29th November 2018 by Hugh Obbard 0
It’s Crunch Time


Welcome to our latest

market comment

There’s certainly no shortage of topics to discuss as ever. The market is faced with many challenges and the political situation remains extremely uncertain. However, the body may be weak but the pulse has a strong beat. For some we are entering a period to be opportunistic.

Crunch time

It would be refreshing to look at the UK and its property market outside of the context of Brexit but to do so would be unrealistic. Brexit overshadows all. Over the past two years, the media has been relentless in whipping up the tribal feud between leavers and remainers, only taking time out it seems for a Royal wedding before renewing hostilities.

Meanwhile partisan politicians either manoeuvre and scheme or simply speak in bland prepared soundbites as their respective political parties appear to have entered a race to see which implodes and fractures first. It has been a dispiriting thing to watch. However, there is a feeling that the real show is about to start and the tone between Westminster and Brussels is beginning, just maybe, to reflect the reality of a negotiation reaching its conclusion as it enters the 11th hour . Everyone has an opinion on the outcome and no one knows the true impact and so it’s at this point I will say no more.From a property perspective, when trying to make sense of the world, there has traditionally been one thing to fixate on, interest rates. We are now entering a new cycle with rates starting to rise, however the incremental uptick in rates that seems likely to take hold is probably going to remain overshadowed by politics. It says something that politics has become the key risk factor.

Mixed messages

As we get in to the second half of the year, the signals are predictably mixed. A bit of action at the top end, a busy rental market, a reported resurgence of domestic buyers (which I think the agents confuse as being a fall in foreign buyers) and a continued Mexican standoff between many buyers and sellers (we have two deals where we are less than 3% apart and neither side budging, after several months!).

In the news below the trials and tribulations of estate agents are highlighted, but this is in stark contrast with half year results for house builders such as Barratt, Redrow, Berkeley Homes and Persimmon which are rosy indeed. Rumour has it the Government will shortly put an end to Help-to-Buy which has mostly lined the pockets of the house builders (due to the scheme’s bias towards new build flats), meanwhile even the left wing London mayor is having to explain why the house builders have more or less all managed to negotiate down their affordable home commitments. Sadiq Khan’s stated aim was to start works on 14,000 affordable homes in 2018. According to the Evening Standard 1,097 got underway in Q1 and 743 were completed in Q2. 18 out of the city’s 33 local authorities had no newly completed units at all in Q2…politics eh!


Agents bear the brunt

Half year results from a few leading estate agencies have painted a rather grim picture. Foxtons revealed a £2.5m loss for the first half of the year, its share price down 36% in a year, but Countrywide, owner of brands including Hamptons International and John D Wood, announced an emergency fundraising to raise £140m as their share price has collapsed from 136p a year ago to 11p. Sector analysts and agents alike point the finger firmly at stamp duty reform where data is starting to feed through showing significant falls in takings for the revenue as transaction volumes shrink. Second to this is of course Brexit. Online agents are faring no better than the traditional model, with eMoov yet to make a profit and Purplebricks reporting annual losses of £21m.

Stamp Duty reform backfires

With the sector struggling at a corporate level, the residential market is failing to fill HMRC’s coffers on many fronts. Having tinkered with SDLT (Stamp Duty Land Tax) rates back in 2012, the Government started to throw buckets of cold water on a clearly over heating prime London market from 2014. Not surprisingly this is now recognised as when the market peaked. The impact of former chancellor George Osborne’s sledge hammer to a nut approach is revealing itself via a new study which shows that receipts from SDLT in the second quarter of this year had fallen by 13.8% – or £317m – from the same period in 2017. It is perhaps no surprise to see the net result emerging with transaction volumes tumbling, property businesses under threat and the tax take in decline.

One sector’s loss is another’s gain

For over a decade prime London rents, and therefore yields, have been in decline but this looks to finally be in reverse. Landlords are regaining the upper hand in prime London as rental prices rise on the back of sliding stock levels. LonRes recorded increases in average rents across Prime Central London at 3.9% in Q2 this year compared with the same period a year ago. We certainly have witnessed this ourselves as we negotiate new lets and renewal terms. Gross yields on average in PCL are just about hitting 3%.

Turning a corner – for some

Central London’s most expensive properties have risen at their fastest levels since autumn 2015, according to the latest data from LonRes, up 1.2% over the second quarter. Confidence is coming back in central London. “Wealthy buyers are getting fed up with waiting for the most opportune time, and people are now looking for long-term holds as they want to get on with their lives”, according to LonRes head of research Marcus Dixon. Knight Frank research shows the ratio of buyers to new listings rising to 5.9, the highest for 18 months. We feel that some of these buyers are actually of the view that this is the opportune time as we reach the nadir in Brexit negotiations and sterling takes a further hit. The first half of 2018 saw a flurry of mega deals having seen this sector go in to near hibernation over the previous two years. Examples would be a £23.7m penthouse on Lowndes Square (approx. £3,800psf) a £30m 9,450 sq ft house in Holland Park and a pair of developer finished houses in Westminster for £16m and £18m. LonRes in fact records 21 sales over £15m in the first half of 2018 which compares to a high of 31 in 2014 and a low of 15 in 2016. However these deals are dwarfed by the news this month of a £160m sale at One Hyde Park.

Despite Brexit…

Opportunistic buyers are buying up developer stock in bulk. Bulk buyers accounted for nearly 40% of London’s new-build sales over the last three months, according to a report in the FT. A study found that 2,008 new-build units were offloaded in bulk deals during Q2 – representing 39% of the total sold…There are also new entrants to compete with the traditional Middle East and Chinese big spenders. A Slovakian-based property developer has acquired a significant £400m prime residential scheme next to Tate Modern. Meanwhile London’s commercial property market has received record levels of cash from South Korean investors over the last six months in fresh evidence of burgeoning Asian demand for City buildings. Office investment into the UK from South Korea shot upwards to £1.1bn in the first half of 2018.

Trouble for poster boys of last boom

CapCo, the owner of Covent Garden and the huge Earls Court development site, is looking to split into two separate companies. The fortunes of the two areas have been heading in very different directions over recent years. Covent Garden is a long established location offering some of the very best in terms of entertainment, dining, living and working which is further benefitting from the ‘discovery’ of London’s traditional centre (the C in WC2 means central after all) as a residential option. Earls Court by contrast is a vast 70 acre site in an hitherto over looked location, aside from the now departed exhibition halls, which needs to be master planned and matured so it can connect to its near neighbours, in the developer’s eyes this would be Kensington & Chelsea to the east and less so Fulham and Hammersmith to the west. Having written down the value of the site by 20% already, Cap Co are having to dig in for the long haul or maybe look for an exit themselves. Similarly, Battersea Power Station is facing substantial headwinds as it competes with the thousands of new units along the Nine Elms/Vauxhall corridor. Already having sought out a major cash injection from its Malaysian masters and publicly quoted as seeing its projected IRR halve, reducing to single figures, prior to this. The future of this impressive scheme is likely to link more to the decision of Apple to base its HQ here, and other commercial tenants following suit, than the current sales activity on the now reducing in number residential element.


Obespoke goes Near East

Finding a country where sterling has some fire power is a task in itself but Turkey’sattractions for us go beyond the limp lira. We seem to be working with a few Turkishclients all of a sudden and the experience is extremely enjoyable. We look forward toshowing off some completed schemes in future bulletins.


Not a new government initiative but a big part of our current work by our design and build wing Obespoke. We have always believed rental investments perform best when ‘best in class’. Many landlords have recognised that a race to the bottom by cutting rents neither guarantees results, nor mitigates the more damaging aspect of vacancy. Furthermore, the quality of the property is usually commensurate with the quality of the tenant. We are working on half a dozen tired rental investments for clients of other estate agents and solicitors, as the owners look to reboot their investment and take another 5-10 year view. We are not only the design build solution but we know the market and values, so we uniquely set budgets with the client that correlate with the required returns and long term objectives.

Back to the day job

It has to be said that over the past 18 months we saw a dramatic fall in mandates to source property to buy. The past two months has seen quite a sharp change. Buyers arerightfully cautious but we are considerably busier with appointments to act coming from a satisfying diversity of regions. The Far East remains our principle source of clients but the US and Middle East have become noticeably more active.

Design tip of the month

It’s nearly 20 years since we first made the, at the time, brave decision to pull down a wall and create an open plan kitchen living room. An American concept that has since become de rigueur. Another recent space enhancing concept is taken from hotels. Tight bathrooms that ordinarily would restrict a separate shower cubicle (thus requiring a shower over the bath) can be designed by creating a wet area adjacent to the bath with shower above. A simple idea but remarkably efficient and practical.

You can see some of our latest design and build projects at www.obespoke.co.uk

If you would like more information,

do get in touch on +44 (0)20 7349 8920 info@obbard.co.uk

NOTE: The opinions expressed are solely those of the author and are not intended to offer any advice, formal or otherwise, on the nature of property investment. All the information is provided in good faith for general interest only. Recipients who have not formally appointed Obbard are advised to seek independent professional advice and to satisfy themselves on the state of the market, the opportunities and risks.
Back to Top