After the Brexit vote was announced on June 24 last year, the pound fell to its lowest level against the dollar for 31 years meaning the spending power of property buyers with dollars in London soared. Overnight, their budgets increased by 11 per cent on the currency play alone.
There’s since been a lot of excitement in the media about dollar-based, dollar-pegged and Euro buyers coming to London to take advantage of these ‘bargains’. And these headlines get particularly lively when factoring reported discounts of up to 30% off asking prices. When the stars align, this can make a big difference for buyers as it did with a New York-based British client recently. He’d been looking with me for 18 months and had isolated a particular new-build property in south-west London. As a result of Brexit, his budget went from between £1.7m and £2m to between £2m and £2.5m overnight. With a developer who (post Brexit) was more willing to negotiate, we were able to buy a larger flat on a higher floor with a combined relative discount of about 35%.
While this worked out well for my client, it doesn’t address other matters that are affecting the capital’s prime property market. First among these is that the prime central London property market is dominated by discretionary buyers. In the last two years, I’ve bought no more than a handful of properties for permanent primary residences—the overwhelming majority of clients are people who are looking to secure investments, holiday homes or buying with a child’s future in mind. While on paper it seems like a great win for them to go to the market now, they are extremely savvy and are unlikely to buy unless there’s an extremely attractive opportunity. If the seller is too unrealistic or being too punchy with the asking price, they won’t buy. If the property isn’t exactly in the right condition or best-in-class, they won’t buy. I know of one Notting Hill-based agent who has done 120 viewings in 2 weeks and received just 2 offers. These buyers aren’t knocking down our doors because they know that the fundamentals of the market are such that anything they see today is likely to be worth the same in 6 months’ time. There’s got to be a motivating factor to make them pull the trigger.
My hunch is that we’ll see more activity after Article 50 is triggered. I do regular trips to the Middle East and the message that I get there is that investment managers are being instructed to wait until the sterling bottoms out before they come to the London market. If I’m right, we’ll see more activity in the third and fourth quarters of this year. It won’t affect prices but will have an impact on the number of transactions.
I’m often asked where we are with prices in prime central London today and the very broad brush feeling is that we’ve gone back to 2012 values. You can almost track the decline in values to the first mention of Mansion Tax; since that time there has been a raft of measures introduced covering Stamp Duty, Capital Gains and changes to the rules and regulations of non-doms that have had a huge impact. Now that Brexit is in play too, things are unlikely to change very much until we have some further clarity on the future. And while the most expensive parts of the capital are dominated by discretionary rather than needs-driven buyers, even overnight budget boosts generated by the currency fluctuations won’t drive these people to the market.