It is important to view the residential property market in London and the south-east as both an investor and a developer. Both have their specific needs, while also driving toward the same common goals: a successful property investment. Investors worry about more macro issues, such as stamp duty (a transaction tax), bubble risks and global factors affecting local markets. Developers worry about planning, construction inflation and the cost of financing their projects.
One thing is certain, however — there are no signs of a lack of appetite among developers to develop and among investors to invest. Developers are always looking at ways to find equity to fund their projects and investors are looking to put their hard-earned savings into large projects that they otherwise would not have the opportunity to do.
The dramatic increase in stamp duty has created a significant stall to growth in regard to UK home sales. According to The Financial Times, home sales for properties worth more than £1.3 million (€TK million) are down 19 percent compared to the year prior. Home sales for properties worth more than £3.3 million (€TK million) are down 25 percent in the same period. This not only affects homeowners, but investors as well. Another worry is the nasty “bubble” term. While it is true that property values in London are near the top globally, a serious lack of housing seems to be sustaining the drive in value. With such little supply, and no end in sight to the dip in demand, it seems that property values are more protected from a potential bursting of said “bubble”.
More concerning is the global affect that the conflicts in the Middle East and Europe are having on the local market. Unrest in Syria, alongside the ever-present threat from terrorists in Europe, are leading to a more guarded approach to investment. The unknown behind the involvement of Russia and other global powers in Syria cause investors to question their plans in regard to their overall portfolio’s strength and ability to sustain a global conflict.
Demand remains high
This past year was positive in many regards. Property values in London grew at 3 percent in 2015, alongside 45 percent growth in a five-year period and 138 percent over the past 10 years (Knight Frank). Demand is at an all-time high, professional services and the financial sector are in a period of growth, and London has never been more desirable as a global hub for finance and business. Investors and homebuyers are propped up by record-low interest rates, and by an incentive to take advantage of the existing market returns. This, alongside foreign investments, all leads to a strong base of potential homebuyers and investors. One other influential factor for the property industry in 2015 was the election of the Conservative government. This put an end to all the “mansion tax” speculation and gave buyers a much-needed level of confidence.
One negative note has been the implementation of a higher stamp duty on home sales. This has backfired in that home sales have dropped and a lower level of stamp duty tax revenue has gone into government coffers. Another negative is the lack of supply in relation to the intense demand for housing in London. The inability to either find a home, or to afford what is available, is driving young professionals and investors to look outside of London. This may affect the long-term stability of the market if demand starts to trend downward.
Now it’s time to look into our crystal ball and see what 2016 has in store. We, perhaps unsurprisingly, take a bullish approach to the market — in particular, London and the south-east. While we believe that there will be, and has already been, a small correction in market prices, with stagnated pricing across the capital, we are still of the opinion that, if you buy at the right price, in the right location, with the right vision, you will see positive results. The market in 2015 saw prices level out and many properties struggle to sell, which means that buyers have become fussier and more choosy about which property they want to buy. However, for the right property there is still a premium to be paid. That puts the onus on the developer to put the best possible product on to the market.