Is now the time to buy London property?

The UK property market bounced back exceptionally strongly from the depths of pandemic last year. This year, March was the busiest month for property transactions in at least 15 years, with total spend over the preceding year reaching its highest level ($280bn) since before the global financial crisis. 

This is according to Tom Bill, head of UK residential research for Knight Frank, who says that as a result of all the recent activity in the sector, house prices are rising sharply. The Nationwide House Price Index shows house prices registered their biggest monthly gain since 2004 in April this year, taking annual house price growth to 10%.

“In simple terms, we are seeing price distortion due to a lack of supply. The first two months of the year were marked by uncertainty over new Covid-19 variants, which meant that new sellers were reluctant or unable to list their properties. When demand escalated sharply in March, supported by the stamp duty deadline, the best properties sold quickly. As those properties disappeared from the market, sellers hesitated, which exacerbated the supply shortage and placed upward pressure on prices.”

The relief on stamp duty (tax on the sale of the home, usually set at £125,000) was increased to £500,000 by the UK government in July 2020, with the aim of making it easier for those who may have been financially affected by Covid-19 to purchase property and to ultimately boost a battered economy. The initial deadline of March 2021 has since been extended to September and applies to both residents and non-residents. 

“However, one reason to believe the supply and demand imbalance will correct is that the number of market valuation appraisals is rising,” Bill says. “This is a good leading indicator for supply.”

He says there has been a return to annual price growth in prime central London (PCL) for the first time in five years. “This serves as a reminder that there has been a long overdue return to growth in PCL that was beginning to pick up before the pandemic struck.” 

Camilla Dell, managing partner at Black Brick Property Solutions, says much of the “growth and madness in the property market has been taking place outside of PCL. When analysing property in certain parts of city centre, there is good value and interesting buying opportunities”. 

She says that across PCL, property prices are down just over 20% since the peak of the market at the end of 2014. She echoes Bill’s sentiments that PCL is due some sort of price growth, which was starting to play out just after the general election and after the pandemic started. 

She says there is a window of opportunity for buyers in PCL. This, however, comes with a caveat: that PCL has never been a high-yielding asset class. 

Dell has helped a mix of clients from across Africa purchase property in London. This has ranged from clients relocating after having sold their businesses, through to clients choosing to educate their children either at boarding school or university, as well as investors, ranging from those buying single, buy-to-let properties, all the way to larger clients investing in larger property blocks.

“For many African clients, owning real estate assets in the UK and, in particular, PCL is about wealth diversification. Many of the families we advise have made their wealth in much higher risk countries and continue to view property in London as a safe-haven asset class. There are other strong pull factors, including education and business.”

She says the point of investing in a London property is “long-term capital growth and, in that regard, the forecasts are looking positive, with Knight Frank forecasting 25% growth over next five years”. 

Sanah Gumede, head of Standard Bank Wealth & Investment SA, says: “The pandemic has brought a shift in societal conduct and investor confidence. It has caused unrest and fears about economic stability, which is now almost impossible to anticipate. However, investors seeking core assets continue to flock to regions such as the UK, which capitalises on its reputation as a safe haven for foreign investors.”

As with any investment, it is important to gain a thorough understanding of the market dynamics and potential risks associated. Non-UK residents who are looking at acquiring property in this jurisdiction should consider additional costs associated with the purchase price. This includes the new 2% non-resident surcharge for Stamp Duty Land Tax (SDLT), introduced on April 1, that foreign buyers must contend with. 

“This is yet another blow to the London property market,” says James Quarmby, partner and head of private wealth at Stephenson Harwood. “Much of the prime London property market relies on interest from foreigners and, with this latest increase, the top rate of SDLT now stands at 17%, almost reaching VAT levels. This is a disincentive to invest in UK residential real estate.”

Despite this higher cost, the London market presents opportunity for foreign buyers at present. The tax relief can be used to maximise a potential investor’s budget in the market. “The rate for commercial building remains sensible,” says Quarmby, which is good news for business owners looking to set up operations in the country. 

“At Standard Bank, we aim to guide our clients through the maze of issues surrounding finding and securing a property acquisition,” says Adam Hunt, head of international wealth & investment at Standard Bank. “We work with companies such as Black Brick to help our clients locate and negotiate their required property. We then work alongside them to arrange finance for the acquisition and, with firms such as Stephenson Harwood, how to structure ownership suitable for their requirements.”

Those interested in gaining deeper insight into trends shaping activity in the UK property market and a more comprehensive understanding of the pertinent legal aspects, can download the free-to-view webinar below, recently held by Standard Bank.

This article was paid for by Standard Bank.