Brexit, the London Property Market & What Can Be Done
An unprecedented environmental change will inevitably lead to unprecedented events within the property sector.
Brexit’s effects on the property market so far have been just that, unprecedented.
As the possible deadline of March 29th draws closer and for that matter any extension therein, the compounding effects upon the London property market become more evident.
And the uncertainty in the market is growing undoubtedly more exposed.
UBS analysts have noted that in previous cycles of property downturn, a London downturn had preceded a decline in the broader UK market.
However, this time this appears not to be the case. The London market downturn is happening while regions of the UK continue to grow.
What are the possible reasons for this?
A Royal Institute of Chartered Surveyors (RICS) market survey uncovered three significant points regarding the London Property Market;
1. Compared to regionally, London respondents report the most significant fall in house prices (RICS September 2018)
2. Negative price trends across London with price softening being led by London (RICS January 2019)
3. Buyers are now more cautious, and new buyer enquires gauge fell to -21% in November 2018 (RICS November 2018)
These three key points demonstrate how the uncertainty generated by Brexit has spilt over into the property market in the capital. However, as previously mentioned this remains isolated to London.
The same report indicates that regions in the North and Midlands of the UK are on the rise. It poses the question of what is different in the UK market, or more importantly why?
What is driving sales and prices up in these other areas of the UK?
Considering the RICS report, we can extrapolate that the UK buyer mindset is currently tending more towards caution. Coupling this with the naturally high prices of the London property market could explain the drop in interest.
However, the same report states that the rental market is currently booming. A point reinforced through Gov.UK figures which show London private rental increasing 1.6% compared the rest of England.
Demonstrating there is still an opportunity to be had in the London market. However, the wrong market could be being targeted.
To compound the problem of wrong markets being targeted are the London mortgage lending patterns. Gov.UK state a major issue in new buyers in the capital is the loan to income ratio.
The Bank of England will only permit 15% of lenders new mortgages of a ratio which exceeds 4.5. With the average first-time buyer having a ratio of 4.04 (movers 4.01) and as this is on an upward trend the issue is certain to persist for private buyers.
Essentially this means if intending buyers can’t borrow. Also, they can’t buy, which opens up a pipeline for developers and estate agents alike.
Will synergy help?
Is synergy possible with mortgage brokers? Or could a second option explored of an extended London market rent to buy scheme?
However, this again suggests a shift of the targeted market for the purchasing of London property.
Multiple developers in the capital are seeing uptakes in business. For example, Derwent London has raised its dividend as it starts to make the most of the commercial property market.
Further external investors have started to quietly enter the market for London properties. In particular, German real estate giant Grand City Properties SA. They have recently undergone a property buying spree. One of which was a purchase of 117 apartments in 159-uni Hill House. Their current investment alone is present at 800 properties as of February 2019 (Independent 2019).
There are opportunities within the London market
There are demonstrable signs that there is development opportunity in London. And further that there are still parties that are more than interested in London properties. However, a perspective change may have to take place.
Secondly, what you need to consider are developers activities when they conduct on the ground post-purchase.
UK developers should take note and monitor these signs. In particular, market leading FTSE 100 giants are currently tanking more than 20%. Persimmon has seen a rise in sales. However, this is predicated in the help to buy scheme. Fears surrounding the continuation of this has again recognised the giants share price fall.
This proposes interesting questions. What is it that these developers plan on doing, or are doing? And which is being missed by the significant host of national developers?
One theory is the commercial property. However, a more realistic thought is that they may be turning properties of a different ilk to residential properties. To meet the differentiation of supply and demand in the capital.
So what effect will this have on the post-Brexit landscape in London?
Uncertainty could also mean opportunity
Naturally this uncertainty and seeming negative environmental pressures are causing problems for business operating in the market. However, within uncertainty opportunities are very much available. Provided it is backedup with the correct industry knowledge.
All firms associated with the market, be they estate agents, mortgage brokers, developers etc. need to recognise that although the market appears is on a downward trend. The correct application of industry and competitor knowledge could catapult them into market dominance.
This is because with industry knowledge business can start to identify consumer pain points associated with the property market. Then allow them to start to plan actionable plans to address these and re-stimulate growth.
To gain this insight, however, will take expertise.
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Utilising Intelligence services can leverage key industry consumer and macro environmental insights to construct an exceptional value proposition for customers. And thus, a sustained competitive advantage in a market which is currently stagnating and falling.