Mark Lawson from The Buying Solution takes a look at the property market and highlights the trend for off-market transactions.
In the recent past, the well-trodden property path of a successful London-based professional would follow a fairly predictable route. A first-time flat in central London, upgrading to a larger first-marital home typically just outside Zone 1, before moving out of the capital to something larger in the country. That final move would be driven, more often than not, by the prospect of good schools. While children grow up, there is a period of property stability during which there might be a pied-a-terre investment back in London, until it comes to downsizing later in life.
This pattern, which has served to deliver regular stock to the marketplace both in London and the country, largely held its shape until London property values began to grow vastly out of line with the country following the financial crash of 2008. Many of those Londoners who otherwise would have moved out, clung on to their properties and watched, in some cases, double digit price inflation.
The rug was pulled from underneath the London market when, in December 2014, the former Chancellor George Osborne introduced radical changes to Stamp Duty Land Taxes (SDLT). Overnight the long-standing system, where buyers were charged a percentage of the full purchase price as soon as it hit certain thresholds, was scrapped. Instead, new levies were created with, for the first time in this country, buyers having to pay a tapered 10% tax on the property value up to £1.5m, and 12 % above that. This was followed in April 2016 by an additional 3% surcharge if the property purchased was a second home. Understandably, it made a lot of would-be buyers take stock and re-think their investments and property transactions.
On top of this substantial increase in taxation, the market then had to cope with the knock-on effects of the uncertainty generated by the Brexit vote last June and the ensuing devaluing of the sterling. Given that a substantial amount of prime central London is owned by those who operate in Euros or dollars, factoring in the steam that has come off the market as well as the drop in the value of the sterling, property values have come down by as much as 30% in some cases. Unless vendors really have to sell, they are holding back.
The result of this wariness and lack of stock is a flight to quality across the board. Those that are buying in this market want to make absolutely sure that what they are securing is best-in-class. Pockets of activity air up: the north Cotswolds, for example, where there is particular interest in the area between Oxford, Burford, Stow and Banbury, is proving popular – especially with the improved communications to London Marylebone. Patches of perceived value in the Home Counties – currently that’s around Haslemere – is also generating interest.
A lot of business is being conducted off-market whereby the house is shown to a select few and there is no marketing.
In London, when something does come to the market that has serious stand-out value – a house overlooking a park for example, or a lateral apartment on a prime street in Kensington – it’s often the case that there is competition. The result is an uneven market: considerable premiums are being paid for the very best properties, while those which are thought to be blighted remain stuck and over-valued.
Looking at our figures for the past five years illustrates the divergences in the top-end property market: numbers of clients looking to spend over £5m on their purchase are down by more than 50% due to SDLT increases while those operating in the super-prime market, that is to say, with budgets over £20m are up by over 60% as these clients are taking advantage of the weak pound. Meanwhile, those clients who are reliant on the sale of one property in order to purchase another has risen from 10% to 40% during that same period – not being able to sell the London property has been a recent stumbling block.
Future-proofing an investment isn’t easy in any market but when it comes to property, there are ways of getting ahead of the game; chief amongst them is seeing the ‘whole market’ when initially purchasing. With increasing numbers of vendors unwilling to risk exposing their properties to the unknown appetite of the open market (lest they fail to sell and become stale), a lot of business is being conducted off-market whereby the house is shown to a select few and there is no marketing, no website listing and certainly no advert in Country Life, or the London magazines. Typically around 45% of The Buying Solution purchases are made off-market; so far in 2017, 71% of our country purchases have been conducted privately. This becomes even more evident the higher up the market you go: of the 20 or so country houses we recently viewed with a Russian client above £15m, only four are known about publicly.
It’s also more important than ever to analyse every feature of the purchase to understand its positives and its pitfalls. A buying agent might typically preview as many as 130 houses on behalf of clients before distilling a shortlist of possibilities. Of course, there’s an element of compromise in every property purchase but what’s important to understand is where those compromises should be made and what aspects are likely to affect its value long term – regardless of what the future political or economic climate might have in store. What we do know is ‘Best in Class’, like most other assets, remains a saleable product in a good or bad market; the critical thing is to be able to identify ‘the best’ it if it appears (which they very rarely do).