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Houses outperform flats in London as foreign buyers benefit from weak pound

Capital values in Prime Central London (PCL) have increased by 7.9% for houses and 6.9% for flats since the low point in the pandemic to June 2022, according to the latest (June 2022) update from London Central Portfolio (LCP).

The firm reported: ‘Houses continue to outperform flats, but there are signs the gap between the two is continuing to narrow. The return to the office, at least on a part time basis, acts as a strong catalyst for professionals seeking apartments close to their place of work. We are also beginning to witness the physical return of some overseas investors enjoying their first summer in London since 2019. This has resulted in continued price growth for flats despite the wave of interest rate rises over the past six months. With buoyant PCL rental values and rising yields, there is a strong incentive to consider the continued suppressed pricing of flats as an attractive investment opportunity.’   

The latest data from LCP on transactional volumes shows a continued drop in activity. PCL is yet to see the full return of high-net-worth international buyers in numbers witnessed before the pandemic, says the firm, which has meant the recovery in the PCL market has been much slower than expected with prices still 7% below their 2015 peak and lagging behind other property price growth across wider London and the UK as a whole. This lack of investor appetite is leading prospective sellers to hold their property until the market improves.  

The hunt for outdoor space, which has been a key theme throughout the pandemic, remains desirable in London but LCP says it is possibly a less important factor for buyers as the need to be close to work and enjoy a more social lifestyle resumes. The average premium paid for flats with a garden during the pandemic rose to 8% over flats without outdoor space compared to the 10-year average pre-pandemic of circa 5%. The latest data shows a peak and subsequent fall in the premium paid as location re-emerges as a key determinant. 

Andrew Weir, CEO at LCP, comments: “There are encouraging signs emerging within the PCL sales market. PCL is less affected by rising interest rates than the domestic market as most leverage taken is discretionary, and at the moment the flats market appears unaffected. More relevant for this market is the need to be close to work, even if only on a part time basis and the desire to enjoy the benefits of living in a lively and diverse city as restaurants, shops, theatres and museums, which has drawn back those that had opted for a more rural experience during the pandemic. This can be seen most clearly in the renewed interest in apartments, which have thus far continued to lag behind demand for houses. PCL continues to be seen as a desirable safe haven, with property a tangible asset that is a hedge against inflation. When this is combined with a low sterling exchange rate, the apartment market in PCL continues to offer attractive investment options. 

“For prospective buyers these built-in attractions of the capital are often the same reasons that sellers can be reluctant to part company with an asset capable of inflating at speed when strong market conditions return. The market does however continue to be nuanced with investor sentiment generally suppressed due to global uncertainties, with only the very best property attracting full value as price sensitivity continues to be a theme across all segments.” 

Not just rich Russians
Despite Brexit and the loss of Russian custom, the super-rich are once more piling into PCL property, spending more than £1bn in the first six months of this year just on homes valued in excess of £10m (61 properties in total, which is the highest number in the first half of the year for more than a decade). 

According to Land Registry filings analysed by property service LonRes, several homes have sold for more than £40m this year. Anthony Payne, managing director at LonRes, said there was “a hell of a lot of money around chasing very few properties, and of course that is pumping up prices.” 

He said that the drop in the value of the pound, which has fallen by 11% since the start of the year to $1.20, had attracted overseas buyers looking for a deal. Payne reportedly added: “The rich have a lot of money at the moment. Governments have thrown in huge liquidity, and whilst a lot of people are in pain financially, a lot of rich people have a lot of money to spend. They want to put it into property, and lock in while interest rates are low.” 

However, another reason for the latest rush to buy in London could be new rules, coming into force on 1 August, which will force overseas buyers to declare their ownership with Companies House.

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