Stamp duty holiday in UK spurring residential transactions by Asian investors in London...
A stamp duty holiday is giving some London home buyers a nine-month window of opportunity to push ahead with their property purchases. According to UK developer Regal London and property consultancy Savills UK, buying activity is gaining momentum, supported by months of pent-up demand, and some Asian investors are opting for better capital gains and safe haven in the UK over their own domestic markets.
Pent-up demand resumes after lockdown
The UK’s formal exit from the European Union on Jan 31 this year was
expected to rally transaction activity in London’s residential market. A
period of uncertainty since the 2016 referendum has caused some
investors and home buyers to hold off their purchases. In February this
year, Marc von Grundherr, director of UK-based lettings and sales agent
Benham and Reeves, noted that “month after month of uncertainty
surrounding Brexit had caused the market to stutter”.
But the anticipated rally failed to gain momentum due to the Covid-19
pandemic, with the UK government imposing a country-wide lockdown in
March this year. According to Jacob Sullivan, sales director at Regal
London, overall market sentiment in London’s residential market faltered
during the lockdown period. Regal London is a privately held real
estate developer, and has had a 22-year track record in developing
residential-led, mixed-use projects in London.
However, some lockdown restrictions have been gradually lifted over
the past few months with most business activity resuming in London.
Sullivan says that the developer has seen an “unprecedented level” of
domestic demand for its new projects over the past few weeks, largely
attributed to the fact that most of its developments are completed. He
adds that local home buyers still prefer physical viewings and are more
likely to buy into already completed developments.
According to Savills UK, its website has also seen a strong
increase in traffic since London’s housing market reopened, with its
residential website traffic up 47% compared to January this year, and
new buyer registrations are 48% above pre-lockdown levels.
“It is fair to say that demand [in London’s residential market] is
higher than expected. It is a combination of pent-up demand from when
the market was closed, people deciding to move after their lockdown
experience, and the stamp duty holiday that is encouraging people to
move sooner than they might have done,” says Jacqueline Wong, head of
residential services and international residential at Savills Singapore.
Sullivan agrees, saying that most home buyers in the UK feel that
they have been holding off their purchases for too long as a result of
the prolonged Brexit situation and the recent Covid-19 lockdown. “July
was the busiest month in a decade with close to GBP37 billion ($66.58
billion) worth of transactions occurring in London during the month,” he
says.
Another effect of the lockdown in London is that it has forced
most developers to delay planned new launches this year into the summer
holiday season. Typically, most developers would showcase their
developments earlier in the year during spring, with buying activity
culminating just before the traditional summer holiday period, says
Sullivan.
But with most of the local buyers picking staycations this year
due to ongoing international travel restrictions, it has caused buying
momentum to continue over the past few weeks,” Sullivan says. He expects
this momentum will likely continue through to 4Q2020.
International travel restrictions have also resulted in a
smaller number of international property investors engaging in the
property market this year, and the few active foreign buyers are
typically already familiar with the London residential market with an
established portfolio of investment properties on hand, says Sullivan.
Asian investors turn attention to London
However, one group of overseas buyers still out investment
shopping in London are Asian investors, says Savills. In general, this
group of foreign buyers feel that residential property in London is
still a resilient asset, coupled with their broad familiarity with the
city, the international consultancy says.
Most Asian investors are seeking one- or two-bedroom
properties, and they have a budget range of GBP800,000 to GBP2 million,
says Wong.
In the Singapore context, we have witnessed new entrants
to the UK residential market. Typical of Singaporean DNA, they are
initially doing market research, enquiring about taxes and overall due
diligence before taking the plunge, so to speak,” she says.
She adds that some Singaporean-based buyers have turned
their attention to London due to the higher additional buyer’s stamp
duty in Singapore, which could negatively affect future capital gains on
some property investments.
But Wong notes that the impetus for Singapore buyers is
distinctly different from Hong Kong or China buyers. “With Hong Kong
buyers, apart from the continued protests in the city, the latest
security law has further fuelled their interest to invest in properties
in the UK,” she says.
The UK recently extended options to about three million
of Hong Kong’s British National (Overseas) passport holders that will
allow them to apply for up to five years’ leave to remain in the UK. And
after a further year, they will be able to apply for British
citizenship.
According to Sullivan, one of Regal London’s newest
London projects, One St John’s Wood, has recorded a “good level of
demand from buyers from Asia and the Middle East”. He adds: “We continue
to see huge demand from the Hong Kong market for long-term investments
in London, helped by the currency advantage alongside stamp duty
changes. These make a purchase in the next six months favourable for any
purchaser. This demand is mirrored by unprecedented demand from the UK
market, with buyer registrations up 10-fold on previous years.”
One St John’s Wood is a 112-unit development that
launched this month. The developer says that about 80% of the enquiries
it has received for this development came from owner-occupiers,
comprising upgraders and those looking to “right-size”. The development
comprises studio units and one- to three-bedroom apartments, with prices
starting from GBP995,000.
“Apart from location and price, investors also
consider yields, potential growth for capital gains, whether it is a
regeneration area and connectivity to central London. Some will also
consider the track record and reputation of the developer,” says Wong.
Singaporean buyers in particular prefer projects
that feature top-notch views, such as The Dumont along Albert
Embankment, she says, adding that the development’s central location in
the city also makes it attractive. “The Dumont’s privileged position on a
unique bend on the south bank of the Thames River means each home
boasts unrestricted, vast panoramas of London,” says Wong.
Green spaces in the development are another project
attribute on buyers’ checklist, for example Prince of Wales Drive in
the Battersea area. “An impressive 50% of the development (2.5 acres or
1.01 hectare) is dedicated to green open space, creating an urban oasis
in the Battersea regeneration area,” says Wong.
Limited stamp duty holiday
The financial climate is also encouraging buyers
and investors to pick up properties. Paul Eden, CEO of Regal London,
says: “With the pound to dollar still at a historic low, and demand
rapidly returning to the market, London is experiencing a positive
uplift which brings opportunity for early investors to secure good value
before the city’s market returns to its peak performance.”
Some home buyers are also taking advantage of the
government’s stamp duty holiday to lock in their purchases. On July 8,
2020, Chancellor of the Exchequer Rishi Sunak announced a stamp duty
holiday for residential property buyers in England and Northern Ireland,
from July 8, 2020, to March 31, 2021. As a result, the stamp duty
threshold was temporarily raised from GBP125,000 to GBP500,000.
This means that stamp duty land tax will not be
paid on any property that is valued below GBP500,000. According to
Sullivan, this could mean up to GBP15,000 in savings for first-time home
buyers, and will be enough to encourage them to push forward their
purchases.
A market report by Knight Frank UK last month
noted that from July 8 to Aug 8 this year, the number of home sales in
London was 146% above the five-year average for properties valued at
less than GBP1.5 million. This is the section of the market who will
benefit the most from the stamp duty holiday, the report says.
“The holiday, it must be concluded, is working,”
says Tom Bill, Knight Frank’s head of UK residential research, adding,
“Whether it should become a permanent arrangement is something the
government should consider.”
According to Wong, “London, particularly with
the stamp duty holiday, proves to be competitive in terms of transaction
costs compared to other cities. It is worth noting as well the currency
opportunity in London at the moment because of the weakness of the
sterling, but also the price falls we have seen in London since 2014”.
For now, the government is still expected to
implement its planned 2% stamp duty surcharge from April 1, 2021, which
will coincide with the end of the stamp duty holiday, says Wong.
“However, it is good to note that even with that extra 2%, London is
comparatively less expensive in which to acquire properties versus other
gateway cities,” she says.
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