Prime property investors are overlooking Brexit uncertainty and are exploiting the dip in the market to acquire some of London’s best residential offerings at very attractive rates. Tiger Bridging, a leading bridging finance broker investigates.
The capital’s prime residential market is showing early signs of bottoming out, as rents have fallen by an average of 9.6% since the referendum, yet the annual rate of decline has now slowed to just 0.8% in 2018, according to the Savills prime London rentals index. The negative impact caused by Brexit is predicted to put a recovery on pause for another 12 to 18 months, as political and economic uncertainty continues to loom over the markets. Growth is expected to remain subdued in the following periods, given the rising supply and shrinking corporate budgets.
The negative trend is largely concentrated in London’s central postcodes, where rents have fallen by as much as 19.7% in the period since the referendum until the end of 2018. This has incentivised ultra high net worth individuals to actively purchase prime residential properties in the capital. As a result of the weaker Sterling, this search for “bargains” is especially seen among international investors, who stood for 57% of the total buyers in the second half of 2018, up from 39% in the second half of 2016 and an average of 40% prior to the EU referendum. Between 2016 and the second half of 2018 an EU buyer would have received a currency exchange boost of around £124,000 on a property valued at £1 million. The improving performance of the sales market and the subsequent depletion of supply, is likely to result in a decline in accidental landlords, who would instead be replaced by cash investors.
With the Savills index report forecasting rental increases by an average of 11.5% over the next five years, and by 12.6% across the prime commuter zone, this robust demand is mostly generated from smaller prime properties. On the other hand, the ultra high net worth purchasers have been focusing their attention on ‘super prime’ properties, worth £15 million and above. Savills cited 73 sales at this level in 2018, which represents a 43% increase on 2017, with a combined value of £2bn. Given the predictions of a prolonged recovery discussed above, as well as the fact that recent tax changes have had a minimal impact on prime property investment in the capital, this sector is likely to continue presenting new opportunities at bargain rates and should remain an attractive investment option for high net worth individuals even after the Brexit deadline on March 29th.