Kaye & Carey Newsletter, 16th MARCH 2016

KAYE & CAREY NEWSLETTER, 16th MARCH 2016

RESIDENTIAL SALES by Matthew Kaye, Director

While the market below £2million still shows some life, the majority of properties in Prime Central London (PCL) above this level are languishing in a state of flux. The top end of the market is particularly soft at the moment following the dramatic increase in Stamp Duty Land Tax (SDLT) introduced by the government in December 2014 with a top rate of 12% for individuals and 15% for companies. According to research firm LonRes, the volume of transactions in Knightsbridge & Belgravia is down by 28% since this time last year, prices have fallen by 2.1% and the average price achieved per square foot is £1,972.

Chelsea has fared better with turnover down 11% and values have barely changed, with modest price increases of just 0.4%; the average price per square foot achieved being £1,680 across all properties.  Stamp duty is increasing by a further 3 percent on 1st April for second homes or buy-to-let properties which will reduce demand from investors.  The much anticipated rush to beat that additional 3% levy simply hasn’t happened.

Buyers are being cautious with many taking the view that they will be able to negotiate at least that extra 3% off the asking price once 1st April has passed. Sellers, enjoying low interest rates, are under no pressure to sell and, for the most part, are reluctant to recognise that their homes today are not worth as much as they were last Autumn.

Agents are admitting that it is very hard work trying to bring the two sides together – correct pricing is crucial and those agents willing to take on instructions that are overpriced are on a hiding to nothing. The Budget today contained nothing of major significance for most home owners (other than a nod to those using ‘Help to Buy’) but under the Chancellor’s breath came the unwelcome news that professional landlords with 15 or more properties will also now be subject to the extra 3% levy on SDLT – a further disincentive to the Buy to Let market upon whom many tenants depend.

The 28% rate on Capital Gains Tax still applies to residential property, (except a principal residence) so it is unlikely that landlords will rush to sell despite lower returns now that there is little capital growth in London. Most investors tend to be in for the long haul and, with the stock market still unsettled, bricks and mortar will surely remain as an appealing and tangible asset.

With the average price of a home in London being £550,000 and average earnings a little over £34,000 limiting what most young working people can afford, many of our clients have viewed Buy to Let as a way of getting their children, while still of school age, onto the property ladder and thus providing for them at a later date.

When there is uncertainty in the property market, it tends to stagnate and, right now, there are just too many uncertainties -

• Brexit – the announcement that we are to have a referendum on 23rd June, has raised concern over our future in Europe.
• Taxation of foreigners investing in the UK - approximately 55% of our buyers in and around Knightsbridge are from overseas and are deterred by increasingly less favourable changes in Capital Gains Tax and domicile laws. They are generally discretionary buyers and if they don’t feel comfortable buying here today they will either wait or look elsewhere.
• Global economic outlook – several financial institutions have warned this year about rising risks to the global economy, which is seen expanding by 3.4 percent in 2016 by the IMF. Figures for the UK suggest only 2.2% growth.
• Weakening Stock Market – Bank shares falling and low bond yields. What no-one can anticipate is whether the market will improve over the next 12 months or whether it might get worse.

On a more positive note, stock levels also still remain relatively tight and weakening sterling may provide a better incentive for foreigners to buy in prime central London.

RESIDENTIAL LETTINGS by HARRIET SENDALL, Head of Lettings.

After a quiet start to the year we are pleased to say that with Spring fast approaching there has been a significant increase in enquiries.

Good presentation and a sensible asking price has always been the key to letting one’s property swiftly. We recently had three very smart mews houses available in the heart of Knightsbridge and one of the main attributes was that they were all brand new of a high standard. Newly built and with parking, they offered a level of presentation that tenants have come to expect. Needless to say, all three houses went under offer within a week. It’s not to say that ‘traditional’ architecture is no longer most desirable, it is but properties of any age must be well maintained.

Rental demand remains strong in and around Chelsea/Knightsbridge and we have some super properties to meet that demand. While the market is price sensitive, most tenants are paying close to asking rental for something they really like. They are totally aware of the competition for the best properties where supply is tight. Paying the rent in advance, either 6 months or annually, has become more prevalent amongst tenants – perhaps knowing that they will stay longer now there is no urgency to buy. For some, it can simply be for the convenience, for others it offers them the best chance of securing the property they want!