Bolt from the blue for UK property
Estate agents’ phones were ringing hot the morning after the night before, as investors from around the world suddenly rediscovered their appetite for British property.
Offers worth hundreds of millions of pounds were made on May 8 as it became clear that the incumbent Conservative party had won a decisive victory in a general election that was supposed to be too close to call.
As far as prospective property owners were concerned that meant two things: there would be no “mansion tax” on properties worth more than £2 million (Dh11.4m); and there would be no crackdown on “non-dom” status, which allows people who are resident in other countries or were born in other countries to cap their tax liability on overseas earnings.
Among the big-spending property buyers is the Qatari ruling family, which this week snapped up one of prime Mayfair’s finest family homes for more than £40m.
The six-bedroom Victorian town house, just off Park Lane, is yards from an enclave of Mayfair homes bought by the Arabian Gulf family in recent years.
The deal marks the resumption of active buying from Middle East institutions and private investors, where there had been a noticeable lull in interest in prime central London homes in recent weeks.
Now the top end of the market, where homes are priced above £1.8m, is enjoying a rebound, although agents report more confidence and more properties being put up for sale at all price points.
“Wetherell processed some £29m worth of offers that were made on Mayfair property to us on Friday 8 May straight after the election, which included a £26.5m palatial property and another £2.5m flat, both in Mayfair,” says Peter Wetherell, the chief executive of Wetherell estate agents.
Gary Hersham, the managing director of Beauchamp Estates, called the days immediately following the election “bedlam”.
“Beauchamp Estates is still busy finalising the multimillion pounds of business activity that started on Friday, most notably a £20m property in the West End, which exchanged on Friday,” he says. “This is just one of many transactions that will get finalised over the next few days.
“If Friday 8 May is any indication we will now see a big wave of previously pent up demand unleashed in the London housing market, which will lead to a rise in new instructions and sales across London and the Home Counties in particular, especially in the premium sector of the housing market.”
Giles Hannah, the co-head of residential at Christie’s International, who has had £250m worth of instructions to buy central London property since the Conservative victory, says: “Ultra-high-net-worth families from around the world were waiting for the election and very concerned by the political outcome.”
“Now they see London as the number one spot in the world to invest and live in.”
Reflecting the relief that the property industry has felt, shares in all major housebuilders also leapt between 5 and 10 per cent on the day after the vote. Since the polls closed on election day, shares in all the leading property chains have soared: Foxtons’ stock is up 13 per cent, Countrywide has risen by 12 per and Savills has gained 8 per cent.
Lucian Cook, the estate agent Savills’ head of residential research, has revised his five-year forecast for prime properties in central London upwards from 15.9 per cent to 22.7 per cent.
However, its rival Knight Frank has taken a more cautious stance and has not yet adjusted its forecasts. “Activity is set to pick up, but there may be an ‘expectation gap’ emerging in pricing,” says Grainne Gilmore, the head of residential research at Knight Frank.
Other forms of property investing also saw a spike in interest. A property fund that pools money from buy-to-let investors says it had had its busiest weekend over May 9 and 10 since the removal of the Swiss-Franc peg in January. LCP says it had more than 100 enquiries from new and existing investors, drawn from many countries including Greece, Hong Kong and Bermuda.
“Safe-haven seeking investors are already coming back in their droves as confidence has returned to the property market and the UK’s business and financial future has been affirmed,” says Naomi Heaton, the chief executive of LCP.
Top property agents, investors and lawyers are not the only ones breathing a sigh of relief after the Conservative majority win after five years of a coalition government with the Liberal Democrats.
Bankers and financiers should also benefit. Under a government that is unlikely to cap bonuses, apartments in new-build towers with quick access to the City are expected to sell fast.
Some developers moved quickly to attract these buyers, with Redrow launching its new penthouse collection at One Commercial Street, where prices start from £2.75m, the day after the election. Flats at the The Mellier, a car showroom-turned-luxury residential apartment complex in Mayfair, also went on sale last week. The apartments are being billed as the largest new flats in the capital, by room dimension and ceiling height and cost between £18m and £30m.
David Cameron’s return as the prime minister has also triggered a surge in home loan enquiries as well, according to deVere Mortgages, which offers advice to British expats and to foreign national who want to buy in the United Kingdom.
“Demand for mortgages has been strong all year, but the volume of enquiries has increased by more than 50 per cent over the last seven days, compared to the previous week,” says Kevin White, deVere’s head of UK financial planning.
Tom Elliott, the international investment strategist at deVere Group, adds: “The election results, has confirmed that Britain remains a pro-business, pro-property owning country backed up by a robust legal framework. The statist alternative, proposed by the Labour Party, that would have led to more government intervention in the economy has been revealed to have little popular support.”
Rightmove, an online property sales site, this week predicted that the number of properties coming to the market would jump by 10 to 20 per cent, as uncertainty evaporates.
“Pre-election jitters came home to roost in the final weeks of electioneering, with the average price of property coming to market dropping at this time of year for the first time in five years[…] Many estate agents are now reporting a resurgence in interest following the surprise election result,” says Miles Shipside, the Rightmove director and housing market analyst
Andrew Weir of Foxtons in London says: “Now the months of uncertainty are finally over, we are already witnessing confidence returning to the market with buyers and sellers in a more informed position to make the decisions they were putting off.
“Many buyers who registered months ago but put their purchasing on hold, have since picked up their search activity with a renewed vigour.”
So with estate agents predicting a golden summer for deals, it seems like the boom years are back in London. At least until the next point when politicians try to put the brakes on the soar-away housing market.
Risk-free future a big draw for region
Britain’s Labour Party had focused its property policies squarely on the residential sector and commercial property was not under threat from any sudden punitive new taxes via the ballot box.
Most commercial agents and capital markets experts say that, if anything, the enthusiasm of Middle East investors for UK assets increased in the run-up to the May 7 election.
Not only did Qatari funds win a £2.6 billion (Dh14.97bn) battle to take over Canary Wharf Group, just days before the vote the Qatari-backed Constellation Hotel Group bought a controlling stake in Mayfair’s most prestigious five-star hotels, the Connaught and Claridge’s – as well as The Berkeley in Knightsbridge – from the Barclay brothers. The deal is thought to have valued the three hotels at £1.5bn.
“The constant search for good investment opportunities in the UK that we have seen in recent years carried on,” says Fadi Moussali, the head of international capital markets for the Middle East and North Africa region at the property consultancy JLL.
Yesterday, the property landlord Shaftesbury reported a 30 per cent rise in first-half net asset value, riding on the strong demand for commercial property in London.
The company, whose investments are focused around London’s affluent West End, said net asset value rose to 775 pence per share in the six months ended March 31, from 596 pence a year earlier. Net asset value is a key measure for developers as it reflects the value of their properties.
Shaftesbury gets the majority of its income from hundreds of shops, bars, restaurants and cafes located in the tourist-friendly areas of London such as Carnaby Street and Covent Garden.
But whether a left-wing or right-wing government is elected is not the only issue at play. “We believe that sovereign wealth investors will invest less than in 2014, largely because of the volatility of the oil price. But that will be more than made up for by the money from private Middle East investors,” Mr Moussali says.
Another factor to consider is the referendum on European Union membership that the prime minister David Cameron’s Conservatives has promised voters. Now scheduled for 2017, this may start to have an influence, albeit not immediately.
“The potential exit of the UK from the EU is definitely a theme that will weigh on investors’ mind in the next two years. In my opinion, this will not be enough to diminish the appeal of the UK as a destination, but it will increase uncertainty and may lead to a slowdown or postponement of investment decisions,” Mr Moussali says.
Chris Brett, the head of capital markets at the property advisers CBRE, says it also saw a step-up in investment from the Middle East before the election, from both institutions and private investors.
“We are seeing increased capital flows from Saudi Arabia, Bahrain and from Abu Dhabi. There has been a real change in the levels of private – second or third-generation – wealth looking for a return in a safe haven.”
Mr Brett says from a global perspective he believes Middle East spending on property will be even higher in 2015 than the $3bn spent in 2014. “I do see it increasing this year, and I do think the UK will keep its share of it. There is also a lot more interest in assets in regions, outside London, too,” he says.
Follow The National’s Business section on Twitter
Updated: May 21, 2015 04:00 AM