Over the last few years, we have witnessed a strong interest in prime central London properties from UAE buyers benefiting from attractive exchange rates and softening prices. This has increased significantly following the recent majority win for Boris Johnson in the UK general elections that brought greater certainty on the UK's departure from the European Union from buyers who awaited clarity on Brexit.
This was reflected in the recent record transaction volumes noted in fourth quarter of 2019, which as per LonRes data saw 34 per cent increase year on year albeit, largely a result of pent up demand being transacted after the election result. Interestingly, the spike in activity was concentrated at the upper end of the market, with £5 million-plus transactions up by 78 per cent in fourth quarter of 2019. A significant rise was also recorded in the £2 million to £5 million range, up 42 per cent compared with the same period last year, while the sub-£2 million bracket posted a 20 per cent uptick.
The PCL market has historically been a barometer of market sentiment, being the first to drop and the first to rise. PCL prices have been fairly priced both in a historical and global context for some time, particularly for dollar-pegged buyers due to the currency advantage, but the recent movement at the top end of the market suggests that the prices are now bottoming out.
That said, amid this flurry of transaction volumes, lack of supply and limited new listings being brought to the market remains a concern. With the recent increase in absorption, the number of available properties on the market at the end of fourth quarter of 2019 was 19 per cent lower than at the same point a year ago according to LonRes.
The extent of the pent-up demand that has built over the last couple of years is expected to exert upward pressure on prices. Furthermore, lower levels of supply volumes are expected to continue over 2020 as sellers take a firmer stance on offers. We are witnessing a shift in dynamics with seller's confidence on the rise and we anticipate lower negotiating margins compared to what was seen during the peak of the Brexit referendum.
London's long-term position as a global property investment destination remains unwavering despite Brexit. Prospective buyers recognise that value preservation is primarily governed by location and restricted availability. This sense of capital preservation and PCL's inherent appeal is widely accepted by UAE and wider Middle East-based investors/end-users who have historically shown a keen interest in properties within the PCL districts - education, business and secondary homes being the primary demand drivers for this demographic.
When we look deeper into UAE occupier demand, most of our UAE based clients are owner-occupiers, mainly looking for vacation/holiday homes or purchasing properties for their children. The data published by the Independent Schools Council Census has shown a significant rise of over 90 per cent in Middle East pupils over the last decade in UK Schools. The UK's education system, both at school and at the university level are still considered the gold standard by many High-net-worth individual (HNWI) Middle East buyers and this continues to be a key decision driver for choosing London over other global cities, along with business and long-term capital preservation.
We are noticing the preference from UAE purchasers very much remains for new build developments in London's prime areas. There is less of an appetite to acquire older properties that require redevelopment given the time and costs associated with such work. For first time purchasers looking to enter the market, enquiries for new build developments are concentrated below the £2 million or above the £5 million mark. As these properties are predominately acquired for clients and their families to be used when they visit London, top of the line amenities and service/concierge offerings associated with these new developments continue to be a key draw.
With the pound expected to continue gaining upward momentum against the dollar coupled with the potential introduction of an additional stamp duty surcharge for non-resident buyers in the upcoming budget, it is expected to bring forward greater interest for prime central London properties in Q1 2020 - with UAE buyers potentially capitalizing on this window of opportunity.
- Alex Casaki is head of London Desk, Core. Views expressed are his own and do not reflect in the newspaper's policy.
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