A succinct weekly take on the London property market and a roundup of headlines from market observer John Lim. Subscribe to the Friday Roundup here: http://pbra.in/1Gli7UL
- In the face of the reduced buying appetite after the Brexit vote as well as tax changes introduced in recent years, London property developers are trying new strategies to prop prices up.
- Some are simply withholding supply from the market. The developer behind Battersea Power Station is keeping 150 flats off the market while waiting for the current limited offering to be sold.
- Other developers are shifting their focus from individual buyers to bigger ones — institutions and funds who can take a bulk allocation of units and asset manage them. Knight Frank forecast that the investment of large-scale investors into the UK’s private rented sector will treble to £50bn by 2020.
- Barratt put up a prime portfolio of more than 300 flats for sale earlier this year, spread across four of their uncompleted schemes. Bulk deals like this have been shunned by developers in the past, as buyers would typically demand discounts off the end value of the flats. Selling individual units to end users were much more profitable, and allowed developers to adjust the pricing upwards in stages.
- I have negotiated and structured several such deals in the past on behalf of individual investors, who enjoyed discounts that were only available to funds. We achieved market-beating returns on a consistent basis by capitalising on pricing errors or motivated situations, and through our negotiating power through buying wholesale.
- Compared to the heady days of 2014 when I had to proactively push and cajole developers to the negotiating table, the tables have turned: now I am being offered bulk “opportunities” to take an entire floor or building by developers and agents on a regular basis.
- Unfortunately the numbers do not stack up for most of these deals, even with seemingly hefty discounts off the asking price. Many have been priced too aggressively to begin with. Furthermore, I value properties on a rental yield basis (as do most investors and funds), which can throw up a very different number compared to the for-sale market value.
- Expect more of such bulk transactions going forward. They are likely to be in the outer zones (Zone 2 and outward) of London where prices are substantially below £1000psf, to make the rental numbers work. It will be very difficult to do a rental strategy within central London unless the fund is willing to take a (very brave) bet on capital values, or is confident of achieving very high rents.
- Personally, I am still on the lookout for opportunities to buy in bulk. However, softening values mean that I have had to tighten my criteria and be even more conservative in my estimates, which has resulted in very few opportunities passing the mark (none so far in 2016).
Here’s a roundup of what we think are the big news stories this week:
- London agent Foxtons’ property sales tumble by a third, but it says it has secured new business for institutions moving into the private rented sector.
- Property group London Central Portfolio reports that sales of luxury London properties have plummeted by 86% in past year.
- A leading index of Europe’s most promising property hotspots found Paris has knocked London into second place for the first time in four years.
- Countrywide, the UK’s largest estate agent, said that property rentals are set to outstrip sales for first time since the 1930s.
- London property values fell by 0.6 per cent between August and September, prompted by large drops in value in the most expensive boroughs.
- Lord Sugar’s property firm Amsprop has made an opportunistic £17 million swoop on 1 Chancery Lane, whose original buyers pulled out in the aftermath of the Brexit vote.
- Barratt Development’s Regional Managing Director for London has been arrested following an investigation into alleged misconduct in the contract awarding process.
- Theresa May’s anti-immigration stance has not stopped popstar Justin Bieber from moving to London – he has just rented a 15-bedroom mansion in Hampstead for £108,000 per month.
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