While we thought we had hit rock bottom with Brexit, the increase in stamp duty for the most expensive properties, the additional stamp duty for second properties and soon for non-residents, we are now facing a crisis historical sanitary. Could the situation be more dramatic? Could the winds be more contrary to the real estate market? And yet…
The number of real estate transactions reached a record level this summer with 35% more sales in June, 98% more in July and 116% more in August compared to the same months of the year. last. Admittedly, the market has been “sluggish” (in slow motion) for 5 years, admittedly the market closed completely during the “lockdown” but no one had anticipated such a recovery since its reopening in mid-May .
So what’s going on ?
First of all, Brexit was finally approved in parliament just before last Christmas , thus putting an end to a certain amount of uncertainty . Many cautious people had put their plans on hold since the surprise result of the Brexit referendum on June 26, 2016, more than 4 years ago. But we cannot wait indefinitely, life goes on, families grow or change configuration, professional situations change etc… and real estate projects generally accompany these developments. Years pass, uncertainty is still there, crises follow one another and it is necessary, at some point, to decide to continue to live normally. This is what happened at the beginning of January withan impressive upturn in activity at a usually slack period . Unfortunately, the Covid crisis put a halt to this new momentum and the lockdown plunged the real estate market into an artificial coma like never seen before. Our patient was fortunately woken up fairly quickly, and before the end of confinement, in May and was back in great shape in June. Health restrictions in terms of travel having forced the majority of English people to stay at home this summer, they took the opportunity to finally launch their real estate projects.
The crisis has also changed needs and desires. The experience of confinement in a cramped apartment with no outdoor space may have traumatized some. Teleworking , which has been in place in most companies since the start of confinement, has changed working methods and mentalities. Working from home is now more the rule than the exception in London and will be increasingly common in the future. People are therefore reconsidering their priorities according to these new realities and putting the comfort of life back at the center of their concerns. They now prefer to live further away and have more space, a garden…
Finally, as part of the measures to support the economy in times of health crisis, the government has set up a temporary “stamp duty holiday” which cancels the stamp duty for the purchase of goods under £500K. For more expensive goods, this represents a gain of £15,000. This measure must end on March 31, 2021 . This is not negligible and many are accelerating their project to be able to benefit from it.
As far as French people (or non-residents as a general rule) who wish to come and live in the UK are concerned, it is important that they settle in the country before December 31, 2020, the effective date of Brexit, in order to be able to make a request for “pre-settled status”. The “settled status” or the right to live indefinitely on British soil will be obtained on request after 5 months of residence. Many are buying now. In addition, on April 1 , 2021, the government plans to vote an additional tax of 2% on stamp duty for non-residents in order to curb foreign investment.
Non-resident investor friends, buy now! For example, for a property of £1M, if you buy before April 1 , 2021, you save: £15,000 (stamp duty holiday) + £20,000 (non-resident) or £35,000.
What about the price level?
According to Savills, one of the major London real estate agencies, properties traded on average in July at 97% of the asking price. The average negotiation margin would therefore be very low. We can therefore think that the prices are on the rise or at least stable because the prices announced are perhaps also more reasonable than in the pre-referendum period.
In conclusion, despite an unfavorable context, the London real estate market (and the English one in general) is still very robust and even appears, since May, to be very dynamic.
Will it last ?
No one dares to make predictions anymore, the real estate market is so solid and seems to defy the rules of logic. The fundamentals remain the same: London will remain London, a very attractive capital of the world, the demand is immense and the supply too low . Prices have increased by 10% on average annually for more than 20 years until 2016, the date of the referendum. They have been more or less stable since (except for the top of the market which has lost around 15% since 2015). Is a natural catch-up underway? How long will it take?
Savills, generally one of the more cautious (conservative) analysts, expects London house prices to rise by 15.7% by 2024.
England, always pragmatic, could do well after Brexit and become the Singapore of Europe, some think… Nevertheless, in the short term, the signals are not going in this direction and the prospects are not all joyful: covid, brexit, end of the “stamp duty holiday” and additional purchase tax for non-residents.
In any case, it seems that nothing can “break” the London real estate market… so much the better!