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Is London's popularity with investors here to stay?By: Chris Ledgerwood

London, like a number of world capitals, has been a popular choice for international investorsAs most readers will be aware, the housing market in the UK is starting to show signs of recovery following the recent recession.

The prime London property market has risen considerably in the last few years, with growth well over and above any growth shown in the regions.

Historically, London, like a number of world capitals, has been a popular choice for international investors given the nature and type of the residential properties available and its location as an international transport hub.

London’s popularity has soared given the political and financial instability of many European markets and the rise of wealthy individuals and companies from the boom in industrial and commodity based wealth in developing markets.

The strong and stable UK property ownership system has further strengthened London’s appeal especially as there are no general bars to international ownership of properties.

This popularity has meant that London has been immune from the general economic downturn in the property market with prices in London's prime market being in excess of 25 per cent higher than they were at their 2007 peak.

While the prime London market is still strong as demonstrated by the average number of offers agents are receiving for properties, a number of commentators are predicting that property prices will decline in 2015 by up to 1 per cent. However the consensus is that prices will rise in the years following 2015.

It has been suggested that the reasons for the drop include the new stamp duty land tax (SDLT) regime for properties owned by corporate entities, which was originally set at 15 per cent for properties over £2m and has now been broadened in scope to include properties over £500,000

The rationale behind this change is to prevent the circumnavigation of SDLT on high value properties where instead of the property itself being sold the property was held by a company as its sole asset and the company would be sold instead.

While it is difficult to say in the long term how the SDLT change will affect the prime London market it may not ultimately impact greatly at the higher end given the wealth of the purchasers of these properties.

The key factors facing both domestic and international purchasers in London is the availability of residential stock and the ability to proceed quickly with transactions. For any prospective purchaser whether domestic or international, the key matters to consider are:

  • Purpose of acquisition – is the property to be a residence for the purchaser occupation or for investment? If the former then any investment should be looked at on a capital growth basis while if the latter it would be mix of capital growth and income return;
  • Location – is a particular area key to a purchaser or are good transport links an offset to allow for properties in slightly less central locations? Good research is required to identify up and coming areas where further price growth can be expected;
  • Ability to proceed quickly – it is essential for any purchaser that finance and the appropriate legal and surveying advice is in place to ensure that once an offer is accepted the purchaser can proceed swiftly to exchange contracts and lock the seller into the transaction.

One fact which should not be discounted is that there is more to London than prime central. The advent of Crossrail and the development of other infrastructure networks, less central boroughs will become more desirable and could see greater increases in price than the prime areas as demonstrated by five-year forecasts.

While international investment is generally good for the market it has been questioned whether such investment is limiting the scope of ordinary residents to purchase properties within London. There is certain merit to this argument in that prices in prime central London are pushing domestic purchasers out towards other boroughs. The lack of affordable housing stock though cannot be put solely at the door of international investors.

Development schemes with elements of affordable housing are still of paramount importance to the community and this is a matter for government and local authorities to ensure that in new developments the appropriate provisions are made. The Government’s help to buy scheme will be of assistance to individuals looking to take their first step on the housing ladder. In addition increased investment in infrastructure and Crossrail should improve access to domestic purchasers by increasing those areas in and around London which are within a reasonable commuting time for workers.

In all, the London market is still attractive to both international and domestic purchasers, and provided appropriate care and attention is carried out during the acquisition process, should continue to be so.

About the author
Chris  Ledgerwood, Director, Bond Dickinson LLPChris Ledgerwood is a Director in the Real Estate department of Bond Dickinson LLP.


Features May 2014

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