London property glides along on overseas interest

It has been an unusually volatile year in terms of activity, starting off with a significant amount of interest from buyers and many competitive bidding situations.

Then came the UK Budget and the shock implantation of an increased rate of stamp duty land tax (up from 5 per cent to 7 per cent) on properties over £2 million.

At the same time a stamp duty was introduced on offshore companies and trusts at 15 per cent. This caused some deals to falter and there followed a period of adjustment as potential buyers met with their advisors to assess the ramification of this taxation on their buying strategies.

This was followed by the Jubilee celebrations and the Olympic Games, both of which, while good for London and the UK as a whole, certainly distracted peoples’ attention from business and stifled the market further.

From September onwards the market appeared to recover but without any real consistency and the rate of price growth, although still positive in central London, has certainly reduced.

Statistics indicating that the UK is now finally out of recession will help boost the general economy. But there is still a sense of caution in terms of the domestic market which is leading to an increase in demand for long-term renters in London who are fearful of, or financially unable, to commit to a property purchase.

Middle Eastern buyers

International demand, however, continues to remain strong with more noticeable activity below £2 million. Indeed, our internal research shows that over 50 per cent of all properties we now sell are sold to buyers who are based outside of the UK.

We have observed Middle Eastern buyers increasingly moving away from the acquisition of more traditional “trophy assets” and instead looking at income -producing residential assets which offer the potential to earn a good return. Mayfair and “South of the park”, the established stomping areas for Middle Eastern buyers, simply do not produce decent rental returns.

Here you may be lucky to get a return of 2-3 per cent on the capital amount invested. However, savvy investors are looking further afield at peripheral areas where capital values are currently lower, but that offer good medium to long-term capital growth prospects and a good rental yield.

ring 2013, we appear to have as many uncertainties at a macro-level as we had coming in to 2012, although the outlook is generally more encouraging. Although the prime market in London is somewhat detached from the wider economy, ultimately the two are interlinked and we all need a more stable economic backdrop to persist in Europe, the US and Asia.

Until mainland Europe sees a return to growth, the outlook has to be only marginally positive. In our view, European and UK governments will ultimately have to soften their austerity measures, if we are to avoid losing a generation of talent.

In the UK, we desperately need banks to provide more capital for real estate in general and for development in particular.

— The writer is with the London-based estate agency Kay & Co.