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THE REAL ESTATE VIEW FROM LONDON WITH QIB (UK)

26/09/2017,

In recent years, there has been a growing Qatari interest in the UK, with Qataris visiting Britain for tourism, higher education or investment in properties. QIB (UK), based in the heart of London’s Mayfair district, gives an expert view of the real estate market in the UK.

  • Encouraging economic trends contribute to increasing stability within the Prime Central London Residential Real Estate Market
  • The 10th anniversary of the Global Financial Crisis

The Prime Central London Real Estate Markets Today

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In line with economists’ expectations, UK GDP grew 0.3% during the second Quarter of 2017 - an improvement on the 0.2% growth seen in the first quarter.

Within the GDP data, Real Estate analysts have been monitoring the Construction Output figures, to judge where demand and pricing might be heading in the future:

UK Construction Output may have fallen by 0.9% in the second Quarter of 2017, however this measure reports all manner of construction activity, not just home building. In fact, during June 2017, UK private housing construction activity rose 5.1%.This was consistent with the long term improvement in house building that we have witnessed over recent years.

Low UK wage inflation and strengthening prices make properties in London’s most prestigious markets unaffordable for most domestic purchasers. This improves overseas cash-purchasers’ competitive positions in these markets:

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The period from September 2014 to early 2017 was a confusing one, for the Prime Central London markets: Three unexpected adjustments to Real Estate purchase taxes (“Stamp duty”) and an unexpected result in the Brexit referendum introduced 

additional costs and uncertainties into a market that had previously been steadily recovering well from the impact of the Global Financial Crisis.

By early 2017, the market had begun to absorb these events and continuing low interest rates, a strong US Dollar and the improving economy were helping most Prime Central London Residential Real Estate markets stabilise:

By July 2017:

  • Average UK house prices were rising 0.3%, taking the annual change to 2.9%.
  • Overall Prime Central London prices were falling by just 0.1%, translating into an annual decline of -5.9%, the first time this measure has been above -6% since November 2016.
  • The sub-markets affected the most by the recent correction were starting to show signs of recovery.
  • Knight Frank were reporting that during the first half of 2017, the number of clients registering with their offices to acquire properties was 12% higher that it had been during the same period in 2016.

10th Anniversary of the Global Financial Crisis

The media is reminding us that 10 years have passed since the on-set of the Global Financial Crisis. How time flies!

We will therefore consider how the Residential Real Estate and Real Estate Finance markets recovered from the Crisis.

For the UK Real Estate market, the short-term effects of the Crisis were dramatic and swift with average UK house prices fell by c.20% in 16 months. Transaction levels, which had averaged 1.65 million a year in the previous 10 years, fell to 730,000 in the 12 months to the end of June 2009.

Ten years on, the Crisis and its consequences have dramatically changed the Real Estate and Real Estate finance landscapes. It was not until May 2014, for example, that the average UK house price recovered to its pre-Crisis level and transactions have only once risen above 1.3 million, since.

The internal dynamics of the London Real Estate markets changed after the Crisis - not least due to a tightening of controls on residential Real Estate finance. For example, today, fewer domestic UK homeowners “climb the Real Estate ladder” than in the past: In 2007, one in 15 homeowners moved house. That figure is now one in 27.

In Prime Central London, the reduction in competition from domestic buyers and favourable changes in Exchange Rates have opened-up opportunities for overseas purchasers –

THE AFTERMATH OF THE FINANCIAL CRISIS IN 7 STATISTICS AND A GRAPH

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The Importance of Local Knowledge

There is no single London real estate market, or even, Prime Central London market. London comprises a significant number of smaller, distinct sub-markets, within which no two streets or buildings perform identically.

Performance can only be partially understood, by reference to macro factors, because a significant number of uniquely local factors influence each different market - for instance, Chestertons recently reported that:

  • London parents are prepared to pay 15% more for a property within their desired school’s catchment area;
  • on average, Prime Central London buyers pay a c.15% premium to overlook a garden square or a park; and
  • 20% of people would not buy a property if it had a poor internet connection.

The complex interactions between macro-level political and economic trends and intensely local, sub-market drivers make the Prime Central London market a very “local” one to interpret. QIB’s London Real Estate specialists enjoy extensive, local market experience and are ideally situated to guide clients on the merits of individual properties, in a broad range of locations across Central London and beyond.

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