Fiducia Partners Insights - Bulk-buying in London's Luxury Property Market

Bulk-Buying in London’s Luxury Property Market

October 25th, 2018 Posted by Family Wealth, Investment 0 thoughts on “Bulk-Buying in London’s Luxury Property Market”

According to a recent report by property data experts Molior London, some 15,000 newly completed luxury flats in London remain unsold as sales in the capital have dropped significantly due to investors uncertainty over Brexit. While attributed to Brexit the over supply is down to a number of reasons that have led to a glut of supply and dip in demand, a huge change from the status quo where new builds in London were snapped up often before ground had even been broken. The reasons for the current stagnation started following the financial crash when luxury property in cities like London became a safe, easily liquidated bet which increased demand exponentially. Developers responded to the demand but in the time it has taken for many of these projects to reach completion much has changed. Here I briefly detail these changes:

Stamp Duty Increases

Stamp duty has increased several times in the last ten years, particularly affecting properties bought as a second home or as a buy-to-let. Even earlier this month Theresa May announced she would consult on an extra stamp duty charge for non-residents and overseas companies, after which shares in Berkeley Group, a London-focused developer, dropped 3.5%. Stamp duty in the UK is already eye-wateringly high, with this latest announcement putting off many of the overseas investors who have previously been big buyers in London.

Low Oil Prices

The sustained low price of oil has also meant that normally big-time investors in London, wealthy families from the Middle East in particular, have less disposable cash to invest in prime London property.

Interest Rate Rise

In general when interest rates rise, real estate values go down and in August of this year the Bank of England raised the interest rate from 0.5% to 0.75% – the highest level since March 2009. The forecast increases are also a factor.

Brexit

And of course the big one, Brexit. While Brexit hasn’t been all bad for London’s property market including property offering a safe haven for cash and the pound’s slump immediately after the referendum making London homes more affordable to buyers from abroad – many overseas investors have adopted a ‘wait and see’ approach until the dust settles. Aside from the threat of London losing its place as a major international player after Brexit (something I don’t see happening by the way), the potential for Jeremy Corbyn becoming Prime Minister also poses a risk to property investors. At last year’s general election he promised measures that are less than friendly for the luxury home market, advocating the “requisitioning” of homes owned but left empty by wealthy investors in order to use them to accommodate the homeless. In a speech he said, “It cannot be acceptable that in London you have luxury buildings and luxury flats kept as land banking for the future while the homeless and poor look for somewhere to live”.

 

Thinking about the property cycle theory, it is unlikely that the market’s current stagnation will last and so far the long-term trend has always been upwards, despite some volatility along the way. For UHNWIs and Family Offices, who tend to take a long-term approach to investing and can ride out market fluctuations, the decline in prices may offer a buying opportunity.

Many of those that are buying luxury London property now are buying in bulk (often 100 units or more), and at vast discounts (up to 20% or 30%). Molior reported that in the second quarter of 2018, almost 40% of London new-build sales were to “bulk buyers”. The specialist investors and corporate landlords currently bulk buying include Greystar, L&Q housing association and fund management group M&G. This prevalence of wealthy buyers willing to buy up luxury London properties and new builds in bulk, I think, illustrates the strength of the London property market and its ongoing resilience. It should bolster confidence in the market at a time when not everyone is convinced.

Of course there is the risk these investors will struggle to sell the property on again at a later date but I would argue that those buying high-quality property from reputable developers and in good locations will be very unlucky not to see profit in the long-term. For those in a position to adopt the bulk-buy approach, the key is to only invest capital that you don’t need for at least 10 years and to hold your nerve. It’s an approach that takes courage that not every investor has, and as with every investment there is an element of risk.

As Winston Churchill once said:

“A pessimist sees difficulty in every opportunity; an optimist sees opportunity in every difficulty.”

 

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