London’s property market is no different. Worth an estimated £1.5 trillion, the capital’s real estate market is an attractive destination for both first-time homebuyers through buy-to-let and international investors. Before the COVID-19 pandemic took hold of the UK, Knight Frank estimated that London was the target of up to £48.4 billion worth of global capital investment.
The implementation of lockdown measures to contain the COVID-19 pandemic has changed the way people are able to access property investment opportunities in the capital. Social distancing has presented logistical difficulties, from carrying out onsite valuations to arranging property viewings.
The impact on prime property demand
Given the value and volume of transactions that take place in the prime central London property (PCL) market, it is important to assess its performance separately. Based on a recent study, it is estimated that international buyers account for 55% of all the capital’s prime purchases.
Savills present an interesting take on the current state of PCL property. Between June 2014 and September 2019, the value of PCL real estate dropped by 20.5%. However, Savills now observes that the price of PCL property is dropping at a slower rate, and there is even growth being experienced in prime London markets outside of the city centre.
International buyers
While there are barriers to accessing the market, demand is clearly evident. Much like the surge in activity that was witnessed following Boris Johnson’s victory at the 2019 general election, buyers of PCL real estate are likely to act on their intentions once certainty returns to the market. Two working weeks following the general election result, Knight Frank recorded more exchanges in PCL than any equivalent period since December 2016. For example, property tycoon Cheung Chung-kiu bought a £200 million mansion in Knightsbridge in the aftermath of the election―a record-breaking sale.
Looking beyond the COVID-19 pandemic, there is also a need to understand how Chancellor Rishi Sunak’s decision to implement a 2% Stamp Duty Land Tax surcharge on international buyers of UK real estate will influence upcoming transactions. While the measure does not come into force until April 2021, there is reason to believe there will be a spike in transaction activity before this additional surcharge is introduced. After all, international buyers accounted for 55% of all homes sold in PCL in H2 2019.
While it is too early to make any accurate predictions, it looks as though activity in the PCL property market is slowing down, rather than declining. Much now depends on how long the COVID-19 pandemic will last. For now, I see good reason to be cautiously optimistic that real estate will be able to quickly recover based on current demand.
