The View From London With QIB (UK)

In recent years, there has been a growth of Qatari interest in the UK, with Qataris visiting Britain for tourism, higher education or investment in properties. As the summer holiday season approaches, QIB-UK, based in the heart of London’s Mayfair district, has been working on giving Qataris looking to purchase premium properties in London an expert view of the market.

A Reassuring History of Recovery

The national UK residential real estate market is characterised by a shortage of homes in many areas where demand is greatest – and record low mortgage rates. In Prime Central London, supply is especially constrained by the historic nature of the housing stock and demand is particularly boosted by the city’s appeal to overseas investors.

Prime Central London’s residential real estate markets were subdued during 2015 and early 2016, however, since Q4 2016, there has been a strong recovery. This recovery from a subdued market is nothing new. The Prime Central London markets have routinely rewarded loyal investors, by recovering promptly, from relatively short-lived corrections:

Prime Central London prices rose c.25% pa during 2005 and 2006. These two years of rapid growth were followed by a 25% correction in 2009 following the global financial crisis.

The crisis was followed by a reduction in the value of sterling and Prime Central London residential prices fell substantially for dollar-denominated investors. This prompted foreign buyers back to the perceived safe haven of London and Prime Central London prices recovered to rise 73%, between the market low of 2009 and late 2014.

The Last Two Years

During 2015 and 2016, sales of higher value Prime Central London properties were affected by a number of changes to real estate taxation (Stamp duty). By the final Quarter of 2016, however, Prime Central London property sales (especially of homes priced below Pound 2m) were improving strongly again (see below) as vendors accommodated purchasers’ increased tax costs by strategically reducing asking prices (see below) and approaching negotiations more flexibly: LonRes report that during 2016, the average negotiated discount on Prime Central London real estate purchases averaged 10.8%.

The recovery during the Second Half of 2016 was also boosted by the re-pricing of Sterling following the Brexit referendum.

The speed of the 2016/17 recovery in transaction volumes is well illustrated by LonRes’ report that in the second Quarter of 2016, Prime Central London volumes had been 51% lower than they were in the same period in 2015 – yet by the fourth Quarter of 2016, they were just 11% lower than the same period in 2015.

April 2017

Knight Frank report that April 2017 witnessed a continuing recovery in Prime Central London prices, which declined just 0.1% in the month, reducing the decline for the 12 months to the end of March 2017 to 6.4% (compared to the 6.6% decline for the 12 months to the end of February 2017). This improvement in Prime Central London price trends compares favourably to the three consecutive quarters of price falls in 2016.

The early 2017 recovery is perhaps best described by Savills, who report that prices across the whole of Prime London (not just Prime Central London) are now just 6.1% below their 2014 pre-Brexit, pre-Stamp-duty-increase peaks:

Forward-looking, Prime Central London demand indicators have also turned positive in the last few months, with the number of properties under offer in the three months to February 2017, 22% higher year-on-year, according to Knight Frank.

The General Election

The UK government has just announced a national election, for June 2017: Knight Frank have demonstrated how election announcements have previously had only short-lived impact on investors’ interest in UK real estate and that the markets’ traditional Spring and Autumn seasonality has far greater impact.

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 (UK)’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.

Source: Qatar Islamic Bank