Concrete Analysis

London property market hums with activity as Brexit fears abate

Demand perks up as solid price growth for property predicted over the next five years

PUBLISHED : Tuesday, 28 March, 2017, 4:01pm
UPDATED : Tuesday, 28 March, 2017, 7:58pm

London’s property market, which stalled in the wake of Britain’s decision to leave the European Union on June 23 last year, is stirring again as more information emerges about the implications of this momentous decision.

Prime Minister Theresa May is expected to invoke the Article 50 clause allowing a country to trigger its exit from the European Union on March 29, starting a two year negotiation over the terms of Britain’s exit.

Since last year’s referendum result, however, the London property market has stabilised, with many investors now reverting to appreciating the long-term potential of the British capital in the European Union or not.

For Hong Kong buyers of London property this is good news, with Knight Frank research forecasting solid price growth over the next five years as banks in particular row back from earlier predictions that they would relocate large swathes of people to continental Europe.

As founder and chief executive officer of Residential Land, which owns more than £1 billion of prime Central London property including Bayswater’s Garden House, we are well placed to observe market conditions.

We are finding that buyers from China and Malaysia are particularly drawn to British period architecture, valuing classic design above the sometimes monotonous tall buildings and estates which are built around the world.

They also want to be in classic locations, near to destinations like Kensington Palace, Hyde Park, Knightsbridge and the world-famous Portobello Road and Westbourne Grove shopping destinations, as well as nearby Queensway which will soon undergo a £1 billion redevelopment.

They want to be near the best shops, like Paul Smith, Helmut Lang and Club Monaco as well as world-class restaurants like Launceston Place and The Ledbury, which are all near Bayswater.

The day after the referendum last year the pound plunged in reaction to the result. And on the very same day our phones at Residential Land started ringing frantically as Chinese investors sought prime Central London property to buy.

If anything, interest has grown in the seven months since the referendum, as the pound has only made marginal gains and every time prime minister May has alluded to what some people describe as a `Hard Brexit’ it sinks in value again.

For others, including the Chinese property investors we meet, the long-term opportunities for Britain are more important than any short-term hiccup.

According to Hamptons International, the percentage of Chinese buyers in London rose from 1.8 per cent to 2.6 per cent in the third quarter of 2016, and a survey by the Hurun Institute found that 60 per cent of Chinese people are planning to buy property overseas in the next three years.

Overall in the UK, Chinese investment into UK real estate rose to US$2.2 billion in 2016 from US$1.8 billion in 2015, according to JLL, even as overall investment volumes fell.

In London now there are also a range of other, political reasons why the shrewdest Chinese investors are rushing to buy.

Firstly, the supply of new properties available for sale is falling dramatically.

After a long run of new-build development in locations like Nine Elms (on the banks of the Thames and including the Battersea Power Station), City Road north of the City of London financial district and London Docklands including Canary Wharf, new build rates are slowing down.

Many of Britain’s biggest home builders are now wary of London mayor Sadiq Khan’s pledge – made during his campaign in the run-up to his May 2016 election – to demand that 50 per cent of all new London housing developments should be ‘affordable’.

Another contributory factor to this is rising construction costs likely to be caused by Brexit. With tighter immigration laws likely to lead to drop in bricklayers, carpenters and labourers from the European Union, costs for developers will inevitably rise.

At the same time, there is no expectation that the pound will rise in value in the two years between Britain triggering Article 50 to give formal notice of its decision to leave the European Union and its formal departure.

After Britain has left the European Union there is every chance that the pound will strengthen again, particularly as many experts are forecasting prolonged difficulties for the Euro as a currency.

Investors from China more than any other nation realise they are in a ‘sweet spot’ in terms of buying London residential property.

I recently read one estimate that outbound Chinese real estate investment had reached £38 billion a year – and that by 2027 this could reach £200 billion annually. Judging by the seven months since the European Union Referendum, London will be the destination for much of that wall of money.

Bruce Ritchie is chief executive officer and founder of Residential Land