Why 2019 is a great year to buy in London

The current climate is giving buyers plenty of reason to bury their heads in the sand. Across the UK, the political uncertainty has made people reluctant to invest in property. Alex Ogario of Knight Frank Finance’s Private Office explores some of the reasons why, despite popular opinion, 2019 actually represents a fantastic opportunity for those looking to buy in London.

As the 31st of October draws nearer and there is seemingly still no end in sight for the UK’s exit from the EU, it appears we’re stranded in a ‘market no man’s land’. In the days that followed the European Referendum in 2016, there was an immediate panic about the impact that leaving the EU would have on prime central London property prices, then and in the future.

While some believed they could take advantage of the period between Referendum and the scheduled exit date, many felt the property market was too precarious to engage in. Caution is certainly prudent, but it’s easy to get caught up in the headlines and negativity without pausing to analyse the fundamentals.

London property

So what reasons do we have to be cheerful? Our first can be found in the past. London property has outperformed most other asset classes over the decades, and as a consequence of this there is a global culture of property acquisition in London that stands firm today. The acquisition infrastructure is very much in place, making it easier for foreign investors to place capital in London - this cannot be said for most of the world.

As a result, our clients often talk about central London property in terms of wealth preservation and as a perceived safe haven. Economic commentators are currently discussing a prelude to a global recession, due to inverted bond yields. As a result, many clients could see this as a good time to move capital away from more historically volatile asset classes and invest in London property.

This compression in bond yields has also led to even cheaper mortgage finance costs, which makes borrowing more compelling and could help to boost future returns for investors in London (Five year fixed mortgages on residential property are currently available at rates below 1.6%). The same reduction in bond yields and the restarting of quantitative easing (by the ECB) could also push investors towards real estate in search of long term income and returns.

We can also find positive signs in the current landscape. Knight Frank’s Prime Central London index may be down around 14% since August 2015, and yes, there is concern about Brexit uncertainty and a potential Jeremy Corbyn government. Yet even though a general election in 2019 is looking likely, the bookmakers see a conservative victory as the expected result.

The chance of a no deal Brexit has also reduced recently as MPs put legislation in place to prevent Boris Johnson taking the UK out of the EU without an exit deal. This initially led to a strengthening of sterling which has moved up from a September low of 1.20 against the dollar.

Timing is everything as they say, but calling the bottom of any market is guess work and if a medium to long term hold is the motivation for an acquisition, a circa 14% discount to peak pricing is a known quantity, and a compelling one. It seems to be one that is increasingly being explored by overseas buyers who are capitalising on weak sterling.

A circa 15% gain in currency since the EU referendum has encouraged North American buyers back into the London market and they now hold a share of the market similar to the Chinese according to our data, which was far from the case several years ago. Currency forecasts from some of the big banks, which admittedly should be taken with a pinch of salt, predict a much stronger sterling position (against USD) in 12 months.

Knight Frank’s Private Office tell me that one of the biggest problems seems to be the lack of inventory and stock to sell, but vendors that are in the market are likely to be motivated and potentially willing to engage in conversations about price that they may not have considered previously. At the same time, Knight Frank London registered around 30% more buyers in the year to July 2019 compared to the previous year. This signals untapped demand and also a lot of potential competition.

What does the future hold?

Looking into the future, there are yet more positives to be found. London still has the world’s highest ultra-high net worth population. No other city in Europe is in the top ten! The global population of ultra-high net worth’s is predicted to increase by 22% over the next 5 years which, if the trend continues, will mean more individuals with the resources to invest in the UK’s capital.

London has always had a supply and demand imbalance and this looks set to continue; new dwellings in London fell by 20% (2017-2018) and only 5 of 33 London boroughs hit their new housing targets. On top of this, the number of residential units entered for planning permission (projects of 20+ private units) has fallen since 2014 and relative construction costs have increased since 2010. These supply-side pressures could underpin future price rises once the uncertainty has diminished.

Despite Brexit, London pipped New York to the top of the Knight Frank City Wealth Index which analyses leading cities’ wealth appeal based on existing wealth, investment and lifestyle (see the 2019 Wealth Report for more detail).

Interestingly, given the aforementioned, New York and London were 39 and 40 respectively out of 45 cities assessed in our Q1 2019 Prime Global Cities Index (an index that analyses residential real estate market performance over 12 months). When the two global super cities are featuring so low down the list - both with negative 12 month growth - opportunity should exist!

A shrewd property investor recently said to me, ‘if you want a good price, you don’t buy shorts in the summer’. My advice to global real estate investors is to stay very close to your London property advisers over the coming months, and be prepared to move fast when attractive options are presented.

If you need a new adviser, I would be very happy to make an introduction to Rory Penn and Thomas van Straubenzee who head up the Knight Frank Private Office. I would of course be delighted to help you arrange your finances. Our platform here at Knight Frank Finance is market leading too.

Alex Ogario heads up the Knight Frank Finance Private Office. For trusted financial advice, contact Alex on +44 20 7268 2573.