housing

Reasons to be cheerful about London’s prime property market

Head of Investec Private Bank Ryan Tholet, in conversation with Business Development Manager Peter Izard, explains why there is cause to be optimistic about London’s prime real estate market.

From fundamental economic conditions to major projects such as Crossrail coming on stream, here are his five reasons why now could be a good time to invest...

Key points

 

1. London is a financial hub

London is still the centre of the financial world, or at least a very key one, benefiting from world-class infrastructure, services and education systems.

 

2. Lack of supply is a continuing issue

There’s an undersupply of property throughout the capital, and only two-thirds of the requisite marginal amount is likely to be built next year. This demand/supply imbalance is expected to create price tension for the future, which is positive for potential investors.

 

 ‘London is still the centre of the financial world, or at least a very key one’

3. Interest rates and inflation are relatively low, and the UK currency relatively stable

This creates a more accessible borrowing environment for investors looking to grow their portfolios, and provides entry points for potential buyers.

 

4. Volatility has settled

Despite volatility over the past two years, price adjustments have already been put in place, and the consequences of the Brexit referendum, tax changes and general election have largely fed through.

 

5. Key projects are coming to fruition

Crossrail in particular is expected to provide a significant boost to certain areas, including London, bringing 1.5 million more people into the commuter belt and generating a boost in demand.

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Read the full transcript

 

The market

Peter Izard: Ryan, as we look at the year ahead what are your opinions on the prime Central London property market?  

 

Ryan Tholet: Whenever you do an evaluation like that Peter, I think you have to go back to the fundamentals and the fundamentals for us are still pointing towards a situation where we would be cautiously optimistic. So, for example, you would go and look at an environment here, London is still the centre of the financial world, or at least a very key one.

 

You’re going to look at the fundamental under supply of properties throughout the capital, particularly. Only two-thirds of the requisite marginal amount are likely to be built next year, so there’s a perpetuating problem around supply.

 

We’ve got a situation here in the UK where we have relatively low interest rates.We’ve got a situation where we have relatively low inflation. We’ve got asituation where we have a relatively stable currency and because of all of thosesorts of things we think the majority of the price adjustments that haveoccurred over the last two years, in particular the issues around Brexit, the General Election and some of the consequences of that have largely been put in place.

 

And I’ll add to that, to a certain extent, the tax changes as well. So we think this is a base for the London property market, particularly the prime areas, to move forward on and we remain optimistic that they will be relatively stable.

 

Buyers

Peter Izard:  And how do you feel that buyers are feeling in London and the wider South East market with regards to the property market?

 

Ryan Tholet: In addition to all of the fundamentals that remain outside of prime London, into Greater London. What we also have are some key projects coming through over the next little while. Issues like the Crossrail are going to provide a significant boost to certain areas and I think the South East and Greater London are going to big beneficiaries of that. So we remain, like them, cautiously optimistic.

 

Crossrail

Peter Izard: And do you have any specific examples of areas which will benefit from Crossrail?

 

Ryan Tholet: I think there are numerous and much of it is speculative but for instance if you took a summary on the Crossrail route, a place like Slough, largely not featured on anyone’s radar up until now, that’s a fairly significant point along there which we see as having decent momentum from young professionals moving out of prime London that is largely for them unaffordable and moving to places that are now within that commuter belt.

 

Bearing in mind that Crossrail is going to bring 1.6 million people more into that commuter belt than there has been in the past. So you can look to that and you can say there’s likely a stronger demand going to be coming through in places like Slough and Reading and many others across that route that will be supportive of property in the near term and in the long term.

 

Brexit

Peter Izard: Do you see the uncertainty and impact on Brexit having an effect on the overseas and the non-domiciled buyer in London? 

 

Ryan Tholet: I think there is an impact but it’s very small. Fundamentally this remains a great place for foreign buyers and investors to find a home in a asset class of property. So why do I say that?

 

Very simply, if you go to the fundamentals, we still see a demand/supply imbalance which creates price tension for the future, fantastic for investors. If you go and look at something even more fundamental like property rights, completely respected here in the UK. If you go and look at the monetary system, very stable inflation, low levels, very stable interest rates, low levels, all brilliant for gearing.

 

You go and look at some of the infrastructure that is here in the UK, transport, many other things, they are world class. You go and look at some of the services, very important for, not necessarily the investor, but for the home buyer seeking to take up residence.

 

Something like education, this is a world class education service that is offered by the UK. All of these things are strong attractors for foreign buyers into the UK and we remain convinced that they’re going to be as relevant into the future as they are today.

 

Peter Izard:  And what is the current impact of currency on the foreign investor?

 

Ryan Tholet: I think it remains as it always is, it’s a critical decision in the buying process and that’s one of the things that is giving us some level of hope here, is the currency has taken a small depreciation and has made the entry point for foreign buyers better than where it would have been say two years back.

 

All of those things are helping but I think it’s not only what’s happened, Peter, it is very much about what is likely to happen moving forward. And for us, our view, the pound remains a prime currency globally and I think investors take a lot of confidence in that in the same way that we do.

 

Client needs

Peter Izard: How do you see the changing needs of the high net worth client over the next 12 months?

 

Ryan Tholet: I think it’s important to recognise, Peter, that the needs themselves are not changing that fundamentally. Of course, what’s going on is going to require a higher degree of sophistication and a higher degree of attention.

 

All of those things need to be provided in some shape, form or fashion and we see the intermediaries playing a critical role in enabling those clients to get those services. For us, our job is to help those intermediaries maximise the client’s time because that’s the one thing that we do see changing with a lot of these high net worth buyers, is their time has become even more precious.

 

Their time has become even more critical and the last thing they need is a bank wasting their time through bureaucratic process and unnecessary details that don’t inform the outcome that they need.

 

Peter Izard: And how are  going to enable this to happen?

 

Ryan Tholet: We have put a dedicated team, intermediaries team in place that works in partnership with these key intermediaries providing this advice to our end-user clients. Without that team you can’t enable this at all.

 

So that’s a very, very key thing and it’s made up of private bankers, highly experienced, many years in the industry, the understand this process, they understand what needs to happen and most of all they understand the asset class and the intermediaries and what they want to be successful.

 

I think when you bring all of that together what you have is an ability for the high net worth client, to shorten the process. And we all know that when you shorten the bureaucratic process it makes a huge difference to people who value time as a key part of their lives.

 

So when all of this comes together, this is where the opportunity is to create value and where it’s the opportunity to create a difference for these very high net worth clients. And most importantly it’s an opportunity to showcase the value of the advice that the intermediaries can deliver into that space.