Knightsbridge

HOW are properties in the UK performing post-Brexit vote uncertainty? According to global real estate services provider Savills UK, the decision to leave the European Union (EU) will not severely impact the British property market. In fact, Savills research found there was a rise (from July to end-September) in foreign investments post-Brexit vote.

“After a quiet summer, we were taken by surprise at the level of activity across all of our offices. Transaction levels have been up since the second week of September,” director Tim Whitmey tells a press conference in Kuala Lumpur on Oct 20.

He says there were moments of panic and a lot of uncertainty after the decision to exit the EU was announced in June. It affected property prices, with buyers getting a 5% or 6% discount on pre-Brexit asking prices.

DAC Beachcroft partner David Manifould says a lot of big house builders included in their pre-Brexit contracts provisions that would allow a buyer to pull out if the vote went the wrong way. He says he was surprised and encouraged that there were not many pullouts.

He says property developers stopped projects for a short while but now they are back.

Despite serious reservations, research done by Savills found that in the July to end-September period, international investors acquired over £2.19 billion worth of commercial property in Central London.

ManifouldGarmon-JonesWhitmey

Other than getting discounts from developers, foreign investors are also taking advantage of the current low pound sterling to buy property in the UK.

“The fall of the pound gives the impression that the market is 10% to 12% cheaper. Rental yields have softened by 25 to 50 basis points. This has encouraged more investors to come to the UK,” says Savills manager Philip Garmon-Jones.

He says there are no changes in the fundamentals of the market and it will not be severely affected by the decision to leave the EU.

“The UK is seeing more activity from Asia because of the currency now. If an Asian investor comes in and gets a discount, in addition to the low currency, it is a double benefit,” Whitmey says.

Malaysians are buying fewer properties, mainly due to the drop in the ringgit while Singapore has a lower take-up rate as well, according to Whitmey.

Garmon-Jones says the stronger demand for London properties in Asia at the moment comes from Hong Kong, Shanghai, Beijing and Bangkok. High-net-worth individuals from Vietnam are attracted to the London market as well because of the currency discount.

Where and what?

For residential properties, foreign investors are beginning to look outside London, where property prices are significantly lower and there is less competition. Prime areas of Manchester, for example, are cheaper than London.

For investment, Manchester is the second most attractive market after London and there has been a pickup in residential investments in both areas.

Prime Central London

As for commercial properties, Central London is the focus for most foreign investors because of the low currency and softening yields.

Garmon-Jones says the turnover of commercial assets was down last year but things are picking up now with over £12 billion in turnover this year.

“In the last two or three weeks, we have seen
£1.1 billion worth of stock launched in the city market. So in terms of liquidity, we are still healthy,” he adds.

Rental yields and a buyer’s market

Rental yields have softened post-Brexit and competition is increasing.

“It is very hard to say whether or not yields will pick up because, particularly in London, it depends on the tenant market,” Garmon-Jones says, adding that yields seem to be stabilising.

In terms of a buyer’s market, it all depends on what the buyer is looking for. There are no specific properties in the UK that are more popular than the others. But there is not much difference in price between a high-end and a mid-range property.

“There is tremendous local demand for cheaper products and it tends to be in the outer zones [of London]. The mid-range market has been most affected. But in the end, it really just depends on how much stock is available in the buyer’s range and in the area where he is looking to buy,” Whitmey says.

Will the London market fall?

Even though there has been a rise in trade, the question is whether the London market will fall. Whitmey says it all depends on the price point, and there is a prediction that Prime London will come off about 9% by the end of this year.

“There is no doubt the market has been cooling off. But the main reason is stamp duty. There was an increase in commercial stamp duty, but it is just 1% instead of 3% for residential. For an investor, or someone who is acquiring a second home, there is an additional 3% stamp duty. That is quite an impact but it is a one-off payment,” Whitmey says.

The spread

He adds that investments are coming. Savills has people looking to invest £200,000 to £500,000.

Garmon-Jones says the most active commercial price bracket of £10 million to £80 million has not changed. The buyer pool seems to dwindle above £80 million but this is where Asian investors seem to be moving.

Whitmey adds that developers from Hong Kong are looking for joint-venture opportunities with London developers, which is very encouraging for the UK market.

This article first appeared in City & Country, a pullout of The Edge Malaysia Weekly, on Oct 31, 2016. Subscribe here for your personal copy.

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