Date Published 19 March 2014
For our second blog, we considered long and hard which topic to discuss. The possibilities are virtually endless – our Unique Selling Point; the continuing influx of foreign investors; will the looming General Election in May next year have an impact on the market and if so, when? Is there a Central London Property Housing Bubble, and if so, is it in danger of bursting? Will there be a Mansions Tax and how will it affect the market? All of these are important issues in isolation, but on balance we thought it might be better to consider the ‘Big Picture'.
Since the Banking Crisis, London house prices have risen so quickly by comparison to people's buying power, that many of our clients and friends find themselves living in houses they only recently purchased and being completely unable to afford if they had to buy them again at today's prices.
Clearly there is a huge political dimension to all of this and it is more than just market forces at work. Lenders are still making it difficult or punitively expensive to borrow at high loan to values and the increased Stamp Duty is only making it harder still. Total transaction costs when trading houses is now coming in at roughly 10% of the value of the new property.
We all anticipate that activity in the market will slow down in the run-up to the next Election. The prospect of a Lib/Lab coalition with Vince Cable insisting on a Mansion Tax is certainly a possibility, however ludicrously thought out and difficult to enforce and police. It is a worrying prospect – especially if politicians can ‘whistle up a storm' for the own self-interest. As many of us are asset rich and cash poor, the burden of an additional £20,000 or more in tax each year might lead to the market being ‘flooded', while people try to ‘cash-in and get out' with prices reacting accordingly.
Can the politicians cool the market? Certainly they are trying to find ways of slowing it down, without dropping the ‘atomic bomb' of the Mansion Tax. The recent decision to charge CGT and target foreign investors is certainly an effort to do this. We all want growth in the market, but slow and steady as opposed to meteoric rise followed by a brief period of flat lining and then another burst of meteoric rise.
Recent reports show that Prime Central London prices have risen consecutively for the last 40 months and by over 135% in the last decade. By comparison, the Stock Market has flip-flopped all over the place during the last three years and has risen by only slightly more than 50% in the last decade. Political and civil unrest around the world and the emergence of a new ‘multimillionaire middle class' in developing nations has had a huge effect on the property market. Investors are still coming here in droves to buy into what is internationally perceived as the ‘Safe Haven' of London property. This in turn has had the effect of reducing the housing stock, as property is being removed from the sales market in favour of the rentals market, with the inevitable upwards pressure on prices.
What does all this mean to you, the property owner? We all understand that under normal circumstances, property problems are rarely property problems – they are more likely to be lifestyle problems which people like us help to solve with property solutions. In this case, however, it does seem like there could be some genuine property problems on the horizon – especially if the Mansion Tax gets onto the statute books and has the nightmare effect we all fear.
However – it is also undeniable that London is one of the most attractive and popular cities in the world for a high quality work/life balance. It has more multi-millionaires than any other City in the world and is ranked third on the Billionaire's List. London is the centre of the world for time; it is the financial and language capital of the world; it offers an excellent infrastructure, political and fiscal stability, a transparent judicial system and superb lifestyle choices in terms of education, culture and entertainment. It will always attract plenty of highly paid people, with families, who want a lovely house with direct transport links to the City and the West End. Central London provides all of these and also has an absolutely finite number of houses, which, if anything, is shrinking as the ratio of foreign investors to owner occupiers rises every year.
Our conclusion, whatever the political future holds: There will always be plenty of high quality and reliable purchasers for Central London Property and the houses in W11 are among the most attractive that can be found.