Overseas buyers have long been an important part of the Prime Central London property market.
London is an exciting and dynamic city, and its attraction goes beyond the well-covered attributes of convenient time zone, established legal system, language, education and the arts.
The prevalence of international buyers over the years has made predicting this market difficult, as the drivers of demand are often different to the domestic market. A tax change in another country, shift in exchange rate, or political changes can drive buyers to London. Their interest usually focuses on the prime areas, and can quickly alter the fine balance in supply and demand, with an impact on prices, for better or worse.
2020 has been different
Since March, Covid-19 has impacted everyone's lives. Restrictions on travel have dramatically reduced the ability for buyers from other countries to visit London and therefore to buy property. Whilst our industry has adapted, with a considerable increase in the availability of video tours, the reality is that for most, property requires a physical inspection. Working from home is not really an option for estate agents!
The void this has created has perhaps offered an opportunity for our domestic market to transact without the added pressure of overseas demand. Arguably the natural moves that have been on hold in recent years due to various political uncertainties, have become more pressing as we all spend additional time at home. This has meant that despite a loss of a proportion of buyers, the market has performed better than many feared. Prices have held up, and transaction levels appear to have risen as well. This is the sign of a healthy market, with strong fundamentals. At other times over recent years, I do not believe we would have experienced the same resilience.
As we near the end of the year, the welcome news of a vaccine is providing some hope that 2021 may well allow us to see a slow return to a more normal lifestyle, and with this, a greater ability to travel. It is perhaps too early to suggest when international travel will become widespread, however, better testing may facilitate some travel early in the New Year.
The big question for our market is; will these renewed freedoms be used to travel to, and buy property in London?
There are still a lot of unknowns, not least in terms of our trading arrangements next year. However, there are reasons why overseas buyers may return in numbers. In addition to the factors which are driving the domestic market such as low interest rates, and a view that assets may be a good bet during a time of uncertainty, there are two key factors in my view. These are exchange rates and Stamp Duty Land Tax (SDLT).
Currently the pound is historically weak, and in the same way that local buyers who have purchased this year have cited this as a factor where they have cash in other currencies, this is likely to make London look good value compared to global competitor cities.
Secondly, the government has confirmed that from 1st April 2021 there will be a further SDLT surcharge for non-UK residents. This will add a premium of 2% over the entire purchase price. Whilst not necessarily a deal breaker once implemented (exchange rates can compensate significantly), it may create an urgency in the early months of the year, which could set the tone for 2021.
Certainly, we have been talking to overseas buyers increasingly frequently in recent weeks, and the demand does seem to be there. Some buyers have even endured five week expeditions to complete one week of viewings, although they are very much in the minority. Likewise, buying agents, who often advise overseas buyers, report they are signing up new searches at a much improved level, and are previewing in anticipation of visits to the UK early next year.
It is easy to focus on the oligarchs and super rich, as the property they buy attracts the headlines, although in reality overseas buyers are far more varied than the popular press depict. We deal with a wide variety of searches for these buyers, from studio flats for a child studying in London to family homes as a base whilst children are at school here. The impact is felt throughout the market, and more often than not driven by a desire to spend time here, rather simply an investment. The added demand helps lubricate the market, helping us all move forward. Their presence enriches life in London, and has been a key factor in London’s success over the centuries.
Robert Green, Director