Unknown Speaker 0:01
Hello, and welcome to the London property podcast, the home of super prime. Today we’re in conversation with Tom bill, who is UK had a residential research at night Frank. So, so I guess primarily the question to ask you is how you seeing the the behaviour of people change, post lockdown and how they’re continuing the the bounce back that we’re having after Brexit was resolved.

Unknown Speaker 0:33
Okay. I think if you wanted to take a sort of general look at the timeline over the course of 2020, you had a market that bounced back very strongly after the general election result in December. So you had a very strong January in February and the start of March, then, of course, we had, the pandemic came along, and we the market was locked down for, for around eight weeks after that, as we probably all are aware, this pent up demand was was released. I don’t think this was pent up demand that was just around during lockdown during eight weeks of lockdown. This has been there for several years against the backdrop of a Brexit of the changing tax landscape. And so I think they’re probably took most people buy surprised extensive that how much demand was released back into the market. And I think at the moment, as we kind of moving into q4, what we’re seeing, I think is a property market that has still an awful lot of momentum in it. We ran some numbers the other day, and actually most transactions that took place in August and September across prime London markets originated before, before the lockdown, certainly before the market reopened. So I think there’s an awful lot of momentum is going to be building against the backdrop of I think economic news that could potentially start to deteriorate towards the end of the year. And so I think you’re gonna have a slight mismatch, again, between what’s happening in the property market where the say transactions are growing and in the wider economy where things are getting a little bit more uncertain. So I think that’s the trajectory of the property market over the course of 2020. I think over the final few months, the market is going to be a little bit out of step, I think still with the right with the wider economy. And that’s just given how long it takes to to buy a property and the strength of the momentum that has been building over the last several months.

Unknown Speaker 2:18
And are you seeing any change in profile? Is it too soon to tell? Obviously, you know, we the tax changes affected how people were buying buy to let some new developments and I guess we’ve moving more towards necessity purchases as opposed to speculative purchases, but are you seeing any changes in the profiles or in the sort of spending habits of potential investors and buyers?

Unknown Speaker 2:45
I think the biggest most notable change is the fact that there are more British people who are active in the market. And I think if you’re looking at these, you know, the top end of the market above 10 million pounds, I don’t think there’s necessarily been an inherent fall in the desire of people to transact, I just think they haven’t been able to transact in many cases and haven’t been able to get on a plane and come over to view the property. So I think it’s largely been a logistical problem. If you look at the number of transactions, actually over the course of 2020, it pretty much matches what we saw in 2019, in terms of the number of sales above 10 million pounds in London, which is actually it’s quite surprising, given what you know, how the market is, has been in 2020. Obviously, it’s been, you know, close for a period of time. And actually, when we look to the amount spent about 10 million pounds, there was more spent about 10 million pounds in London this year than there was last year, which is again, something that might right raise eyebrows, I think it’s fair to assume that a lot of that was weighted towards the start of the year. But I think what that just demonstrates is the strength of the underlying demand that he’s there, but particularly around, you know, what’s happening in the Prime Minister prime markets. And so overall, we’ve seen more British people active because obviously pure people to get on aeroplanes. And I think that’s probably the most notable change in the demographic. What we’re seeing with the people that that are able to come over and view property, I think when they hear they’re actually fairly focused. There’s not a lot of window shopping that’s going on at the moment. I think those people are over here. And primarily, these are people who need to be here for for schooling and those sorts of reasons. Those people that are here are very focused and wanting to transact. I think the other point to make her prime and super prime buyers is I think there’s an awful lot going on in the mix for them think about over the next over the next several months. First of all, there’s the currency. It’s volatile the pound, but it will remain volatile. Due to Brexit, the US dollar any currency pegged to the dollar will also remain volatile around the US elections. I think the key the key point in the US is does the does the government Get on top of the pandemic is the dollar, the dollar once more become a sort of safe haven currency of choice for for investors. And I think the dollar will strengthen in that event. And of course, around the pound, we have Brexit, the same volatility that we saw in 2019. And if we see the same sort of pragmatic outcome that we saw in 2019, if we avoid the cliff edge Brexit, then of course, the pound will also strengthen. So you have currencies moving around, you also have a 2% surcharge for overseas buyers that comes in next April. And I think that doesn’t necessarily make a huge difference sort of further down. But the further up you go in terms of the price bands, it does start to make a difference. So for example, if you’re transacting on a property, a 25 million pound property on the first of April 2021, you’re spending an extra or more than half a million pounds in SAM gt compared to if you bought the property the previous day. So there’s currency movement, there’s changing tax landscape. There are restrictions around travel, there are many moving parts, I think privacy, the prime buyers in London to think about over the next few months.

Unknown Speaker 6:09
So the check the shift over to to more British buyers, is not hugely a coincidence, if you think back to when the tax changes started was in 2013, as they started to make tax tax changes, that were affecting the overseas investors and the overseas buyers, you know, in a way, to me it felt like we’re trying to correct things so that the locals can actually start getting back on the property ladder. I mean, when I bought my first home, I needed a 10% down payment. You know, now somebody my position has to actually have quite a lot of cash in the bank to be able to buy property in some of this is because the prices were getting inflated, somewhat unnaturally because of the tax disadvantages that we have locally compared to abroad. So do you not think that some of this shift to having kind of more domestic buyers is because it was intentional, that there was going to be a correction because of this tax changes?

Unknown Speaker 7:06
I think it’s a little early to tell the protect changes themselves are going to result in So changing profile of buyer by nationality. What we’ve seen in 2020 is certainly just it relates to the ability of people to get on a plane and come over to the Capitol. And that’s really demonstrated by just how quiet Mayfair and Knightsbridge have been compared to what they would typically be during the summer months. I think you’re right in terms of the reasoning behind the tax changes, it was largely political decision. And a decision, of course related to affordability constraints within within the London property market in order to create a more level playing field, I think between international and domestic buyers. Now this tax, I think interesting is probably the I think I’m right in saying the first tax that sort of affects just the overseas buyers in terms of in terms of it being targeted for overseas buyers of residential property. But it brings the UK into line with many other jurisdictions, I think around the world and governments and global, you know, global governments are increasingly trying to track and monitor the flow of wealth around the world which as we all know is sort of moving around the world more quickly than it has done in the past. It’s it’s kind of going cross border more than ever has done so I think there will naturally be more control or desire for more control by governments in terms of tracking that that wealth. So it there’s a there’s a certain inevitability I think about it, I think the UK is coming into line with many other jurisdictions around the world. London doesn’t look particularly out of step with sort of other key gate gateway cities around the world. But it’ll be interesting to track I think, in the fullness of time, the impact of the stamp duty change, whether there is a slight tip balance tips in terms of domestic and international buyers, but I think it my initial it, my initial thoughts are is unlikely because of the reasons that people have come to come to London only haven’t changed over the last several decades. And tax is not really probably up near the top of that list.

Unknown Speaker 9:14
So the the other thing is that actually, for people, you know, whatever nationality or corporate structure they’re coming from to still continue to benefit from investing in the residential market. There are advantages if you are investing on large scale and if you’re investing in the long term. So do you think there might be a more drive towards the US model of investing in rental properties? Because one of the things is that obviously you to attract the talent and to to to house the people who are going to come to London whether it’s for further education, whether it’s for studying, they’re looking for certain quality, they you know, they want everything now they want flexibility. Do you think that this this might lead to it To a slight reform in the way that we tackle how we supply and invest in rental properties that maybe there’ll be, you know, a combination of having commercial properties that how some of these younger employees and they have a lifestyle advantage to be in these buildings or going towards the US model where you you provide a lot of the lifestyle services as a landlord in a building that you sort of build to rent or, or buy to rent. Do you think they’ll there’ll be a shift towards a more kind of modern rental proposal?

Unknown Speaker 10:35
Hmm, I think there’s probably two things there. The first one is the the the amenities and the service and the importance that they increasingly have when people are looking to buy property. And I think what you saw was, you know, very strong price growth after the financial crisis in London around Knightsbridge, and and Burberry, and Mayfair, which remember, those parts of very central London came and affordable to certain buyer. And so I think what you had in the aftermath of that work with developers who were building on the periphery of those of the Golden Triangle, if you like, or those core prime central London areas, and what they were building was actually very high spec high calibre developments. And I think that probably changed the way buyers look for property and bought property. I think they’re increasingly driven by the development itself by the amenities and the services. And that’s all become a lot more important, I think, over recent years, it’s a trend that remains very much, you know, prevalent today. So people are going further afield, I think for the purpose for best in class properties. In terms of the the prs model, I think, you know, it’s been heralded for decades, it was, it’s been long. For many years, people have been saying it’s time has come. And I think there is some extra momentum there in the market. And I think that probably comes from the fact that the affordability constraints have just become much more acute in the market, particularly in the capital. And the changing tax landscape. I think it is that as the housing market has become politicised in the UK, I think, you know, I think the government and industry has looked at different models of delivering housing. And so it feels at the moment in terms of the names that are attached to the sector, and then you know, that the money has to come in to, you know, so called multi hour multifamily housing. I think it feels like we are seeing a shift now through the gears. Yes.

Unknown Speaker 12:35
And so you’ve gone from being a head of London residential research to head of UK residential research at night, Frank? And is there a shift that a very obvious shift you’re seeing from locals moving to? How far afield or you know, because people are looking for bigger spaces and gardens and so on? Is Is that something that you’ve seen, obviously, to certain destinations?

Unknown Speaker 13:01
Yes, undoubtedly, since the market reopened, I think and there was a very strong desire for for outdoor space for greenery. So for example, I think people looking you know, formally looking in the centre of London, we’re looking further out in the suburbs and people who have been in the suburbs, we’re looking further afield. And I think that just rippled out across the country. I think initially, what we saw Actually, we tracked our London based buyers and where they were looking, and at the start of lockdown, many of them were looking in the southwest of the country, looking to be very rural. And actually, over time over the month, but we saw actually with southeast of the country become much more, much more popular clothes on the base buys. And now they’re just starting to see the number of London based buyers looking in London, just starting to pick up again. So over time, I think what you’ve seen is kind of people’s starting to be sort of this gravitational pull of the catalyst, I think is starting to have an impact. People that realise that perhaps they are they’re able to they want to commute, you know, for a few days in a week, but but you still need to be relatively accessible in terms of getting into to London. So undoubtedly, there has been a push for for more space. The markets at the moment where we are seeing sort of minimal month on month growth of those markets, whether we have you know, the prevalence of family houses and the greeneries at Wandsworth, village and Richmond and LinkedIn. These are the markets where we’re seeing so demand very strong at the moment and the best in class family houses were sent sealed bids and, you know, going over the guy prices is not uncommon at all. So it’s definitely been a factor in the short term. And I think I think there will be a change in terms of you know, the way people think about their work life balance and then that sort of bounced between their London and if they have a portfolio of properties between London and and the rest of the country. I’m sort of hesitant about saying there will be a long term structural shift in the market. I think the The market really has been overdue. This this surging demand that we’ve seen after the financial crisis, it was very much all about London and the country markets had it sort of moment in the sun if you like. But I think we saw it after 911 I think people will prophesizing end of the tour tower and it was obviously it was anything but the end of the tall tower. And, and there’s some similarities now between trying to read too much and draw to deeper conclusion to what’s to what’s going on. urbanisation has been a fact of life for centuries. Now, I can’t see that sort of unwinding or reversing very quickly, more likely, there’ll be a subtle sort of shift over time. With people just rebalancing slightly to the outside of the capital.

Unknown Speaker 15:47
We do bizarre things happen in Super prime. And we came across one inquiry where somebody wanted to buy a weekend property in hamster to go from Belgravia. So, some strange things happen. One question, I always like to ask people because we all sort of sit in a position where we see trends and we see where markets go. If somebody asks you today, what would you do with 20 million pounds? What would you do with 20 million pounds?

Unknown Speaker 16:16
pounds, I suppose it depends what my my goal is, is my goal to turn that 20 million pounds into a largest sum possible. And if it was to do that, then I would probably not put it all into one property. I was, I think, the way that the London markets been evolving, I think it’s increasingly difficult to say this part of London is, is performing better than that part of London. As I mentioned, it’s more about the right kind of develop development and the amenities and the services. And you can have one development doing very well on one side of the street and the other side of the street, the development is doing less well. So it’s less about location. However, there are still of course, some some fairly basic rules of property investment. I think infrastructure is a is a is a big one. There’s a lot of infrastructure going on in London at the moment, I suppose the other trend to note would be the sort of slight tip, the grand slights of changing the centre of gravity in the market, which is probably move further east over recent years as as much more happening out in East London in terms of that becoming sort of maturing as a residential market. And so if you’re looking for pure price growth, you’re looking for a large percentage on a spreadsheet. And I would, I would, I would break it down that 20 million and buy properties in more affordable parts of London. And perhaps what I do is I’d split it up by a certain chunk, in more affordable parts of London where you from, from a sort of general demographic shift, you’re going to benefit from house price inflation over the next several years. So looking at perhaps more overlooks unfashionable parts of southeast London. However, I do also think at the same time at the other end of the spectrum that the prime central London market is actually overdue for a period of price inflation. So Kensington, Chelsea and Westminster to London, the two boroughs in the UK where we’ve seen the past prices declined by the most over the last five or six years, for reasons that we’re all familiar with. So I think there are there is an overdue period of house price inflation to come in from Central London. Actually, I think, given what I said earlier about it’s it’s a logistical barrier. I think for many buyers at the moment, it’s not a set of a barrier to the emotional barrier if they’re not able to get on the plane and buy. So think

Unknown Speaker 18:39
you could see actually demand gifts sort of pushed up towards the end of the year, with everything that I said that’s going on. And that

Unknown Speaker 18:48
might kickstart a period of, of passports inflation from Central London and actually from according to our forecasts from Central London that is due to that form the wider sort of average across the UK over the next four or five years for precisely those reasons. So if I’d split it 10 billion in central London 10 million southeast London.

Unknown Speaker 19:07
Well, we hope you found that interesting and informative in conversation with Tom Bell, head of UK residential at night Frank, but further information please email us info at London property.co.uk