Currently it is a good time to purchase a high priced property in Central London. Prices are dampening and getting softer by the day. Properties which were valued at £18m only a year ago are now attracting offers of £12m.
There is also an over supply of 54,000 new homes priced at over a million which are planned or under construction in London.
These are being made for the seemingly insatiable foreign buyers. In particular the Chinese, whose interest in property and all things British were fueling the construction of these units. This demand has now diminished.
There will always be a lag in property. By nature the property market is a slow and heavy beast.
It responds to markets conditions, in a slow manner and then carries on walking in the same direction even when it is heading to its doom.
The stock market is quick and reactive, they have been shorting property stocks since the beginning of the year.
The smart developers stay flexible, and responsive. Though the prices for high end residential has decreased the rental market for commercial has gone through the roof.
Many developers have done a U turn on office to resi conversions and developments, and have gone back to the original use of the building.
We too have to go back to the drawing board on some of the projects we are involved in.
One property in the prime, creme de la creme part of Mayfair we purchased to develop and sell on is a good example. The purchase price coming in was £3m and the expected resell should have been around £4.5m. This property is not the kind you wish to sell in a damp market. Knowing the market was looking shaky in the near future we decided to do a quick refurbishment, with no planning and very little permissions required and rent and hold for one or two years.
This time will be used to fine tune the design and get the permissions in place.
This is the kind of property you wish to sell in a rising market where you can create an air of exclusivity around the property.
Another is a house in St John’s Wood, planning was obtained for a mansard and conversion from two flats into a single dwelling.
The strip out was done, the planning was in place, the button was about to be pressed, and then we stopped and re-evaluated the situation. There is no point going down a dead end road.
The solution in this scenario is to covert the property into ten self contained studios. This will be a cash cow, in comparison to a house and they will rent any day of the week.
This then turns the whole opportunity around. We have also used this opportunity to find a way to enhance the rental figures to even higher than market levels. After a four year period, the property would gain established use, at which point the investment can be cashed in by way of resale or refinance.
If this model is successful we will be extending this on to other buildings we manage on behalf of clients, to maximise the rental figures in the central London market where the rental figures have been severely reduced. This is due to the upsurge in capital values, whilst the rental figures have lagged behind. Now a rental yield of 1-2% is normal in a property in a prime location in central London. Previously this yield would only be expected in ultra prime areas such as Belgravia or Mayfair.
Another building we are involved with is in advanced stages of getting planning permission as a residential dwelling, however the market for the reasons stated does not support a higher valuation which one would expect from the benefit of planning.
Conversely the rental demand for the asset as an office building is increasing currently day by day.
The office space in London has shrunk from 8% to 2% due to developers exploiting the relaxing rules for office to residential conversion. At the moment office rents are increasing day by day.
We have been casualties of this having been served notice to vacate our office premises not once but twice in recent years due to our landlords aggressively pursuing this strategy.
The last premises being in Marble Arch Tower in Bryanston Street W1. This block has now been granted planning for its demolition. In its place will rise two towers, which will be completed in 2020. The scheme will consist of a mixed use development consisting of 407,000 sq. ft., and is expected to be valued at £400m.
The top end residential market is dipping fast, commercial rent is rising fast, the bottom end is still liquid and moving very very quickly. Anything around the £500k to £750k mark is still liquid and flowing in central locations.
In such a market it is important to stay nimble and focused on where the opportunities lie whilst the tide is turning. Downturns often provide the best buying opportunities, if you know what to look for.
Just look at the London property market in 2008/2009. Those who were astute enough to purchase during this time profited handsomely in the years after.
Small stock is still going strong, this is defined as properties around the £500k mark in central locations. This still represents good value despite the recent rise in stamp duty. It doesn’t seem that properties at this level have been affected by the stamp duty rises as was initially feared – in fact the demand remains strong.
In this respect we have just taken on a couple of ex local properties at the £350k level. Ex locals are great for long term BTL’s as they have low out goings, and relatively stronger yields. These are in locations where there is still growth, and represent great value; call our office to find out more.
