UK Prime Minister Boris Johnson and Conservative Party’s landslide election victory on Dec 13 paves the way for the UK to leave the European Union by end-2020.
“A clear result and a substantial majority should usher in a period of greater certainty in UK politics, which will be welcomed by the business community,” comments Kevin Coppel, Knight Frank managing director for Asia Pacific. “As the political gridlock comes to an end, London’s reputation as a safe haven for Asian investors will also be enhanced. We anticipate this will lead to stronger interest in the UK from Asia-Pacific investors.”
The ultra-high-net-worth individuals in the Asia-Pacific have had a longstanding preference for the UK, driven in part by their children studying there, says Coppel. “With Brexit uncertainty receding, demand is expected to revive from its current levels, though the strengthening of sterling and proposed increases in taxes on foreign buyers may erode some buyer enthusiasm.”
Buyers spent a total of £2.06 billion on super-prime (£10 million and above) properties in London in the year to May 2019, according to Knight Frank’s recent Super-Prime Market report for Winter 2019. This was marginally higher than the figure of £2.05 billion in the previous 12 months.
While this underlines the resilience of demand against an uncertain political backdrop, overall transaction volumes fell 13% to 104 from 120.
Political uncertainty affected sentiment over the last five years. However, this has intensified as the UK’s intended departure from the European Union (Brexit) continues to be discussed, combined with the impact of wider global economic tensions.
For the time being, with the uncertainty of a no-deal Brexit ending, some of the pent-up demand that has built up in recent years is likely to be released. “The extent to which this translates into transaction activity in the short term will depend on the size of the pricing expectation gap between buyers and sellers,” says Liam Bailey, global head of research at Knight Frank.
Higher-value sales increased, as high-net-worth individuals targeted London and took advantage of the weak pound. There were 16 transactions above £30 million in the year to May 2019, compared to 11 over the previous 12 months, according to Knight Frank’s report.
“Supply is likely to rise as political uncertainty recedes and private and public spending stimulates the UK economy,” adds Bailey. “This will put downward pressure on prices. However, some vendors may expect a bounce in prices, which may create a stand-off between buyers and sellers as the market re-prices.”
Furthermore, demand remains strong. The ratio of new prospective buyers to new sales listings above £10 million climbed to 6.5 in 3Q2019, the highest figure since 4Q2016, and the second highest figure since 1Q2014.
Meanwhile, the average age of super-prime buyers is falling. Some 75% of super-prime buyers were below 50 in the year to September 2019, which was up from less than half at the start of 2015. “Super-prime buyers are getting younger because there are more opportunities to make money in tech that are unrelated to your age,” comments Daniel Daggers of Knight Frank’s private office in the report.
“At the same time, mature wealthy individuals are increasingly passing on businesses and assets to the younger generations to enable them to travel and enjoy new experiences,” says Daggers.
In the mainstream market, a shortage of supply in the lettings market may be further exacerbated as owners attempt to capitalise on any perceived “bounce” and list their property on the sales market. This would put upward pressure on rental values, says Bailey. “Uncertainty over future tax changes in the Budget, which is scheduled to take place in February, may prompt some to accelerate plans in coming weeks.”
Excerpt is from Knight Frank Super-Prime Market Insight Winter 2019, with additional comments from Knight Frank post-UK election
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