Thousands of unbuilt flats are expected to come back onto the London property market in the next two years, as foreign investors aim to cut their losses, says a new study.
Estate agent Cluttons’ latest research on the residential market found that a high number of new build stock is returning to the off-plan resales market, “as buyers, particularly those of an international flavour, try to exit the market as currency advantages, especially for those from emerging markets, fade”.
Some of the reasons for this include the additional 3% Stamp Duty charge that will be introduced in April, the fact that foreign investors are now hit by Capital Gains Tax (CGT) and the strength of the pound compared to other currencies.
Thousands of New Build London Flats to Go Back Onto Market
Head of Research at Cluttons, Faisal Durrani, comments: “We can expect a flood of supply with non-domiciled investors returning off-plan residential stock to the London market, especially throughout 2016.
“We estimate approximately 60,000 homes are due for completion in 2016 and 2017. Of these, we believe between 50% to 60% have been sold off-plan to international buyers. Therefore, it is likely that up to 30,000 properties could be returning to the market in the coming two years.”1
As the pound has become stronger against other currencies, the London market has started to seem much less appealing to overseas investors. Durrani reports that since the last market peak in the summer of 2007, the price of London property has risen by around a third for Malaysian buyers and two-thirds for those from India.
Foreign investors in some parts of the world have also been affected by falling oil and commodity prices, which have reduced the amount they have to spend.
Over the year, the amount of properties being flipped has increased. On property portal Zoopla, over 400 homes are listed as resale, including a three-bedroom apartment in One Blackfriars, which is due for completion in spring 2018 and costs £3m and a one-bed flat in Kensington that will not be built until summer 2016 for £1.7m.
However, Durrani does not believe that the properties are being sold to cash in, but to break even: “[In particular, it’s] developments that are not yet out of the ground and are still a year or two from completion. There’s no income stream yet and breaking even is probably the best they could hope for.”
As many new build properties are coming onto the buy-to-let market in London, competition is fierce. Durrani explains: “For the first 11 months of the year, the total number of renewals we saw was 25% higher than last year – because rents are remaining unchanged, tenants are staying put.”
Changes to Stamp Duty in December 2014 meant that investors were hit by higher costs if they bought properties worth over £937,400. And from April next year, buy-to-let investors and second home buyers will face an additional 3% Stamp Duty charge. Durrani believes this will be considered an “irritant rather than a deterrent”2 by prospective buyers hoping to secure an investment in the capital.
But Managing Director of the National Association of Estate Agents (NAEA), Mark Hayward, adds: “The significant additional Stamp Duty on potential investment properties bought off-plan will mean purchasers will be unable to escape punitive charges as these homes will miss the April deadline.”1
And the Executive Director of estate agent Douglas & Gordon, Ed Mead, has seen investors leaving the market since the latest Stamp Duty announcement: “Sadly, many who invest in new builds will rightly feel that they are being unfairly targeted and will withdraw from sales.”2
However, the report from Cluttons suggests that a greater risk to the prime London market is the EU referendum in 2017.
It states: “Should the UK vote to leave the EU, the impact on GDP growth and the value of sterling is likely to be quite substantial, with both likely to come under significant downward pressure. Furthermore, the ending of free labour movement from the EU may curb demand in both the sales and lettings market as the rate of household creation is likely to dip.”2
1 http://www.propertyindustryeye.com/off-plan-properties-due-to-flood-back-into-london-market-next-year/
2 http://www.theguardian.com/business/2015/dec/14/60000-london-flats-back-onto-market–estate-agent-cluttons
