As the first signs of spring emerge so too, traditionally, do prospective house buyers. This year, despite Brexit uncertainty and depressed prices, the numbers of those prospective buyers approaching Black Brick are up considerably on last year – providing one of a number of data points that suggest the market could be on the turn.
In January and February, the company saw more than three times as many enquiries from potential buyers compared with the same period in 2018.
“There is, without doubt, a lot of pent-up demand in the market,” says Black Brick Managing Partner Camilla Dell. “The big test, of course, will be whether these enquiries translate into transactions.”
Those applicants are also bringing more money to the table. This year, they have average budgets of GBP6.8 million, compared with just GBP3.7 million last year – clearly showing greater confidence to commit to the London market. And Prime Central London’s attractiveness to investors also appears to be returning: almost a third of enquiries have been from prospective buy-to-let investors.
These numbers chime with the view from London agent Chestertons, which claims the bottom of the London prime property market “may be in sight”, after activity picked up in the second half of 2018 and given a “dramatic imbalance between supply and demand”.
After two years of substantial price drops, the firm notes in its latest London residential report that: “Latest data from the Land Registry suggest that average prices across London are stabilising against a backcloth of sustained buyer demand and shortages of properties available to buy.”
Chestertons notes that, as well as local buyers, overseas investors are also looking to take advantage of low prices and weak sterling. Among Black Brick’s enquires, around 60 per cent are from UK-based buyers, while most of the remainder are US-dollar denominated.
“We are seeing two camps,” says Black Brick Partner Caspar Harvard-Walls. “The first are domestic buyers who have been waiting for some certainty in the market but now feel that prices have come down so far that they want to take advantage. The second are dollar-based buyers for whom weakened sterling compounds the lower capital costs, providing such a significant discount compared with the peak of the market.”
Meanwhile, other investors are taking the long view, and looking beyond Brexit. Norway’s USD1 trillion state-owned sovereign wealth fund, which already has substantial holdings in UK stocks, bonds and real estate, said it plans to increase its investments in the country: “With our time horizon, which is 30 years plus, current political discussions do not change our view of the situation,” says CEO Yngve Slyngstad told Reuters.
To be sure, Chestertons is far from forecasting a rapid return to price appreciation. It says that “we do not expect much growth over the next 12 months.” However, prices are unlikely to suffer any dramatic falls, “barring a major shock in the wider economy and if demand continues to outpace supply”.
There are a number of potential bumps in the road. The biggest concern, from the point of view of London’s prime market, is political risk: whether from a substantial delay to the Brexit process, or from a general election. “Either of those events would prolong uncertainty and would deter buyers,” adds Dell.
Another concern is the government’s proposal to add a 1 percentage point surcharge on Stamp Duty to be levied on non-resident buyers. That proposal, announced in last year’s budget, is out for consultation until 6 May. “If the government decides to proceed, that additional tax would likely put downward pressure on prime London prices,” Dell says.
“However, there is clear evidence that a growing number of buyers are preparing to commit to the market and are waiting for the right time to take the plunge,” she adds. “There are things that prospective buyers could be doing to make sure they can move quickly when they feel the time is right – and, as we’ve said before, the market will move quickly when the uncertainty lifts.”