Agents clash over whether prime London still appeals to investors

Prime London’s transactions are now the preserve of so-called ‘needs-based buyers’ and not investors according to high-end agency Knight Frank - although at least one agency appears to disagree with the claims. 

James Clarke, a regional head for Knight Frank in London, says transactions in the existing homes market are increasingly involving owner-occupiers not landlords.

The agency claims that sales volumes have stabilised and prices have “re-based” - thought by some to be code for “fallen” - following the introduction of higher stamp duty and other fiscal changes in recent years, which cooled demand in the prime London market. 

“As buyers see greater evidence of value, those driven by needs such as schooling or downsizing have responded more quickly. Meanwhile, landlords are still processing a series of recent tax changes that have put downwards pressure on rental supply and upwards pressure on rental values” says Knight Frank.

Landlords accounted for only 14 per cent of all prospective buyers in May this year in prime central London - although that data does not include the new-build market. Nonetheless it was well below the 21 per cent recorded in May 2014. 

“People are now thinking longer-term before moving than they did previously because of higher stamp duty. Meanwhile, from a landlord’s perspective, the tougher tax landscape means some are sitting on their hands before deciding what to do next” Clarke says. 

He adds that a growing number of landlords are exploring a sale after tax changes affecting mortgage interest relief, wear and tear allowance, and the additional homes three per cent stamp duty surcharge. 

The number of properties listed for let in prime central London has fallen as a result.

However, by contrast, a UK-based estate agency which recently sold its Middle East sales offices to a rival says London in particular remains a target for property investors from the Gulf region.

Cluttons - which a year ago was bought out of pre-pack administration by a so-called ‘turnaround’ business, RCapital - last month sold off its Middle Eastern business to Savills to allow it to concentrate on resuscitating its UK activities. 

Now Cluttons has revealed the results of a survey of 250 wealthy property investors in the Middle East along with 50 sterling millionaires in London, to assess their international buying preferences. 

The UK emerges as the second most preferred property investment location behind India and in joint second place with the USA. 

Predictably London was the favoured investment destination in the UK although Manchester is now growing in popularity. 

The UK’s popularity comes despite Brexit - but is partly because of the fall in the value of the pound since the EU referendum almost exactly two years ago.

“The recent recovery of sterling may mean there is a perception amongst Middle Eastern buyers to take advantage of the currency play before sterling strengthen further. Furthermore, with oil prices starting to tick upwards once more, disposable incomes and the appetite to invest overseas will undoubtedly rise in parallel” claims Faisal Durrani, head of research at Cluttons.

In the investment pecking order for the Gulf elite, new build residential property is most popular property asset class (54 per cent) followed by offices and serviced apartments (both on 37 per cent). 

“From experience, we know Middle East and Asian investors alike have a preference for new build as it is something they are familiar with from their own markets. There is of course also the fact that rental returns are higher in new builds than they are for secondary, or period properties” says Durrani.

He believes around one in five residential property transactions by overseas investors in London are from the Middle East.