A host of dire pronouncements both at home and abroad could spell trouble for real estate in the capital, says John Underwood
A cadre of hedge funds have shorted London-centric housebuilder Berkeley, betting that tax hikes and declining foreign interest will soon threaten the historically robust sector. Elsewhere, a new high-end equity release service is aimed at HNWs who are no longer content to watch their property appreciate. Both investors and industry insiders seem to be betraying a lack of faith in London’s property market.
Is London’s property market in real trouble?
According to the FCA, Odey Asset Management, Anchorage Capital and BlueMountain Capital Management have this week taken short positions worth 2.2 per cent of Berkeley’s share capital. With 54,000 homes planned in the capital’s most expensive areas, a pinprick in London’s housing bubble would leave many developers sitting on exclusive and unshiftable stock. And at least one major London homebuilder believes that pinprick has already appeared in the form of George Osborne’s stamp duty changes, which have significantly affected those buying houses worth more than £937,500. (Almost all the 54,000 properties mentioned above are believed to have planned asking prices above £1 million.)
Recent research by Knight Frank has shown that in the ten months from December 2014, stamp duty receipts in London fell by £105 million. The capital is responsible for almost half of all stamp duty paid; and whilst London sales still generated £2 billion, any unexpected loss in income is a threat to the chancellor’s much-vaunted plans to balance the books by 2020.
Responding to Knight Frank’s findings, Redrow founder Steve Morgan claimed that ‘Central London has been killed by stamp duty.’ Redrow may have limited its exposure to any downturn by focusing on outer London developments, but a similar slump could soon be due to ripple outwards from Zone 1. In April, a further amendment to stamp duty rules will see prospective buy-to-let landlords hit with a 3 per cent surcharge.
Looking further afield, collapsing oil prices and the slowing pace of the Chinese economy are taking their toll on the market, with wealthy investors from Russia, China and the Middle East progressively less willing to bury millions in a London investment property. And although a significant ‘Brexit effect’ has not yet been felt, the potential of such huge upheaval will be dampening the ardour of potential investors, as any major uncertainty is wont to do.
One firm looking to capitalise on any tremors in the marketplace is retirement services provider Bower, which has just announced the launch of a new equity release service aimed at HNWs looking to realise seven-figure sums against their properties. The company’s research suggests that in the past five years, some 36,000 million-pound properties have been bought outright, costing a total of £63 billion.
More than half of London’s postcode districts can now boast an average house price above £500,000, and the first rung of the housing ladder is inching gradually further out of the reach of ‘ordinary’ Londoners. It’s no surprise that even some HNWs are looking to make their assets work for them, or at least for their children; in fact, one of Bower’s stated target markets is those homeowners eager to help their family onto the housing ladder with cash gifts. A property downturn won’t do much for Berkeley’s share price – but it may be the only way that Generation Rent will ever get their hands on a freehold.