Will Gulf Investors Be Put Off By London Property Price Rises?

Gulf-based property investors are unlikely to avoid the London real estate market, one of their favourites, as prices jump in the UK capital, experts have said.

Average prices in prime London property markets climbed by 0.3 percent in August – the highest jump in five years, according to global property firm Knight Frank.

But Tom Bill, head of UK residential research at Knight Frank, told Arabian Business that rising prices in prime central London (PCL) are unlikely to dissuade Gulf buyers.

London house prices hit all-time high in post-lockdown property surge https://t.co/uinDfceJ7m— Chase Apartments (@ChaseApartment) September 17, 2020

“I don’t think the rising prices will put investors off the bigger picture,” Bill said.

Following a five-year spell of PCL prices being depressed by up to 20 percent, Knight Frank recently predicted PCL capital growth of 17 percent by 2024.

“At the moment, prices are turning the corner,” Bill added. “Over the next few months, international buyers are going to have a lot of factors to configure.”

He said the movement of Brexit around the pound sterling would be a priority factor for international investors to consider.

He also noted that the upcoming US elections would impact the dollar – to which GCC currencies are pegged.

“Many experts think the pound is undervalued. Depending on your view on Brexit – if you can look through the short-term volatility, or if you are wanting to take advantage of the volatility – the pound at the moment is probably looking quite attractive,” Bill said.

The Knight Frank expert, pictured, added that international buyers are looking around the globe towards how various governments are handling the Covid-19 crisis and factoring that into their decision-making.

Critically, Gulf investors are currently facing issues getting onto airplanes, which has stemmed property transactions in international areas, such as Knightsbridge and Mayfair.

“Travel restrictions will, at some point, be relaxed. There is no sense that demand has gone away,” Bill said.

Complex considerations

An already complex set of considerations for overseas buyers in Q4 will be made more complicated by the prospect of further tax changes in the UK.

From April 2021, overseas buyers will have to pay a two percent surcharge on residential transactions. Its introduction follows the end of the stamp duty holiday introduced in July that lifted the tax-free rate to £500,000.

Irrespective of currency movements, transacting before April 1 will save money for overseas buyers. For a £1 million transaction, the combined saving from not paying the two percent surcharge and benefitting from the stamp duty holiday is £35,000. For a £5 million property, the equivalent sum is £115,000, while the saving exceeds £1 million for a £50 million transaction.

“There is a ticking clock in the background towards the stamp duty surcharge for international buyers next April – this will move more and more into view as time goes on,” Bill said.

In August, the number of offers accepted in London was the highest monthly total in 20 years, but demand is higher in areas with a prevalence of family houses. Wimbledon, Islington and Wandsworth were the top three performing areas for price growth last month.

The combined number of viewings in Mayfair and Knightsbridge in July and August was 19 percent below the five-year average. Meanwhile, there was an eight percent increase across the whole of the capital.

Average rental values in prime central London fell one percent in August, taking the annual decline to 6.9 percent, the largest decrease since Q4 2009, a period when the global financial crisis was beginning to deepen.

Lettings market activity has been robust since the property market re-opened in mid-May and the number of tenancies started in August was nine per cent above the five-year average. However, higher levels of supply and weaker levels of demand has had an impact on rental values.

Further research by Knight Frank showed that Covid-19 could impact the near-term supply and long-term design of housing around the world.

According to its survey of 160 global developers across 22 nations, almost six in ten global developers have delayed projects in response to the spread of the virus, as it broke down supply chains and prompted a wholesale rethink of how and where people want to live. Of those with delayed projects, more than four in 10 are now making changes to designs that were once considered complete.

Flora Harley, associate, Knight Frank said: “While it is still too early to confirm the lasting impact of the pandemic on the development landscape, it is clear that it has accelerated pre-existing trends and prompted new ideas for current and future developments.”

Knight Frank’s survey confirms a desire to consider potential Covid-19 inspired changes, including space for home offices, healthier and greener living, and mixed-use schemes.