The upper end of the London housing market has seen sales drop in the past two and a half years. The lethargy started when the government introduced reforms to the current stamp duty (a tax when homes are sold in the UK) calculations in December 2014. That meant that homes priced above £937,500 would incur higher tax costs at the time of sale. Add to that the vote to leave the EU on 23rd June 2016 and London’s housing market has experienced a low volume in sales. The silver lining to this is that while domestic buyers in London have shunned the market, international investors are still looking at the London property market. The weakness in the British Pound versus the US Dollar and the Euro has prompted many cash-rich, international investors to explore buying property in London.
Since the vote to leave the EU, the British Pound has lost 16% of its value relative to the US dollar and nearly 12% versus the Euro. In addition to that, properties that have been in the market for some time are experiencing a reduction in their prices.
International investors are looking to diversify their asset allocation on an opportunistic basis. A London property on the market for £2mm, would have cost US$2.98mm in June 2016. Today, that amount has dropped to US$2.5mm. The transaction costs to complete these purchases – from stamp duty to legal and administrative costs – have also decreased due to the weakness in the exchange rate.
Sophisticated investors understand that while it is an uncertain time to buy due to the impending Brexit negotiations and the future of Europe, London remains a fundamentally strong place to conduct business and is geographically in the middle of an enviable time zone. For long term investors looking to diversity their portfolio of investments, London remains a compelling option. On the back of that, we are seeing enquiries from clients looking to buy London based assets and making sure that once these properties are bought, they remain in perfect state.
Regina Boet is Founder and Chief Problem Solver at London PS: a London based business offering property management services to international and domestic investors.