On the Market - Kensington, South Kensington, Chelsea & Earls Court, Spring 2013
Wed 24 Apr 2013
Liza-Jane Kelly looks at current hot spots for buyers and why the recent budget brought positive news for the property market
Price growth of property in The Royal Borough has steadied and is now moving towards a more sustainable rate of increase. Buyer demand remains strong, however a mild improvement in the supply of available property is easing this pressure, with the buyer-to-property ratio now standing at 13.9 buyers for every property, compared to 18.3 during the same period last year.
In Kensington, Chelsea and South Kensington, there has been a shift in the typical buyer profile. Whilst the market has been dominated by foreign investment in recent years, these areas are experiencing much more demand from the domestic buyer. The substantial price growth over the last few years has made some potential investors seek more value, and a healthier yield, in neighbouring areas such as Earls Court. Our research shows that more than 50% of the buyers registering with our Earls Court office are looking for rental investments. These buyers are typically European, Far Eastern and Middle Eastern who, attracted to Earls Court for yields as much as 2.5% higher than its Royal Borough counterparts, also appreciate that the area will more than likely offer great capital growth in the longer-term, due to its commitment to regeneration. Undoubtedly, Earls Court will catch up with the rest of the borough in value terms and indeed in some cases, it already is. We sold a flat on Collingham Gardens in 2008 for 1m the property next door, which is almost identical, has just sold for 2,175,000!
There are currently particular hot spots for buyers. In Kensington, the three-bedroom houses in the Hillgate Village are extremely sought-after and selling for a premium. In the last few weeks, we have sold a house on Campden Grove that attracted multiple interest and a sale for more than the 3.5m asking price all the buyers were local. The period mansion apartments in SW3 remain incredibly popular. We have just sold a property for more than the asking price in Beaufort Mansions, after 10 sealed bids within 72 hours every single buyer was international, albeit living in London already.
With Easter out of the way, we are now entering a traditionally busy time for the property market across all prime areas of London. The buyer-to-property ratio is unlikely to change however, as more choice of property will inevitably attract even more buyers to the market. The recent budget has provided clarity for both buyers and sellers, and so, with a renewed sense of certainty, particularly with the absence of both a mansion tax and a stamp duty hike to 7% for 1 million property, the sentiment in the market is more positive. A 7% stamp duty levy at 1m would have been bad news for the central London property market, especially as over 60% of property in Prime Central London is now valued at more than 1m.* Buyers are gradually adjusting to the stamp duty increase introduced for 2m+ property last year, although the 2-2.5m market is still experiencing some caution.
In our opinion, the Budget in general, was good news for the property market. The Help to Buy Scheme will provide 130bn worth of mortgage support to buyers at the sub 600,000 level. Whilst this may not have a huge impact on buyers in Prime Central London, it will effectively rescue mortgage prisoners across London and the UK, who have been stuck in their current property, unable to move onto the next stage in their property-buying career. In turn, this will free-up much needed property for first-time buyers, which is depressing supply throughout the housing chain. The scheme will also provide buyers with up to 20% equity loans for new-build properties, which we hope will provide confidence to house builders that a ready, willing and most importantly able market, is ready to invest in a much needed supply of new property.
How short is a short lease?
One of the key areas of our work focuses on helping lessees overcome issues that can arise from having a shorter leasehold term than the market would dictate as the norm. We are always surprised by the lack of consideration given to a diminishing leasehold interest, and the general lack of awareness regarding the potential loss of value that can occur if a short lease is not addressed at the appropriate time. The simple fact is, if a lease is under 90 years, it should be at the forefront of a Lessees mind. Heres why:
- As the lease becomes shorter the inherent Market Value of the property will stay the same, however a proportion of this value is beginning to transfer back to the Freeholder and away from the Lessee.
- This proportion transfers at a faster rate as the lease drops below 80 years, making it much more expensive to extend the lease.
- Dealing with the diminishing lease safeguards the inherent Market Value and allows the Lessee to participate fully in market growth.
- Under the Leasehold Reform, Housing and Urban Development Act 1993, a Lessee is legally entitled to a 90 year extension to their current unexpired term.
- Not dealing with the issue can affect the marketability of the property at the point of sale.
We have noticed an upsurge in Lessees, with short leasehold interests, hoping to sell their property, being subjected to lengthy and protracted sale periods due to the fact that purchasers require guidance and reassurance over the costs of extending the lease before completing the sale. This trend is set to continue as capital growth in the overall market will be outstripped by the cost of extending the lease. In simple terms, the capital growth of the Lessees property may be 5% in one year, but the depreciation caused by a diminishing lease could exceed this value. The trend is further exacerbated by the high level of foreign buyers in the market who have a limited knowledge of our somewhat unique English leasehold system.
From July this year, there will be changes in the dispute resolution process, which assists in circumstances where a lease extension cannot be resolved amicably with the Freeholder. The Leasehold Valuation Tribunal, which handles these disputes, will become part of the newly formed Property Chamber (a first tier Tribunal). They will deal with a wide range of property issues, which will mean a reduction in dedicated resources to settle Leasehold disputes and will inevitably lead to less specific funding. So, while the service offered will remain free initially, it is thought by many professionals that a pricing structure for making an application to settle in this manner, will gradually be introduced. This will result in an additional cost for Lessees, on top of the premium paid for the extension and their professional fees. With this in mind, it is therefore more important than ever to address issues of a short leasehold interest, whether you are thinking of selling or not.
Rob Haigh is Head of our Professional Services Department, which offers a full range of in-depth valuation advice on residential properties in central, west and south west London.
T: 020 7368 4843E:firstname.lastname@example.org
London continues to be the destination of choice for many international rental investors, now more so than ever, which is hardly surprising given the continued financial crisis in the eurozone and this is reflected in the investor demographic. In addition to domestic and international portfolio landlords, an increasing amount of our landlords are single property investors. We are also seeing an increase in existing home-owners choosing to hang onto their property and find good tenants, rather than sell when they move.
Rental yields are no longer the primary incentive for many investors. The appreciation of London property prices is the key factor now. For many Europeans especially, the London property market has never looked more attractive: we are not in the single currency, we have a stable government, Sterling is weak and there continues to be a chronic shortage of housing, especially in the Capital. Foreign investors who would play their part in the natural turnover of stock by cashing in on their rental investments have little motivation to do so at the moment.
As with every year, as soon as the clocks spring forward, the see-saw of supply and demand slowly but surely tips the other way. Eager tenants are keen to secure a property before the summer, causing the very best properties to receive plenty of competition. In Earls Court in particular, the Easter week, which is usually very quiet with people away on holiday, was our busiest of the year so far.
An increased level of applicants and fewer properties compared with the start of the year, is resulting in higher competition amongst tenants ultimately boosting prices. In fact, our Corporate & Relocation Services department reported a 15% increase so far this year, compared to the start of 2012, for corporate tenancies across our 19 offices. We found rental property for corporate tenants across a variety of industries and not just banking and oil/gas fashion and media executives also featured highly.
Good tenants are now more savvy, and continue to look for value in the market. When pricing property, there is a fine line between asking just enough and too much and we make sure our landlords dont fall on the wrong side of that line! For reassurance, landlords should familiarise themselves with the competition and to attract the best tenants, they should present their property in the best possible light.
If there is a damp spot, dirty windows or fused light bulbs, get these things fixed before putting your property on the market. First impressions count, so spending a few pounds will almost certainly increase the appeal of your property and attract the highest calibre of tenant. If youre thinking of letting your property and want to achieve the best price, now is the time to act. Summer has a habit of luring tenants away from the thrill of a good property search, not to mention the strongest rental prices.