Recent economic and political challenges are causing many property buyers to adopt a wait-and-see attitude. In this guest feature, Alpa Bhakta, the CEO of Butterfield Mortgages, explains why Prime Central London could buck the general trend by seeing increased demand from international property investors.
London’s property market perennially attracts substantial interest from international investors. In 2022, for instance, the majority (57%) of property buyers in the capital were from outside the UK. This trend comes as no surprise. London stands as one of the world’s foremost financial and cultural hubs, and the luxurious and historic properties in the heart of the city offer buyers an attractive blend of prestige and practicality.
Consequently, the city’s prime postcodes have consistently served as magnets for overseas investments, particularly high-net-worth (HNW) buyers in the upper echelons of the market.
That said, it would be remiss to disregard the fact that the past seven years have been marked by a series of economic and political challenges that have somewhat reshaped the landscape of the prime central London (PCL) market.
These include the introduction of additional stamp duty charges for second homes and non-UK residents, the ramifications of Brexit, the disruptions caused by the Covid-19 pandemic’s lockdowns and travel restrictions, and the persisting Russia-Ukraine conflict.
In combination, these factors – the pandemic and its travel restrictions in particular – have been the temporary cause of a dampening in demand and foreign investments in the PCL sector.
In the face of these headwinds, however, the PCL market has exhibited remarkable resilience. Further, it could be poised for a resurgence in overseas demand in the coming months.
The PCL market is robust, largely due to international demand
High inflation, a significant spike in the cost of borrowing, and a turbulent political environment have all contributed to prices in the PCL sector softening slightly in the last 19 months – but not to the same extent as the wider market.
In fact, according to Knight Frank data, while UK property prices declined by 2.4% in the 12 months to July 2023, the value of properties in London’s prime central postcodes experienced a comparatively modest fall of just 0.9% in the same period.
Further, the same data indicates that some areas within the PCL sector have bucked the trend and actually enjoyed growth in the year to July 2023. In Knightsbridge, for instance, sale prices experienced an uptick of 3.3%, underlining PCL properties ability to outperform the rest of the UK market. It is, in many ways, its own microclimate, standing aloof from the wider ecosystem.
Largely, the resilience of London’s prime property market can be attributed to the elevated levels of foreign investment. According to different data from Knight Frank, the return of global travel and a weakened GBP fuelled PCL’s recovery in the first third of this year.
Meanwhile, HNW finance brokers recently revealed that demand has grown from buyers in the US and Asia who have been looking to take advantage of a strong US dollar in recent months.
A good illustration of the return of strong demand from overseas is the recent acquisition of a £22 million flat near Green Park by a buyer from the Far East.
Will we see demand grow?
Clearly, despite the economic turbulence that has defined the last few years, the super-rich continue to see London as a desirable and safe destination in which they are keen to invest. Its attraction as a place to live, work, study or holiday is well-known, and the ease with which transactions can be completed – as well as the transparency of the UK’s legal system – contributes to the historic strength and demand in the capital’s property market.
It’s also important to consider the impact that the Bank of England’s interest rate hiking cycle has had. The pound has experienced significant downward pressure in the last 12 months, allowing many buyers to access PCL properties at a comparatively lower cost as a result of favourable exchange rates.
As such, with inflation remaining stickier than expected at 6.1% (far above the rate of other major economies), expectations of another rate hike from the Bank of England at this month’s meeting mean that exchange rates against the pound could grow in favourability. Therefore, the amount of demand for PCL properties from overseas could increase as the central bank continues in its efforts to curtail inflation.
Moreover, with a general election expected within the next year or so, the property market is bound to be a pivotal focal point as the two major political parties begin to set out their policy positions.
International investors will, therefore, be monitoring the potential reforms on the horizon. Ranging from alterations in planning regulations to adjustments in stamp duty policies, any commitments made by Labour’s Kier Starmer or Prime Minister Rishi Sunak could influence the timing or feasibility of their investments in PCL properties.
For instance, some may opt to expedite their plans to acquire London properties prior to the implementation of any new reforms, leading to higher demand and transaction levels in the short-term future.
Come what may, the resilience in prices and demand for properties in the PCL sector in years gone by shows that London has been, and will always be, an attractive investment destination for HNW buyers from overseas.
Echoing this sentiment, Alex Christian of Savills recently remarked on how the estate agent has “seen a notable increase in the desire to purchase property and an encouraging uptick in international activity… [buyers are] attracted by the lifestyle London offers – a compelling combination of quality schools, culture, green space, history and architecture.”
These qualities are here to stay, so we can be confident that the demand for PCL properties may continue to grow from super-rich international buyers in the coming months.
About the author
Alpa Bhakta is the CEO of Butterfield Mortgages, a London-based prime property mortgage provider with a focus on the needs of UK and international HNWIs.
Butterfield Mortgages Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register Number: 119274).
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