The pendulum swings
20 DECEMBER 2012
When channel flicking recently, I became engrossed in the travails of an intuitive Iniut family. Surely one of the few places on earth Tesco have yet to conquer, sea ice in north-east Canada dominates the landscape and ensures food is scarce, particularly in winter. Driven by hunger, the Inuit take advantage of the lowest tides to climb under the sea ice and harvest mussels, quick to escape before the waters return an hour later.
This is not an analogy designed to highlight the perils of working in the London property market, however something has undoubtedly changed in the capital, and having been bullied by sellers for months, buyers might finally have their own window of opportunity. The tide, it would seem, is out, but with the market cycles so short over the last few years it is a brave buyer who tries to predict when it might come back in. In my experience, by the time people start talking about the bottom of a cycle, it’s almost certainly on the way back up.
The market currently favours the buyer and will I believe continue doing so until the spring, the traditional time to launch a property onto the market. By then sellers will hopefully have adjusted their expectations in terms of price which will help instil a better equilibrium to the market.
While all the headlines after the Budget seemed to concentrate on the Coalition’s best attempts to kill the golden goose, and tax foreign investors back from where they came, the 2% increase in Stamp Duty for properties over £2m sent shockwaves through the market. The tsunami this caused has still not come to a halt, and continues to put the flames out of both the prime country and London markets, despite the ostrich-like attitude of many selling agents and vendors alike.
There are undoubtedly pockets of resistance - properties which are best in their class, in the premier league of addresses and either entirely unmodernised or refurbished within an inch of their life are trading well – if a property falls outside of these key criteria, they are generally struggling and begging emails from agents with the subject line ‘motivated sellers’ are an almost daily occurrence – dare I say it, there seems a note of desperation in the air. Price reductions are plentiful, stock levels overall have been better this winter than at any other time this year, and all but the best located and most recognisable agents are enjoying a December of longer Christmas lunches than usual. The worm has definitely turned, and stories of vendors who turned down excellent offers during the summer, only to be looking somewhat sheepish as their properties remain unsold three or four months later, are commonplace.
The Chancellor left the high net worth individuals largely unscathed in his Autumn statement, and the Lib Dem plea for a mansion tax looks finally to have been put to bed. However, the additional layer of property taxation which becomes law next April in relation to properties bought for over £2m, will have an affect. Already subject to a new SDLT bracket of 7%, those owned in company structures are subject to an entirely new 15% charge, with proposed annual charges and CGT on their sale, in addition. As a result, research has shown a year-on-year fall of some 33% in the volume of transactions above £2m, not least because of the uncertainty of the ‘consultation period’ that has stunted the market since April, and prevented any firm decision making by many.
December 11th provided the much needed clarity and for many the outcome will be far less punitive than the proposals suggested; those operating a property business including developers and buy to let landlords are exempt from the extra layers of taxation. However, the log-jam that continues to prevent the lower tiers of the property market from improving, particularly transaction wise seems unlikely to change in the near future. Until it does the UK market can only partly function. Top-end investment from overseas does not filter down into the mainstream market, where we need significantly more activity to restore a sustainable property market.