Crown Mayfair Market Review – Holiday Special and 2015 Outlook

2014 has been an interesting and uncertain year on many fronts and as we approach 2015, next year’s outlook looks equally as ambiguous. There are numerous forecasts and outlooks of what the coming year might entail, yet until various events unfold, no one can succinctly say what the outcomes of the coming elections and changes in legislation will be. This is especially relevant to the field of real estate.

The past year has seen a real collision between UK politics, the world of property, in particular prime London, and a national legislative shake up. With so many possibilities and indecisions on what might happen, many outlooks seem only to reinforce the current market sentiment of sitting quietly and waiting to see what happens. However, despite the New Year’s vague prospects, there are some things we can be certain of and can accommodate for accordingly.

As put by Savills in their Residential Property Focus 2014, ‘the fundamental drivers of supply and demand in the housing market go way beyond 5 year political cycles and are rooted in long run socio-economic and demographic trends coupled with very deep rooted land supply issues.’ So despite the conflicting and concerning political rhetoric, largely concerning the possible looming mansion tax, it is relatively certain that the prime London market will one, continue to provide attractive investment opportunities and two, show signs of power shifting from sellers to buyers.

To elaborate, there continues to be numerous ‘villages’ of value and demand for privately rented property is consistently high across the capital meaning opportunities for investors remain, given the right knowledge and professional support, regardless of politics and market sentiments. Various sources, including Savills, estimate that nearly a quarter of households in the UK will be privately rented by 2019 and with tax breaks for buy-to-let investors, it is evident that for those willing to enter the market, respectable yields can be achieved from such investments. Similarly, the inflated asking prices of the past two years are losing traction as the market quietens, also due to the time of year and in anticipation of next year’s changes, the likes of which may see prices further favour those seeking better valued property.

Since the financial crash of 2007, average London house prices have increased by nearly 30% (Jun07-Jun14). The average price of property in the capital is £460,521, in comparison with the average for England and Wales of £177,299, according to the UK Land Registry’s most recent Housing Price Index report. Comparatively, Rightmove’s trend data puts average house prices for Chelsea (SW10) at £801,465 in July ’07, growing significantly to £2,177,287 in July ’14 (+58% increase). Aside from the spring time price spike of 2012, 2014 has seen some of the highest levels of price growth. The overall increase in London was 18.4% this year, the borough of Lambeth reaching the highest levels at 28.6%. Yet current data and market trends show signs of the vast levels of growth receding, exhibiting signs that the inflated market is starting to cool.

Property in close proximity of Hyde Park is generally in highest demand and has historically reached the highest premiums. Knight Frank research has shown properties within 50m of the south side of the park reach a premium of 155% whilst the north side (W2), reaches 38%. This vast disparagement highlights the impact of postcode perception on pricing and the serious underlying potential of properties based on the north side of the park.

The Crown Mayfair team, also supported by real estate industry leaders, has shown appreciation of W2 and advocated the capital growth prospects for areas including the Paddington basin, Queensway and Westbourne Grove. With prices growing 27% less than the likes of Kensington and Marylebone, with 13 high end schemes appearing and with the planned Crossrail links adding significant uplift value, the postcode is of particular interest and contained our second highest volume of exchanges this year, after Chelsea SW10.

Yet in spite of attractive opportunities, the residential market outlook is actually rather quiet, while the rest of the landscape is dominated by the prospect of increased taxation of high value homes (SDLT, ATED). Coinciding with HMRC’s menagerie of new tax bands, amendments to Capital gains affecting non-doms and anti-tax avoidance measures, the financial landscape is undeniably uncertain. The Chancellors Autumn statement will be released on the 3^rd December and next year’s finance bill on the 10^th, so the proposed changes to Principal Private Residence relief (PPR), changes to inheritance tax (IHT) legislation and the further announcements on Capital Gains should be clarified. However the likelihood of the infamous ‘mansion tax’ actually coming into effect next spring remains somewhat slim. The market consensus is that an overhaul of the current council tax system is much more likely.

Either way, property prices are forecast to dip in the wake of the elections next year, rebounding and accommodating tax changes by 2017. Properties above the £7.5 million mark are likely to see some of the more significant initial dips in price before recovering, while at the other end of the spectrum, properties around the £1 million mark are the most susceptible to possible changes in SDLT, interest rates and labour’s mansion tax proposals. Research by industry leaders support these statements. So, from an investment point of view, although various taxes are set to increase, the possibility of offsetting these costs though smart and timely investments is very much a reality.

Once the furore of the 2015 elections has quietened down, the London market is set to resume business as usual, in a climate predicted to be more beneficial to buyers. Yet the extent to which the proposed changes will affect the UK property market as a whole, especially in relation to overseas investment and finance structuring, remains to be seen. Only time will tell. until then, seasons tidings from  the Crown Mayfair team.

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This post was written by Tim Jones