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Brexit is definitely happening, but here’s why it won’t deter overseas buyers in London’s prime property market

by International Commercial Investment on March 31, 2017

Source: City A.M.

Foreign investors – and, in particular, those from the Middle and Far East – have played a prominent role in transactions at the high end of London’s property market for decades.

Having founded and managed a super-prime property development firm since 2009, we experienced first-hand the impressive amount of capital this buyer-type could deploy. From the Grosvenor House Hotel to The Shard, international purchasers have snapped up some of the city’s finest real estate assets.

For instance, CBRE estimated Hong Kong investors had accumulated £4.5bn to target Prime London assets by 2016’s close. Developments we have recently been involved with in Belgravia and Chelsea also continue to attract interest from overseas buyers post-referendum. So why this unshaken confidence?

The benefits of a weakened sterling

Put simply, nothing has really changed for foreign investors – except, crucially, the pound’s value, which slumped after the referendum.

Combined with a better than expected economic environment, this equates to a win-win for foreign investors who still enjoy the security of UK property law reinforced by EU legislation, but at a cut-price, owing to weaker pound versus dollar/euro ratios. As a result, these buyers have capitalised by purchasing now and the signs are that they will continue to, even after the Prime Minister chose to formally invoke Article 50 on Wednesday.

What’s next?

Whether foreign investor activity in London’s prime property market can continue at its current pace hinges on the looming Brexit negotiations and subsequent economic policy. Detailed predictions are fairly pointless at this stage but, in general, there are two outcomes which we think are reasonable possibilities.

The first is that the Government attempts to tax and regulate overseas buyer activity more heavily, as a politically easy way of recouping money lost elsewhere.

Taxes on vacant homes or on foreign nationals purchasing property (such as operates in Vancouver) would likely cool international demand in the short-term. However, long-term effects would be more muted, as the new levies are factored into financial planning.

The second outcome is one whereby foreign buyer activity is more actively encouraged, as the Government fears losing its status as a world-class investor capital. Stamp Duty at the top end of the market may be cut – and the same goes for Corporation Tax.

The eternal investor?

Regardless of what happens next in terms of Brexit, we don’t foresee overseas buyer activity in the capital entering terminal decline in favour of another European city.

Great cultural and commercial centres like Paris and Milan cannot offer foreign buyers the returns they have become accustomed to in prime London. Foreign buyers are here to stay – time to, as the PM remarked, “make a success of it”.

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International Commercial InvestmentBrexit is definitely happening, but here’s why it won’t deter overseas buyers in London’s prime property market

Sales in UK property market reach 10 year high

by International Commercial Investment on March 30, 2017

Source: Property Wire

The number of sales agreed in the UK rose to a 10 year high in February but sales to first time buyers fell, according to the latest figures from estate agents.

The data from the National Association of Estate Agents (NAEA) shows that transactions increased to 11 per branch and the last time this figure surpassed 10 per branch was in September 2007.

The NAEA says it is an indication that buyer confidence is growing as it is up from eight sales per branch in January and six per branch in December 2016.

The figures also show that while there were higher sales in February, some 74% were below the original asking price suggesting sellers are taking a pragmatic approach to their property transactions.

But fewer first time buyers were active with the proportion of sales which were agreed for them falling to 22% in February from 30% in January.

Meanwhile, supply has increased with more properties coming onto the market. The number of properties available to buy on estate agents’ books increased to 44 in February, up from 38 in January. But this is up 26% from a year ago when agents had just 35 properties available per branch.

Demand for properties was unchanged with the number of house buyers registered per member branch at 425 for the second month in a row.

The NAEA asked its members about the recently published Government housing white paper and found that 43% don’t believe it will make a difference while 39% think the proposals could positively impact the market but can’t yet tell how.

‘The number of sales agreed reaching a 10 year high indicates the housing market is moving in the right direction. However, first time buyers need to be a priority as the number of sales made to the group dipped in February when it should be growing,’ said Mark Hayward, NAEA chief executive.

‘As house prices continue to rise, the market’s most vulnerable buyers are being priced out and the only way to address this is to increase housing stock. The Government have pledged yet again to build more homes, but our members aren’t feeling optimistic about the plans,’ he pointed out.

‘If promises are kept and we see construction sites set up across the UK, we’ll be in a better position in a few years than the stark reality we will be facing if this doesn’t happen,’ he added.

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International Commercial InvestmentSales in UK property market reach 10 year high

Qatar announces £5bn UK investment

by International Commercial Investment on March 27, 2017

Source: BBC News

One of the largest investors in the UK has committed £5bn of new money to invest in transport, property and digital technology.

The Middle Eastern state of Qatar said that it was optimistic about the future of the British economy.

It made it clear that the UK leaving the European Union had little bearing on its decision.

Qatar has already invested £40bn in the UK – it owns Harrods and a 95% stake in the Shard in London.

It also has a stake in Canary Wharf in the capital’s Docklands, as well as an interest in the Milford Haven liquefied natural gas terminal in South Wales.

It also bought the Olympic Village following the London 2012 Olympics.

“Currently the UK is our first investment destination and it is the largest investment destination for Qatari investors, both public and private,” Ali Shareef al Emadi, the country’s finance minister, told the BBC.

“We have more than £35bn to £40bn of investments already in the UK.

“We’re announcing an additional £5bn of investment in the next three to five years.

“Mainly this investment will focus on infrastructure sectors, technology, energy and real estate.”

Mr Al Emadi will join International Trade Secretary Liam Fox in Birmingham on Tuesday where UK firms will showcase projects, including in sport, cyber-security and healthcare.

The government relies on foreign investment to support infrastructure projects such as the new high speed rail link between London, Birmingham and Manchester – HS2.

Although no final decisions have been taken on the Qatari investments, Mr Al Emadi did not rule out putting money into HS2.

“We will look at those deals; we will look at electricity, roads, bridges, railways,” he said.

The announcement of the Qatari investment is likely to be welcomed by Number 10.

It comes two days before the triggering of Article 50, the official process for leaving the European Union.

Theresa May has made it clear she believes the British economy remains a positive place to invest and the Qatari announcement follows UK-focused investment decisions by Sir James Dyson, Google and Nissan.
‘Confident’

The decline in the value of sterling has made UK assets more attractive to overseas investors – though many economists argue that leaving the EU will damage trade with Britain’s largest market and therefore damage growth.

“We always like the UK market, it has always been a good market,” Mr Al Emadi told me.

“The way we look at our investment in any market, and especially in the UK, it is a very long term investment, so we don’t look at any cycles up or down

“So if you are talking about Brexit, I can go back to the financial crisis and tell you the same stories.

“We will do what we think is good for us, it is commercially viable, it has a good vision and a good impact.”

I asked him whether the UK economy outside the EU was likely to be stronger or weaker.

“It is a lot to do with the policy the UK will take, but I think, knowing the UK market, I am very confident they will have a good future,” Mr Al Emadi answered, saying that it was important that Britain was welcoming to high skilled foreign workers and students from Qatar and elsewhere.

Qatar has faced controversy over a fundraising for Barclays Bank at the time of the financial crisis and – more recently – allegations that poor labour conditions have marred the preparations for the 2022 World Cup which is being held in the country.

Mr Al Emadi said that Qatar had supported job creation in the UK.

“If you look at what we have done here, it has always been a win-win situation, whatever investment we do in the UK,” he said.

“When you talk about labour in Qatar, I think a lot of these things have been taken out of proportion and [are] inaccurate news.”

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International Commercial InvestmentQatar announces £5bn UK investment

Stock market boom helps keep economy growing

by International Commercial Investment on March 20, 2017

Source: The Telegraph

Surging share prices are making households wealthier, boosting confidence and offsetting some of the squeeze from rising inflation and sluggish wage growth.

Britons’ net financial wealth has jumped by 12.5pc in the past year according to economists at the EY Item Club – rising four times more quickly than wages.

This “should provide some prop to spending this year” and so keep the economy growing, they hope.

However, this only benefits the relatively well off who own shares and other financial assets. As a result rising inflation will hit lower-paid households the hardest.

Low earners also spend more of their income than high earners, meaning they receive a second bigger blow from rising prices.

Prices are expected to increase by 2.8pc this year, almost eclipsing pay growth and leaving household incomes rising by just 0.1pc in real terms over 2017, the Item Club believes, down from 1.8pc in 2016.

That inflation is driven in large part by the fall in the pound which is pushing up the cost of imported goods.

“Higher inflation will be the key culprit in the sharp slowdown in consumer spending growth this year, cutting off what has been an all-too-brief revival in real pay growth and continuing the dismal picture for real earnings seen since the financial crisis,” said Martin Beck, senior economic advisor to the EY Item Club.

“There should be some improvement in 2018, as inflation begins to cool, but even then we anticipate real wage growth of just 0.7pc. It is likely to be 2019 before workers begin to enjoy more ‘normal’ rates of real wage growth again.”

Inflation rose even more quickly back in 2011 with price rises peaking at more than 5pc, as high oil prices and VAT hikes pushed up living costs.

Economists do not expect this period of inflation to be that severe, and say consumer spending is “not heading for bust this year, [but] certainly faces the ingredients for a sharp slowdown”.

Other parts of the economy are more upbeat.

Executives at the world’s biggest financial services firms believe “the UK economy is on course for a resilient 2017, and could outperform other developed nations” according to a survey by Lloyds Bank.

Three-quarters of those surveyed said the UK’s economic growth will match or exceed the average in the G7 this year.

“Financial services firms are an important barometer of the UK economy – and despite uncertainties such as the future of our relationship with the EU and new regulatory pressures, they are confident that the outlook for the UK over the coming year is better than had been expected,” said Edward Thurman from Lloyds’ commercial banking arm.

Despite their confidence over the economic outlook those financiers still have some worries over the UK’s future relationship with the EU, however.

Almost two-thirds said they are concerned about the potential loss of the system of passporting which allows finance firms to do business across EU borders, while 50pc are concerned about barriers to trade and 35pc about the future of regulatory equivalence between the UK and the EU.

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International Commercial InvestmentStock market boom helps keep economy growing

Chinese property investors shift their focus from Australia to the UK

by International Commercial Investment on March 1, 2017

Source: Your Investment Property Mag

A growing number of Chinese property investors are switching their focus from Australia to other markets, particularly the United Kingdom. Foreign interest in Aussie property is drying up because regulators have increased pressures on banks to curb foreign lending amid fears of a bubble.

Last month, the Reserve Bank of Australia (RBA) warned that residential building activity had been 50% higher than long-term averages for two years, highlighting fears that newly completed apartments could fail to settle. Analysts further warned that a sharp correction in the property market could tip the country into its first recession in a quarter of a century.

“We believe the [property market] correction will start with settlement problems for low quality apartments,” said investment firm CLSA in a recent report. “Our worst-case scenario would result in dwelling prices falling in all areas, eventually leading to a recession.”

The boom in foreign property investment has helped drive economic growth in Australia despite sharp declines in mining investment. In 2014-2015, the Foreign Investment Review Board (FIRB) granted Chinese investors approval to spend $24.3bn on property.

The influx of foreign capital has helped drive price growth in Sydney and Melbourne’s property markets, and foreign buyers now account for one in every five apartment sales.

However, over the past two years, the proportion of new property sales by foreign buyers has fallen from 16.8% to 10.9%. This drop is particularly felt in the apartment market.

“Chinese buyers are increasingly nervous about Australia because of recent instability in regulation, tax and bank lending rules,” Esther Yong, co-founder of ACproperty, told the Financial Times. “A lot of Chinese who bought apartments off-plan three years ago are now finding it difficult to find finance as Australian banks have blocked lending to foreign buyers.”

The Big Four have all stopped issuing loans to non-resident borrowers with no domestic income. In contrast, Chinese investment in the United States and Europe is at record highs.

According to Esther, the UK has become popular after Brexit due to the fall in the value of the British Pound, making property investment for Chinese nationals cheaper.

But Beijing’s tighter capital exit clamps are making it harder to move large amounts of cash out of China. As a result, foreign property investments by Chinese companies fell 84% last month, according to the Chinese Ministry for Commerce.

“For some Chinese buyers who have family connections in Australia, they will continue to buy there. But for others without these specific reasons, they will look at other opportunities,” said Esther.

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International Commercial InvestmentChinese property investors shift their focus from Australia to the UK

Nationwide reports a steady rise for UK house prices

by International Commercial Investment on March 1, 2017

Source: Property Reporter

The latest data from Nationwide has shown that during February, the average price of a home in the UK increased slightly to £205,846 – representing a rise of 0.6%.

The report also revealed that annual house price growth edged up to 4.5% and that more households in England own outright than with a mortgage.

Robert Gardner, Nationwide’s Chief Economist, had this to say: “The annual rate of house price growth was little changed in February at 4.5%, only slightly higher than the 4.3% recorded in January. House prices increased by 0.6% over the month, after taking account of seasonal factors.

Recent data suggests that the UK economy has continued to perform relatively strongly. The economy accelerated slightly in Q4, expanding by a healthy 0.7% quarter-on-quarter, and the unemployment rate remained stable at an 11-year low of 4.8%.

The outlook is uncertain, but we, along with most other forecasters, expect the UK economy to slow through 2017 as heightened uncertainty weighs on business investment and hiring. Consumer spending, a key engine of growth in recent quarters, is also likely to be impacted by rising inflation in the months ahead as a result of the weaker pound.

Nevertheless, in our view a small rise in house prices of around 2% is more likely than a decline over the course of 2017, since low borrowing costs and the dearth of homes on the market will continue to support prices.

How important is the role of cash buyers?

Robert Gardner, continued: “Cash buyers are a more important driver of housing market dynamics than they were a decade ago. Though the data only extends back to 2005, it suggests that the share of cash transactions increased significantly from around 20% in 2005/06 to around 35% in 2008 and has remained fairly constant since then.

The sharp increase in the share of cash purchases in 2007 and 2008 was a function of mortgage transactions declining sharply, rather than the amount of cash transactions increasing. This reflects the impact of adverse labour market conditions and the tightening of credit conditions during the financial crisis, which limited the number of people able to buy with a mortgage, while fewer such constraints would have applied to cash purchasers.

However, it is interesting that the share of cash transactions has not fallen back as the economy has recovered. Part of the reason is that mortgage market activity has increased only modestly and remains some way below the levels recorded in the mid-2000s.

The low interest rate environment at home and abroad has also continued to support the flow of cash into other asset classes, including UK residential property.

The rise in the cash share to an all-time high of 38.9% in Q1 2016 (and the fall back in Q2) was due to the introduction of Stamp Duty on second homes from April 2016. This policy change prompted investors to bring forward their purchases to Q1 2016 to avoid the additional Stamp Duty liabilities (a large proportion of these transactions are likely to have been conducted in cash) involvement of investors (domestic and overseas) in the London property market.

The fact that house prices in the capital are more than double the level prevailing in the rest of the UK (£473,073 versus £205,937 in Q4 on our measure) presumably acts as a limiting factor.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “Although there is not much change in Nationwide’s figures, stability in the housing market is welcome at the moment with so much talk of rising and falling prices and seasonal changes. Most of our buyers and sellers are trying to get on with business in a ‘steady as she goes’ manner rather than worrying too much about the future.

We have noticed an encouraging increase in first-time buyer demand for smaller properties, bearing in mind there seems to be a levelling of the playing field with investors and cash buyers who are more reluctant to take on new properties in view of imminent tax and other obligations.”

Russell Quirk, founder and CEO of eMoov.co.uk, said: “The UK market has come out of the blocks slow but steady for 2017 and has continued to see upward price growth, shaking off January’s lowest rate of increase in 14 months.

This was almost certainly seasonal and as spring approaches UK buyers seem to be emerging from hibernation, albeit tentatively.
Despite the doom and gloom predictions we should start to see an increase in market activity over the coming months which should further strengthen this upward price trend.

It will be interesting to see where we stand after this month’s budget announcement. With an overall air of hesitation in the market, it is likely that many savvy buyers will be holding out to see what the Chancellor has in store, whereas the previous bulletproof nature of the market may have seen them proceed with a purchase regardless.

It is likely that Mr Hammond will loosen his stranglehold the top end market where stamp duty is concerned, which could breathe new life into the market to an extent, particularly in London. The severity of the property market storm in 2017 could well hinge on next week’s announcements so it will be interesting to see where we stand this time next month.”

Rob Weaver, Director of Investments at property crowdfunding platform Property Partner, said: “Annual house price rises have slowed but appear to have stabilised, hovering around 4.5% which is a sign of a robust, resilient market particularly in the light of economic uncertainty.

The fundamental issue of a severe shortage in housing supply has supported the market since last summer’s EU referendum.

As long as borrowing rates also continue at an historic low level then predictions for the year ahead are positive, although we probably won’t be seeing London house prices over the short-term racing in front with dizzying double digit rises.

The capital has been the powerhouse of UK property price growth. But there’s now softness in the centre in contrast to outer boroughs and particularly along the Crossrail route, where prices look set to rise faster as the much-hailed new rail route goes live next year.

As the London market is expected to be slower in 2017, established markets such as Clapham, Balham and Wandsworth should remain solid. They’re good transitional areas for people moving out of the capital for more space to Surrey and especially Guildford – a well-established wealth corridor.”

Jonathan Harris, director of mortgage broker Anderson Harris, says: “February was a busy month for the mortgage market as we saw an uptick in new enquiries from buyers keen to get on with the business of moving. Article 50 will come whether we like it or not and buyers and sellers who need to move are mostly carrying on regardless, assuming they can find a property to move to.

While the proportion of cash buyers may be higher than it was a decade ago, the vast majority of people still need a mortgage and are taking advantage of the fact that rates are so low. What’s more, lenders seem keen to lend and that competition should lead to the continuation of cheap rates through the spring.”

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International Commercial InvestmentNationwide reports a steady rise for UK house prices

There are now 11 house-hunters for every property on the market

by International Commercial Investment on February 27, 2017

Source: CITY AM

The UK’s housing crisis is getting worse, new figures have suggested – with 11 house-hunters vying for every property on the market.

Research by the National Association of Estate Agents (NAEA) suggested an average of 425 prospective buyers were registered to each estate agent branch in the UK in January, 10 per cent higher than in December.

Meanwhile, the number of properties available to buy fell to 38, from 41 in December and the lowest figure since July 2016.

Not surprisingly, more than one in every 20 homes sold in January went for more than the original asking price – the highest number since April 2016, when nine per cent sold for more than the asking price.

The number of homes sold to first-time buyers fell to 30 per cent, from 32 per cent in December, while the number of sales agreed per branch rose to eight, from six the month before.

“Competition is rife, with an average of 11 buyers chasing each property,” said Mark Hayward, chief executive of NAEA Propertymark.

“The increase in the number of properties selling for more than asking price in January could be a result of heightened interest and the fact there is simply not enough housing to meet demand.

“When the government issued their Housing White Paper at the start of February we stated how important it was for the industry to put forward robust solutions to really make a difference and it’s vital that building more affordable housing is at the very top of their agenda.”

Figures have suggested the UK’s property market has shrugged off a blip after the Brexit vote. Last week the Council of Mortgage Lenders said last month was the mortgage industry’ best January since 2008.

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International Commercial InvestmentThere are now 11 house-hunters for every property on the market

Almost half of British people think house prices will rise by up to 10% in next year

by International Commercial Investment on February 24, 2017

A new survey has found that four in 10 British people think properties in their area are overpriced and 48% predict that house prices will rise by up to 10% over the next 12 months.

The OnePoll survey, conducted by investment company Freehold Sale, surveyed people across the UK who are planning to buy a home in the next five years to find out their levels of confidence in the current property market.

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International Commercial InvestmentAlmost half of British people think house prices will rise by up to 10% in next year