Thomas Brooks, Operations Director, Foxtons (guest contributor)
Commentators have predicted everything from epic highs to disastrous lows for the Prime Central London (PCL) property market. However, this sector has remained markedly consistent throughout a turbulent year, primarily due to the nature of PCL property.
PCL property is in restricted supply. There is not too much of it to begin with, and it’s not easy to build more in this area of London. At the same time, many who own PCL homes, either as a holiday home or an asset, won’t have rising mortgage rates to consider or any immediate need to sell no matter what the property market activity. And with no pressing need, international PCL homeowners will avoid pulling money out of the country when the pound is so low. This restricted supply puts a continual pressure on demand for PCL property.
The property market is generally much less liquid than other asset markets. For instance, there is a common misconception that the property market reacts similarly to the stock market. Assets like stock shares can be sold significantly faster than selling a premium property, and with less emotional investment, so PCL property avoids many of the effects of political turbulence that we see in the stock market. A case in point is that, despite the recent interest rate hikes, PCL activity is higher year to date than the same period last year, without trading at discounted prices.
There is notable foreign demand for PCL property, which doesn’t diminish – and may even increase – in times of economic change. This is partly to do with exchange rates, which currently favour dollar-backed buyers. London property is generally considered a safe investment so, when the pound falls, there tends to be further interest internationally. Nevertheless, while commentators have predicted a massive surge in international sales due to exchange rates, I’ve more commonly seen its effect in domestic buyers who have been able to sell businesses to foreign buyers because the pound is weak, so they are looking to reinvest the proceeds in property as both a reward and security of a tangible asset.
In fact, a significant amount of the transactions we have undertaken this year has been for domestic buyers. Post-pandemic, we have seen a real return to localism, where domestic buyers favour areas with strong community presence and a hub of shops, restaurants and green spaces. Demand is high in Prime London villages, like Notting Hill, Parsons Green, Chiswick and Richmond, where families can find a blend of quality housing stock, genteel society and easy commutes to The City or West End.
This demand is echoed in the second home market, where areas such as Knightsbridge, Belgravia and Mayfair excel. Historically, these areas have been of primary interest for international buyers, who haven’t been transacting as frequently the last couple of years due to travel restrictions, and those buyers are returning. However, in the aftermath of Brexit and COVID-19, we’ve seen a resurgence of domestic buyers in these areas, who are interested in reinvesting funds and buying a London base in a desirable area.
Localism factors into the shifting motivations behind buying PCL property. Back in 2010, buyers most frequently asked about London as an investment. Now, a needs-based market is forming. Since COVID-19, the majority of the conversations with domestic buyers centre around a need for things like additional rooms for home offices or a London base for commuting from the country. We have also seen a significant numbers of children and grandchildren being gifted the means to get onto the property ladder, which adds to the many family buyers who are interested in PCL property because these locations lend themselves to long-term family planning. These needs aren’t based on the market, so they remain important to PCL buyers regardless of any volatility within the market.
There is a discussion in the wider market around the impact of recent stamp duty tax changes and rising interest rates. That conversation changes around PCL because this sector is underpinned by so little debt. You’re not likely to be buying a second home or international holiday home in PCL with a 90% mortgage. If you’re considering buying due to stamp duty tax savings or reconsidering buying due to stricter affordability checks for mortgage applications, you’re not as likely to be buying in Prime Central London. So, the impact of this sort of legislation is generally less severe in the prime market, again, allowing for a higher level of stability than in other sectors of the property market.
For more information visit: www.foxtons.co.uk/sell/privateoffice
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