What Could Possibly Go Wrong? London’s Property Tipping Points (Part 3 of 3)

DCHere it is: the final instalment If you haven’t read parts 1 and 2, you should take a look at those first. If you’re returning to pick up where we left off, I can only advise that you remember the many positives outlined in the first instalment. For now, ‘The Dark Side’ continues…

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WHAT? Domestic politics

HOW? The UK has been a relative stranger to political turbulence in recent years, lending it a safe and reliable glow with which to court international investment. But with the 2015 general election and a possible European referendum, and the recent vote on Scottish Independence (regardless of the outcome), the threat of political uncertainty has been looming on the horizon. The various party political election campaigns, and the associated glut of political rhetoric, could have a significant impact upon investors and their decisions in the run-up to the 2015 vote.

The clampdown on foreign property owners, for example, who hold assets through a company structure, has already had a negative impact on the building of new residential properties for the rental market. While some property owners regard the new rules as a fee for privacy, which they are willing to pay, others in the industry have blamed the regulations for signs of cooling in London’s high-end luxury housing market.

HOW QUICKLY COULD IT CHANGE? Months to years.

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WHAT? Geopolitics

HOW? London has long been seen as a financial safe haven by wealthy investors seeking to move money out of their home markets. Property in the capital is a popular choice as a store of value because its relatively opaque ownership structures make it more difficult to trace assets’ ultimate ownership. Property owners who hold their homes through a company structure need only to register the name of the company with the Land Registry, not the name of the beneficial owner. And, given the various Middle Eastern conflicts and rising tensions between Russia and the west, it is almost impossible to see how these safe-haven effects will not continue for the foreseeable future.

HOW QUICKLY COULD IT CHANGE? Much too difficult to say.

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WHAT? The global savings glut

HOW? International investors from developed countries such as South Korea and Taiwan, where savings rates are high, are currently finding that their home property markets are already saturated with investors looking for somewhere to place their surplus cash. Consequently, they are tending to look for investment opportunities abroad in ever-increasing numbers. In London, such investors can find yields of 5-6%, while in their home markets promise less than half that figure. However, with investors increasingly focused on secondary assets and yields on prime central London property already approaching pre-crisis lows, rising prices and falling yields might reduce the attractions of property in the capital.

HOW QUICKLY COULD IT CHANGE? Months to years.

What Could Possibly Go Wrong? London’s Property Tipping Points (Part 2 of 3)

DarksideLogo5If you missed our look at the exceptional confluence of events that has helped the London property market to boom, see Part 1. If you’re already up-to-date, prepare for the dark side of the story: what could possibly go wrong?

It’s impossible to say exactly how, when, or how quickly London’s current property boom will come to an end. It does seem likely, however, whether in a year or a decade, that the time will eventually come. Old hands in the London market can remember a time and a place, not so far away, when they were not in favour. And they know that it will happen again. All things, after all, are cyclical.

In the immediate future, as campaigning for the 2015 UK general election gets into full swing over the coming months, analysts fear that just a single misplaced policy announcement could be enough to panic existing and potential investors across the world. The big issue is political uncertainty, specifically in anything relating to the tax regime, appealing to overseas capital and the immigration rules.

Meanwhile, the prospect of a referendum on Britain’s EU status – something the Conservatives have promised voters if they stay in power come May – is another significant political risk. Anything introducing uncertainty, and the EU issue has the potential to do so on a massive scale, is a worry both for the market and for investors.

But what are the specific tipping points that could herald the end of the situation we are currently experiencing?

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FIVE POTENTIAL TIPPING POINTS:

WHAT? Ultra-low interest rates

HOW? Many countries’ interest rates are at historic lows. As a result, mainstream investment classes are generating low yields. Fund managers who need to deliver certain levels of performance to their investors are searching desperately for assets that will produce higher returns. With London property averaging yields of 5-6 per cent, the sector looks very attractive. As a result, cash is pouring into property assets. But this trend is not expected to continue indefinitely. As countries begin to consider raising interest rates in the coming years, other investments are likely to start looking more attractive again.

HOW QUICKLY COULD IT CHANGE? Years to decades.

. . .

WHAT? Currency effects

HOW? After the global financial crisis, the pound became relatively cheap compared with property buyers’ domestic currencies. Between 2008 and 2013, sterling fell by nearly a quarter against the dollar and by 11 per cent against the euro. As a result, London property prices that looked eye-watering to locals seemed perfectly affordable to foreign buyers. But this trend has already begun to wane. The pound is appreciating once more, up 5 per cent against the dollar over the past 18 months and 8 per cent against the euro. This has taken some heat out of the London property market. For example, in March 2013 a £1m London home cost 1.86m Singapore dollars; today that is S$2m. If this trend continues, investors whose assets are denominated in other currencies could switch to other property markets.

HOW QUICKLY COULD IT CHANGE? Weeks to months.

Read the rest in the final installment, next week…

What Could Possibly Go Wrong? London’s Property Tipping Points (Part 1 of 3)

shard_2583070bWith the global financial crisis finally receding, the London property market is once again booming, but many in the industry are already questioning just how long current investment levels will last.

The current attraction of London property as an investment opportunity is down to a rare conference of factors, several among which being directly attributable to the financial crisis and its immediate aftermath.

The rise of the global middle class has brought with it a new abundance of personal savings, but with low base rates worldwide, investors have been forced look for returns in alternative asset classes. Meanwhile, with increasing numbers of institutional investors, competition for opportunities is also on the rise.

As political instability from the Ukraine to Palestine has sent the wealthy on a quest to find safer places to stash their savings, the falling pound has made London property look cheap for those making the conversion to many foreign currencies. At the same time, the UK’s political landscape has been stable, with a transparent legal system and a broad cross-party consensus allying any concerns investors may have over whether their assets will be safe and free from an interfering government. In fact, government has taken a pro-active role in encouraging inward investment in the property market; in his six years as mayor of London, Boris Johnson has actively set out to attract foreign money, going out of his way to court the Chinese in particular, with several visits to Asia.

As it stands, Chinese companies are among the biggest buyers in the capital. In a bid to attract Asian businesses to Europe, Chinese developer Advanced Business Park has partnered with Stanhope, the British developer, to create a £1bn financial district in the rundown Royal Docks. Greenland Group, the Chinese state-owned developer, bought the historic Ram Brewery site in Wandsworth, south London, at the start of this year, while China Life, the insurer, recently took a majority stake in Canary Wharf skyscraper, 10 Upper Bank Street.

And it’s not just the Chinese making high-profile acquisitions. The Canadian pension fund, Omers – through its property arm, Oxford Properties Group – has backed construction of the City’s newest high-rise, the Leadenhall Building (a.k.a. “The Cheesegrater”), and Indian developer Lodha bought the former Canadian High Commission building on Grosvenor Square, Mayfair, in November of last year. While large US private equity firms such as Blackstone and Lone Star continue to be active, the new kid on the London City block is Taiwan.

Taiwanese life funds have long been expected by London property advisers, following the ruling by Taiwanese regulators last year that insurers could invest in foreign real estate. Cathay Life’s August purchase of Woolgate Exchange in the City was the first step, with JPMorgan Cazenove analysts consequently predicting that the deal would mark the beginning of a stream of Taiwanese investors into London’s commercial property market.

And to cap it all off, there is a positive feedback loop constantly fuelling the market – the presence of buyers and sellers attracts more participants, making it more liquid, which attracts more buyers and encourages more sales. And so it goes on.

This fortuitous conference of longstanding factors is unlikely to dissolve overnight, but there are other aspects behind the London boom that could crumble very quickly. More in part 2, next week…

Flat Prices Up, House Prices Down: Sales Volumes Focused On apartments


Here in the Capital, contrary to recent ‘price cut’ headlines that have appeared in some publications, we have seen PCL (Prime Central London) prices reach new heights in the same period.

As regular readers will know, we firmly believe that international investors’ understandable focus on high-end new developments continues to highlight the relative value in London’s existing housing stock.  W3b25843rhile foreign investors push prices up in off-plan and newly-built property, potential owner-occupiers could do worse than to start their search in alternative markets. This view is further supported by industry figures showing apartment sales in a number of PCL boroughs up 32% for the year-to-date, with house sales falling 21% at the same time.

From a supply perspective, as long as new developments continue to trickle through at the present rate, demand will fail to be met across the majority of London and particularly in the sub-£2m bracket. Complex, cumbersome planning regulations remain a significant barrier in their current state, and ultimately inhibit an increase in supply at the level and rate required.

Elsewhere, the growth in our Managed Sale service reflects not just the strength of our reputation, but also the simple but powerful truth that managing a sale remotely is not just stressful, but also difficult and time-consuming. We continue to offer exceptional expertise across all major property services, boasting a broad and detailed knowledge-base that consistently informs the advice we give our clients.

Wider UK Housing Market Now Outpacing Prime Central London (PCL) Property

One_Hyde_Park_007Industry news has been dominated in recent weeks by the sale of Penthouse D in London’s iconic One Hyde Park development for £140m in ‘core and shell’ state, making it the city’s most valuable property, with or without internal walls. The price is evidence that even at the very top end of London property, there are still international buyers – in this case as unnamed Eastern European – looking to diversify and protect their wealth by investing in the capital’s real estate.

Despite the strengthening pound making inward investment comparatively more expensive for most international buyers, prime Central London (PCL) property prices have continued to rise in recent weeks as increasing interest from both foreign investors and domestic owner occupiers energises the market. In stark contrast to the early stages of the post-financial crisis rally, however, it is secondary London locations including Wapping and Canary Wharf that are now pacing property price gains in the capital.

Within Central London, the discrepancy in recent price performance is now increasingly pronounced. Marylebone, good value in the context of PCL, saw prices rise 4.2% in Q1 and some 19.3% in the year to end-March. By contrast, prices in Chelsea, Knightsbridge and Belgravia rose just 0.6% in the first three months of 2014 and only 5% in the twelve months to end-March.

The strength in these secondary areas partly reflects the greater influence of domestic buyers and partly the changing mood of investors seeking better value. Buoyed by low interest rates, wage growth and a broader economic recovery that is gathering pace, house prices across the UK have continued their recent positive momentum.

According to Nationwide, house prices across the UK rose 1.2% in April and some 10.9% in the year to end to April, the first time that annual price growth has reached double figures since 2010. Meanwhile, the latest lending volumes figures from the Council of Mortgage Lenders show mortgage levels in the UK a staggering 43% higher than a year ago, fueled in no small part by the government’s Help to Buy scheme.

New Mortgage Rules Could Derail House Price Recovery

mortgagesTough new mortgage rules are expected to cut the number of buyers enough to cause the housing market to stall over the summer, UK property experts have warned.

The new rules, introduced by regulators under the Mortgage Market Review (MMR), mean that borrowers will now face intrusive checks on their income and spending habits. Lenders are also testing whether borrowers are able to cope with increased repayments in the case of rising interest rates. Consequently, many new buyers and even existing borrowers wishing to remortgage are expected to have their applications rejected.

The Government’s controversial Help to Buy scheme has been criticised by some for increasing the demand for properties and pushing up prices, allowing buyers with as little as a 5% deposit to access mortgages. Whatever the cause, the latest figures from the Office for National Statistics report that the average UK house price rose to £253,000 in February, up 9.1% over the previous 12 months, with most regions seeing strong year-on-year growth in property prices. In England, prices are now higher than the pre-financial crisis peak of January 2008, with London seeing the largest growth: the average home in the capital now costs £458,000, up 17.7% over the year to February.

Under the new rules, lenders will be responsible for assessing whether buyers can afford a loan, regardless of their deposit. Consequently, lenders have developed affordability questionnaires that ask what some might consider intrusive questions, including whether a borrower gambles, has ever taken a payday loan, regularly eats out or has pets or any expensive hobbies. Some are going further, asking how much applicants spend on haircuts, cleaning products, eye-care, and parking. In fact, many go as far as to ask whether borrowers are planning any major life changes that could impact on their income such as starting a family or becoming self-employed.

Lenders are also applying more rigorous stress tests to ensure borrowers will be able to afford their loan when interest rates rise, with the particularly cautious assuming rates will reach 6-7% in five years’ time. Such an increase would require borrowers to have a considerable cushion in their disposable income to show they will be able to meet their repayments in the future.

And it’s not just new borrowers who will face the tough new tests. Existing customers who want to remortgage or move their loan to a new property are likely to be caught out and could find they no longer qualify. Although many mortgages were sold with assurances that they could be moved – or ported – to a new property midway through the loan, and in spite of new MMR rules stating that existing borrowers will only need to be put through the new affordability requirements if they want make changes such as increase their borrowing or change the length of their loan, some lenders will be applying the tests to people who simply want to move house.

Problems are likely to arise because many existing borrowers would not qualify for their mortgage if they were reassessed under the tough new affordability tests, even if their income had improved or they were moving to a cheaper property. These borrowers could be the next group of “mortgage prisoners”. Many are likely to be told they cannot afford their lender’s most competitively priced loans, and forced onto the expensive standard variable rate.

These tough new mortgage affordability tests could be in danger of killing off the boom in UK property prices as lenders reject thousands of borrowers who would previously have been accepted. Both executives within the lending industry and economists alike, have warned that the impact of the new rules, devised and enforced by the new City regulator, the Financial Conduct Authority, could be enough to strangle a nationwide recovery in the property market. Figures published yesterday by the British Bankers’ Association showed mortgage approvals have already started to fall back, reaching a four-month low in March

Helping SERVE ON continue to serve individuals and communities

On 9th July 2014, 144 very select guests will gather on board HMS Belfast to show their support for SERVE ON, an organisation that although newly formed, is already establishing its role, cementing its reputation, and building personal and community resilience around the UK. Oliver Letwin, Minister for Government Policy, is one of many to have taken note:

“Serve On aims to be a rallying point for volunteers of all ages, backgrounds and abilities across the country. It provides those from marginalised groups and the long-term unemployed, the opportunity to be part of a committed, self-disciplined, enduring and well-trained team”.

Look at the recent floods around Britain; imagine a team of ex-gang members, whose lives have been transformed by SERVE ON, led by a team of veterans from the Armed Forces and Emergency Services, working together to provide meaningful response to a national emergency. This is exactly how SERVE ON is already transforming lives, releasing the power of leadership and building teams with a purpose. In the process, it is very quickly, and understandably, establishing an important role supporting the Emergency Services and Local Authorities in times of great need. Meanwhile, however, SERVE ON needs help and support to continue inspiring service and to realise its own enormous potential…

Supporting the upcoming SERVE ON dinner aboard the HMS Belfast is one way to lend your support to their amazing, worthwhile work. Tickets for the evening, which will include a drinks reception on deck with spectacular views of London, a three-course dinner with wine and an auction of exclusive and highly unusual lots, are on sale in tables of 11 at £1800 per table, or £150 per ticket (contact details below).

And if you’re interested in sponsoring the event, aside from the knowledge that you’re helping further an emergent force for good in British society, the business benefits include your name or logo in primary position in all collateral, links to your website in primary position on the partners page of the SERVE ON site, a 300-word introduction page in the Programme (initial print run: 500), a full double-page spread, inside front cover or back cover ad in the programme, special recognition on the night as sponsor, and of course a complimentary 12-person VIP table at the dinner itself plus full access to all official and press photography from the event.

For sponsorship and ticket enquiries, please contact George.Hewson@serveon.org.uk or 07815 775 017.