a terre, compared with 24 per cent in the earlier period. And slightly more were looking for a family residence in 2017-18, at 42 per cent, compared with 34 per cent in 2014.
 
“But the most striking change is in the collapse of demand for buy-to-let properties. In 2014, more than a third (38 per cent) of our searches were for rental investment properties. Last year, the figure had fallen to 5 per cent.”
 
Black Brick says that while the previous government set out to discourage buy-to-let investment in favour of owner occupancy with changes to Stamp Duty and mortgage interest tax relief, rather than deterring purchases, those policies have mostly succeeded in changing the purpose to which properties are put. Instead of seeking to earn buy-to-let income, Black Brick says its clients have instead opted to use properties as a second home, or have gifted them to children. This allows them to remain exposed to the London property market, without the hassle and expense of letting the property.
  
Black Brick says that without doubt, tax changes mean that some landlords are looking to sell one or more investment properties, particularly those bought with large percentages of debt. Selling in a buyer’s market can be challenging, but the company is seeing continuing demand for attractive – and well-marketed – properties.
 
Caspar Harvard-Walls, Partner at Black Brick, says: “The key is properly valuing the property, to both maximise its value for the vendor and attract buyers. It’s hard to do in a market like this, but it’s crucial to get it right.”
 
It is also in the seller’s advantage to keep the sale off the open market for as long as possible. “We’ve been very successful making sales through our Managed Sale Service, tapping our network to match buyers and sellers without a public process. Often when properties are openly marketed and sit on the market for months on end, buyers can often (wrongly) assume that there is something wrong with the property, or that it’s over-priced. Because it’s not a volume business for us, we can give selling clients a high level of service and really target specific buyers,” he adds.
 
He adds that there are buyers out there who take the view that, once there is more certainty regarding Brexit, London property will see strong growth. “What we’re seeing time and again is that, despite the negative sentiment, there’s amazing demand for good quality properties,” says Harvard-Walls.
 
“Now is potentially a great opportunity to pick up some good stock, especially for buyers that are wanting to move up the property ladder and buy a larger more expensive home, as the discounts that can be achieved when trading up are disproportionately larger than when trading down, but buyers need to be strategic: they need to be very careful where and what they buy,” he says. “But, as with the run-up to Christmas, summer is a great time to buy – people are distracted by holidays and, this year, the World Cup – there’s less competition for the best deals.”
 
In evidence of the continuing attractiveness of London’s prime market for overseas investors, two large deals have been announced in recent weeks.
 
Indian real estate developer ABIL Group has paid more than GBP90 million for 5 Strand, a 73,000 square foot building next to Trafalgar Square. The property, currently a mix of offices and retail, comes with consent for a new development with double the square footage, of which half would be prime residential apartments.
 
Meanwhile, Saudi investor Arbah Capital has announced up to GBP50 million in financing for the GBP500 million Regent’s Crescent project in central London, in a vote of confidence in the capital’s prime residential market. The project will see the rebuilding of the Grade 1 listed building, built in the 1800s and designed by John Nash, the architecture who built Buckingham Palace.
 
The development comprises 76 high-end units, overlooking Regent’s Park, and is scheduled to be completed in the first half of 2020.
 
“These investors are backing London’s prime property market,” says Camilla Dell “but it’s worth noting that, in a lot of high-end projects such as this, developers are considerably more cautious than in previous years, providing opportunities for buyers. Given the uncertainty in the market, they are often looking to take some risk off the table, and we’re finding that they’re often willing to do off-market deals at a discount to reduce their exposure to future prices.
 
“A few years ago, developers of big schemes would often not allow buyers to take more than one property, now we’re seeing a willingness to do bulk deals. This can be an attractive way of investing, particularly for high net worth clients, who can buy into schemes at a heavily discounted rate and can also benefit from lower rates of stamp duty when purchasing six or more units.”

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