MANAGING PARTNER AT BLACK BRICK
Q.Dear Camilla, there has been a fair amount of negative news in the papers relating to property prices. Do you think prices are going to crash again like they did in 2008?
A.With so much conflicting data and house price indices, trying to determine what is happening with house prices can be confusing at the best of times. It is impossible to generalise and it is very important to distinguish between what is happening with the mainstream UK market with what is happening in central London, since the London market tends to perform very differently.
The future for the UK housing market is that house prices won’t start to recover until we see a real recovery in the UK economy and mortgage lending becomes easier. Savills predicts that average UK house prices should return to their peak levels of 2007 by the third quarter of 2014, but no one is predicting a repeat of 2008, unless we see another major financial crisis, which is unlikely.
The story in central London is very different. Prices in prime central London have gone up throughout 2009 and into 2010. A recent report by Knight Frank shows house prices are now 16 per cent higher in central London compared to a year ago. Much of this growth is due to the attraction of London by high net worth foreign investors, who have accounted for over half of transactions over £1m in the last year.
Growth is now slowing, even in central London, mainly due to economic uncertainty in the Eurozone and the fact that sterling has strengthened. However, we still see strong demand for London property among buyers from Asia and India where the exchange rate is still favourable. A positive sign for investors is that rents in central London are rising. Rents are now just 5 per cent from their peak, and recent figures suggest that London’s financial services sector is also in good health. Recruitment company Morgan McKinley’s most recent London Employment Monitor showed City hiring levels remaining buoyant with a 7 per cent increase in new opportunities in July and a 71 per cent increase on a year earlier.
Our view at Black Brick is that investors should look to buy quality property in the very best locations in central London, and that investment should be for the long term. We don’t see investment in London property as a “get rich quick” opportunity, but for investors looking to diversify and own assets in a relatively “safe haven”, London fits the bill perfectly.
Q.Dear Camilla, I have read that capital gains tax is going to go up next year. How do you think this will affect the property market?
A.Stamp duty and land tax is indeed going up next year. At the moment, it is 4 per cent for properties priced over £1m. From April next year, stamp duty will rise to 5 per cent for these properties.
But that’s not all. In addition to rising stamp duty, VAT is also going up next year to 20 per cent. Consequently, the cost of moving and buying will substantially increase for buyers and sellers, although you don’t pay capital gains tax when you sell your principal private residence.
Our advice to sellers is that now might be a good time to consider selling your property. There is still a real shortage of supply, particularly in central London. And while stamp duty is still at 4 per cent, some buyers will inevitably be looking to acquire a property before April next year.
Camilla Dell is the managing partner at search and acquisition consultancy Black Brick. www.black-brick.com.