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It’s time to invest in properties in UK

Audris Wong by Audris Wong on 7th March 2019
It’s time to invest in properties in UK

“For the central London market, it seems we have already seen all the declines,” said Marcus Dixon, head of research at LonRes, a real estate data firm. “The feeling I have is that we are hitting the bottom.”

The central London market “will always be where people want to invest, but people should consider it a much longer investment,” said Dixon. “People will no longer cover their costs in three years.”

The prices of luxury real estate in central London fell by 16.7% compared to September 2014, according to the report of the first quarter of April of the real estate firm Savills, of the United Kingdom. The rest of the UK luxury market performed much better over the same period of time: luxury properties in the urban areas of southern England increased their value by 10%; luxury properties in the urban areas of the Midlands and the north of England had increases of 8.9%; and the prices of luxury urban Scottish properties increased by 10.2%, according to Savills.

More recently, first-quarter prices in 2018 for luxury properties in central London fell by 1.1% compared to the previous quarter, according to the report. The quarterly decreases were around -1% since the beginning of 2017, after seeing larger declines in the second half of 2016, when the third and fourth quarters registered price falls of 2.64% and 2.09% respectively.

The recent easing of quarterly declines is a sign that prices are approaching the lowest point, according to Lawrence Bowles, associate director of residential research at Savills.

But, according to Bowles, although the price growth is not likely in the immediate horizon, Savills expects the real estate market to begin to recover in 2019, with a real recovery in 2020.

Savills predicts that housing prices will increase by 8% in central London during 2020; another 5.5% in 2021; and another 3.5% in 2022. Over the next five years, the real estate company anticipates a compound growth of 20.3%, which further underscores that buyers will need to think long-term for any real financial gain.

This is not unusual in London, a city that is used to seeing big booms and falls. Between the first quarter of 2008 and the first quarter of 2009, in the midst of the financial crisis, securities in central London fell more than 20%. In the five years between the first quarter of 2009 and the same period in 2014, prices rose by almost 80%, according to Savills data.

However, on this occasion, such a rapid rebound seems unlikely, according to Dixon, who predicts a slower return to growth, “which is not a bad thing,” he said. “You want a sustainable market.”

But that does not exclude that there are more falls on the horizon.

“I would be cautious in saying that we have reached the bottom,” said Camilla Dell, managing partner and founder of Black Brick Property Solutions, a real estate consultancy based in London. “Do I see it fall 20% more? No, but I could see another 1%, 2% or 5%.”

What went wrong

The unstable London market can be attributed to a number of factors, which began in 2014 when the government made changes to the stamp duty, the UK tax on home buyers. Although the 2014 changes reduced the stamp duty for many, they were increased for those buying houses for more than £ 1 million (US $ 1.35 million), and the London market, loaded with expensive houses, slowed down as it became more expensive to buy.

Then, in the last few years, an additional surcharge of 3% was added on the stamp tax on purchases of secondary or additional homes. And a recently approved tax incentive for first-time buyers only applies to properties priced at £ 500,000 (US $ 675,250) or less.

The United Kingdom’s next exit from the European Union, as a result of the 2016 referendum, only aggravated the problem. The uncertainty brought a level of doubt to the housing market that is yet to be resolved.

Is it time to buy?

“The fact that prices have gone down and do not seem to be falling much will encourage more investors,” Dixon said.

And now, with a growing number of more realistic sellers on what their homes are worth, there are some real opportunities in central London, he added.

More than half of London’s luxury properties are selling below the requested price, according to the April luxury property index of private bank and wealth manager Coutts. Buyers can now expect to have an average cut of 12.1% of the sale price of the first-class properties they are buying.

For those willing to keep their investments, “you could argue that it might not be better than this and if you do not make purchasing decisions you can lose the opportunity,” Dell said.

“All the forecasts for the next five years are positive,” Dell said. “We are in the moment where the people who buy now will get a good business.”

The timing also looks good for dollar investors, who can take advantage of lower London prices and the current value of the dollar against the pound, according to Dell. In June 2014, $ 1 was equivalent to around £ 0.58. Today $ 1 equals approximately £ 0.76.

A safe bet

London still has many attractions beyond the growth in the price of properties. Its solid educational system and top-level universities, as well as its relative political stability, continue to be engines of interest and purchases of international buyers.

But buyers driven by needs, those looking for primary homes instead of vacation homes, are really fueling the market now, according to Tom Bill, a researcher at real estate consultancy Knight Frank.

“In recent years a repressed demand has been formed, and the time has come when people have to move,” Bill said. “So there is an element of that that is driving the market and helping prices to recover.”

“London is still an attractive place to be, Brexit does not seem to be substantially changing that,” he added.

A complete recovery?

Although statistics and experts suggest that the market bottoms out, this does not mean that the market has fully recovered.

“It’s too early to call it a recovery,” Dell said, adding that the market is still quite fragile.

And with the official date of the departure of the United Kingdom from the U.E. scheduled for March 29, 2019, “it is unlikely that we will see significant growth before the Brexit negotiations are clear,” said Dixon. “That’s what slows down the market.”

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