Back in October, festooning the halls of Abu Dhabi’s National Exhibition Centre at the International Real Estate and Investment Show it was hard to miss displays of British flags and images of London’s Big Ben.
Dozens of stands offered investors the chance to get their hands on a slice of the UK property market, promoting anything from Georgian town houses in the “golden postcodes” such as Belgravia, Mayfair and Hyde Park to new-build penthouses with spectacular river views.
The sales patter for firms selling UK property in the UAE is well established. Buyers from the Middle East made up nearly 30 per cent of new prime London properties last summer, according to the consultant CBRE.
But, while the flags were flying high and the sharp-suited salesmen and women were as well turned out as usual, if media headlines were to be believed, the outlook for property investment in the United Kingdom was about to turn as wintry as the weather usually is at this time of year.
In his November autumn statement the chancellor of the exchequer, or finance minister, George Osborne announced that from April next year, any one purchasing a buy-to-let property or a second home will have to pay an additional 3 per cent stamp duty tax. This comes on top of changes made last year that increased tax on homes worth more than £937,000 (Dh5.1 million), but reduced tax for most buyers.
Coupled with this is the fact that Mr Osborne has already this year made key changes to the tax laws meaning that buy-to-let investors can no longer offset maintenance costs against the higher rate of tax – which in some cases is likely to wipe out profits completely.
With the Bank of England widely expected to increase interest rates from a historic low of 0.5 per cent in 2016, many are suggesting that the London property price bonanza may be drawing to a close.
This all comes at a time when the financial slowdowns in China and Russia have led to a weakening of a number of key currencies for other nationalities that, since the 2008 global financial crisis, have been using upmarket London homes as a haven for their cash. The rouble has lost 25 per cent of its value against the British pound since April and China’s yuan has fallen a total 6.6 per cent since then, while the Malaysian ringgit has tumbled about 23 per cent over the past year.
According to the broker Hamptons, Asian investors made up 26 per cent of those buying homes in wealthy areas of London in the first three quarters of last year. That figure has dropped to 6 per cent over the first nine months of 2015.
A similar story can be told for Russian investors who accounted for just 1 per cent of the prime properties sold in the first three quarters of 2015, down from 7 per cent in the previous year.
And Chinese buyers accounted for 9 per cent of all sales of top houses last year, but just 3 per cent in 2015.
The news comes as property developers in London are building a glut of luxury apartments priced far above the means of the majority of the local population.
This combination of factors led the Swiss bank UBS to place London firmly at the top of its list of most overpriced property markets in the world last month, ahead of Hong Kong and Sydney.
“London is by far the most overvalued market in Europe, at risk of a bubble as a result of explosive price behaviour since 2013,” UBS said.
And in November the UK Housing Market Observatory at Lancaster University, set up to look for signs of pricing bubbles in the UK regions, said that if real house prices in central London continued growing at their current quarterly rate of 2.75 per cent the city would enter the bubble phase within two years, producing a ripple effect in outer London and across the UK.
So, is this gloomy outlook for London property dampening interest in the UAE?
No, says Richard Bradstock, a partner at IP Global, who specialises in selling property all round the world to investors based in Abu Dhabi.
He says the risks of a house price bubble in London will be held in check by the market constraints of mortgage regulation, stamp duty rises and the dampening effect of future interest rate rises.
“People are still buying in Abu Dhabi, very much so,” Mr Bradstock says.
“The important thing to remember is that in terms of the fundamentals nothing has changed. There is still a huge undersupply of housing in London and little chance of supply meeting that demand.”
“Yes there have been a lot of foreign buyers in the market but people underestimate the wealth that there is in London,” he says.
“For every scheme we sell to international buyers, there are always another couple sold locally.”
However, Mr Bradstock, who mostly sells flats to western expatriates averaging between £300,000 and £500,000 located in down-at-heel areas such as Ilford and Woolwich, says he sees “little growth” in properties at the top end of the London market.
Samuel Warren, the director of international residential developments at the estate agent Chestertons, is also upbeat.
“We’ve not seen [the stamp duty changes] as a significant effect, particularly as we’ve noticed for some time now the investors from the GGC haven’t been buying ultra-prime central London, but seeking to invest in the regeneration areas and slightly less central locations, all in order to benefit from more capital growth as the price rises ripple outwards,” he says.
“This supposed ‘bubble’, which has only come about as a result of the measure of affordability of London property for general UK residents who tend not to buy prime central London anyhow and haven’t done for some time, isn’t putting a threat on these ‘second-tier’ areas. The educated investors, with our support, are still buying and can see the benefit of London as an investment destination,” Mr Warren adds.
“The cost of buying property in London [the total acquisition cost] is still less than many global cities and therefore the strong returns of London as an investment class will show that a 3 per cent additional tax is not a barrier to investment.”
And, so far, gloomy predictions appear to have had little effect on prices which, according to the UK Land Registry, increased across the country by an average of 5.6 per cent in the year to October.
In London the increase was even more pronounced, increasing 10.6 per cent over the period to an average of £503,431.
Even the most expensive London mansions – those valued at more than £10 million – saw prices surge 15.3 per cent in the months from June to November according to Zoopla data. At the same time, prices for London homes valued at more than £1 million fell 0.3 per cent.
“London house prices have taken off again. In the final months of 2015, the capital is accelerating – to play a powerful role in the upwards trajectory of the UK property market,” says Andrew Bridges, the managing director of the property broker Stirling Ackroyd.
“As 2016 dawns many Londoners will be asking more profound questions of the housing market. Beyond the official average price, there are 133 postcode districts in London with prices above £531,000,” he says.
“Even in the relatively cheap London postcodes, where prices remain below the London-wide average, our own analysis shows prices currently gaining altitude at a pace of £12,000 per year – even in these relatively affordable zones.”
London property, it seems, is still as safe as houses.
Brokers still broadly optimistic
The big London property brokers remain modestly upbeat with their predictions arguing that, although some of the froth may have gone from the market, a lack of supply will still push prices up across the board.
Knight Frank has reduced its 2016 price growth forecast for prime central London from 4.5 per cent to 2 per cent.
At the same time Savills is forecasting a 15.3 per cent rise in London prices over the next five years, trailing the 17 per cent rise it predicts for the United Kingdom as a whole and a 21.6 per cent increase for the south-east of England.
And CBRE predicts that London house prices will grow by 9 per cent in 2015 and by 31 per cent in the four years to 2019 due to new legislation enabling housebuilders to not include socially rented homes in their new schemes.
lbarnard@thenational.ae
