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London Residential Quarterly Spring 2015
Research
Market View
A clear election result returns confidence to the market
With the election over, the uncertainty has been removed from the property markets
and activity should resume. However, political uncertainty still dominates the global
economy, with the positivity from 2014 steadily diminishing. Risk has returned to
advanced economies with geopolitical issues and weakness in the Eurozone. That
being said positive effects of the ECB’s aggressive monetary policies are aiding a
recovery in the Spanish and Italian economies. The UK recovery has seen steady
growth through the Q1 2015. The latest HM Treasury data showed a GDP forecast for
2015 held at 2.6% with the final estimate for 2014 also at 2.6%. The HM Treasury’s
most recent provisional forecast for 2016 stood at 2.4%. There remain significant
downside risks to the UK’s sustained recovery, one being the UK debt position. Poor
UK trade data, with goods exports falling to their lowest level in over four years, meant
the overall trade deficit continues to worsen. It is likely that a further spending squeeze
will be required if the Government aims to balance the books by 2018. Despite these
risks, confidence remains strong, and output and employment are expected to continue
to grow.
National property market
The Nationwide House Price Index saw quarterly growth of just 0.6% in Q1, almost a fifth of the growth seen in Q1 last year (2.8%). The annual Index now stands 5.9% up from the same quarter in the previous year.
Figure 1. UK house price growth
Source: Nationwide House Price Index, Volterra
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
No
min
al
Ye
ar
on
Ye
ar
Gro
wth
Prime Central London Nationwide Price
In contrast to the uncertainty at the global level, positive economic fundamentals remain in the UK economy, and commentators remain confident, with a forecast for economic growth in 2015 of 2.6%.
Labour market conditions and business confidence have continued their strong performance, with business surveys for Q1 2015 showing confidence remains high.
The Bank of England has signalled an interest rate rise won’t happen until Q2 2016.
Research London Residential Quarterly
Spring 2015
struttandparker.com
Changes to Taxation
Annual Tax on Enveloped Dwellings (ATED)
For the 2015/2016 tax year the charges for ATED are increasing by 50% above the
consumer price index (CPI) for properties above £2million. A new tax band will also be
introduced to properties between £1million and £2million, with a tax liability of £7,000
per annum. From 1st April 2016, a further band will come into effect for properties
between £500,000 to £1million, with an annual charge of £3,500.
Table 1: Tax Banding and ATED rates from 1st April 2015
Band Tax Charge
£1m - £2m £7,000
£2m - £5m £23,350
£5m - £10m £54,450
£10m - £20m £109,050
£20m+ £218,200
Source: HMRC
Figure 2: ATED Tax Liability Chart
Source: Strutt and Parker, HMRC
Remittance basis changes for non-domiciled individuals
Individuals who are regarded as resident in the UK but are non-domicile for tax purposes have the option to be taxed in the UK on their worldwide income or pay an annual charge to continue being taxed in the UK only on the overseas income remitted to the UK. The revised charges for the “remittance basis” are as follows, residing in the UK for a) 7 out of 9 tax years - £30,000 per annum charge; b) 12 out for 14 years - Increase from £50,000 to £60,000 per annum charge; c) 17 out of 20 years - a new £90,000 charge.
£0
£50,000
£100,000
£150,000
£200,000
£250,000
Ta
x L
iab
ilit
y
Property Value
“The more property tax
favourable approach of
the Conservative party
should help increase
confidence for those
buying and selling
homes over £1.5m. We
should therefore expect
to see a surge in pent up
activity in the housing
market.”
- Stephanie McMahon
Head of Research
Research London Residential Quarterly
Spring 2015
struttandparker.com
Prime Central London second-hand sales market
Strutt & Parker’s data for Q1 2015 showed that nearly 41% of all buyers in Prime Central London were originally from overseas. An increase in buyers from Northern and Eastern Europe was also seen when compared to the same period last year. Figure 3. PCL Buyer nationalities for Q1 2015 (removing UK – domestic market)
Source: Strutt & Parker
By the numbers
A total of 610 properties were sold during Q1 2015, which was an overall decrease of
27% compared to the same period in 2014.
Figure 4. Historic number of sales in PCL
Source: Lonres.com, Strutt & Parker
Western Europe
Asia
Northern Europe
Southern Europe
Middle East
Eastern Europe
North America
Pacific Islands Australia
UK - Abroad
Africa
Central America
0
200
400
600
800
1,000
Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015
Nu
mb
er
of
pro
pe
rtie
s so
ld
Sub £2m £2-5m £5m plus
There has been a slight increase in the number of buyers using mortgage and cash to finance purchases whilst cash only acquisitions declined in Q1 2015.
The percentage of PCL buyers in Q1 2015 wanting to purchase flats increased by 19% compared to the same period last year.
Compared to the 5 year quarterly average, the total volume of transactions were 23% down in Q1 2015.
Research London Residential Quarterly
Spring 2015
struttandparker.com
Prime Central London lettings
There were 2,701 property lets agreed in PCL during the first quarter of 2015, which was 0.5% below the five year quarterly average. Figure 5. Historic agreed lets in PCL by housing type
Source: Lonres.com, Strutt & Parker
First quarter data showed that although down on 2013 and 2014, PCL lettings
continued to remain strong despite the weaker performance in the sales market as
individuals contemplated the potential impact of the general election. Figure 6: Tenant profiles in PCL Q1 2015
Nationality Lifestyle Status
Age Employment Industry
Source: Strutt & Parker
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015
Flats Houses
EuropeUKAsiaNorth AmericaMiddle EastCentral AmericaPacific Islands AustraliaAfricaSouth AmericaUnknownCaribbean
Company
Family
Professional Couple
Sharers
Single
20-29
30-39
40-49
50-59
60-69
Advertising/Media
Banking & Finance
IT & Technology
Other
Sales/Retail
Student
“During the first
quarter of 2015,
we have seen a
26% increase in
PCL rental market
registrations,
compared to the
same time period
last year.”
- Zoë Rose
Head of London Lettings
Research London Residential Quarterly
Spring 2015
struttandparker.com
Central London new home sales - Nine Elms Village focus ‘The Diplomatic Quarter’ The first quarter of 2015 saw additional applications granted, adding a further 669 units to the pipeline. The Nine Elms area now has a development pipeline of circa 10,600 units that have either been ‘applied for’, ‘approved’ or are ‘currently under construction’. Table 2: Nine Elms planning highlights
Site Application Granted Total Units
New Bondway, SW8 1SQ February 2015 450
Grand South, SW8 2TG March 2015 219
22-29 Albert Embankment, SE1 7TJ March 2015 141
Source: Molior
In the heart of the development zone is Embassy Gardens where the US and Dutch Embassy have committed to relocating, with the aim to create a new ‘Diplomatic Quarter’ of London.
Figure 7. Nine Elms development pipeline 2014/15 (>20 units)
Source: Molior, Strutt and Parker
The eastern area of Nine Elms is undergoing a complete regeneration with key improvements to infrastructure, in particular the Northern Line extension from Kennington that will be serviced from 2020 with new stations at Nine Elms and Battersea (Power Station), according to Transport for London. The master plan for the Vauxhall area includes the restoration of the high street and the Civic Town Square as a venue for community and cultural events and is being viewed as an epicentre of regeneration with new bars, cafés and entertainment centres being established.
“Over the next
decade Nine Elms
will be converted
into a vibrant new
London suburb
with outstanding
architecture of
new embassies,
homes and shops.
Most importantly
the landscape will
be dominated by
parks and leisure
spaces that will
draw people into
the area from
further afield,
pumping life into
what has typically
been an industrial
neighbourhood for
the past century.”
- Mark Dorman
Head of London Residential Development
& Investment
Research London Residential Quarterly
Spring 2015
Contact us
Charlie Willis
Head of London Residential Agency
Vanessa Hale
Research
Mark Dorman
Head of London Residential
Development & Investment
Zoë Rose
Head of London Lettings
struttandparker.com
Copyright Strutt & Parker, 2015. All rights reserved. No part of this publication may be reproduced or transmitted in any form without prior written consent by Strutt & Parker. The information contained
herein is general in nature and is not intended, and should be construed, as professional advise or opinion provided to the user, not as a recommendation of any particular approach. It is based on
material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors.
Forecast:
The result of the election removes the uncertainty and risk of a Mansion Tax and
constricting policies for higher earners. The outcome has already been reported to have
had a positive impact on activity levels with increased interest from both buyers and
sellers seen in the market. It is expected that the market will be much more active now
that the uncertainty has passed and other UK assets are expected to remain an
attractive proposition as the UK economy continues to grow. Properties on the market
at inflated levels are unlikely to achieve these prices but sensibly priced, quality stock
will continue to do well. As such we now expect some price growth across the PCL
market with 3.5% growth in house prices in 2015. There may still be risk on the upside
if the increased purchaser interest feeds through into strong transaction levels and in
the medium term the outlook for 2016-2018 remains for 6% growth per annum. In
recent years the main driver for prime market price growth has been the consistent
shortage of good quality housing stock in highly sought after prime locations. As such,
any future increase of supply to the market could therefore put downward pressure on
PCL house prices that could impact future forecasts of house price growth.
Table 2. Residential price forecast Q1 2015
Sales 2015 2016 2017 2018
Prime Central London 3.5% 6.0% 6.0% 6.0%
UK
5.0% 6.0% 7.5% 7.5%
Lettings 2015 2016 2017 2018
Prime Central London 2.5% 3.0% 3.0% 3.0%
Source: Strutt & Parker, Volterra
“We have seen a
renewed confidence
and vigour return to
the prime markets in
the subsequent few
days and expect to
see a surge in pent up
activity levels as a
result.”
- Charlie Willis
Head of London
Residential Agency
Methodology As the housing market is seasonal, for the purposes of this report; data is compared year on year, i.e. looking at Q1 2015 in light of changes since Q1 2014. Data may also be compared on a rolling month on month basis. When referring to the PCL market it includes those markets which Strutt & Parker operate in (Knightsbridge, Belgravia, Kensington, Chelsea, Notting Hill & Fulham) and as such is reflective of London’s most prime markets. Economic views are attributed to Strutt & Parker’s retained economic advisors, Volterra. Additionally, Lonres.com data is used to assess the London sales and lettings market. The behavioural data is collected from our activity in PCL markets: our proprietary “behavioural data” is not representative of the UK as a whole. The global economy remains volatile and therefore there is risk that any market commentary provided will become out-dated within a very short timescale.
