UK home sales expected to rise in Q1

London

ESTATE agents in the UK expect a flurry of residential property purchases in the first quarter of this year despite the nation's severe lockdown restrictions due to the ongoing coronavirus pandemic.

They are optimistic because of the expectation that millions of vaccinations will begin to re-ignite the distressed economy, and the fact that stamp duty subsidies will end on March 31.

Investors are also buying again because they believe that inflation will begin to accelerate within a year or two.

Estate agents and property purchase consultants, however, have mixed feelings about the medium and long-term outlook for residential property prices.

Marc Schneiderman, director of Arlington Residential, an agent who specialises in prime London property, recalled that after the first lockdown was relaxed last summer, "the market caught fire".

There was competitive bidding for properties in excess of £5 million (S$9 million) in expensive boroughs such as St Johns Wood and Hampstead. Several buyers were bankers and asset managers, he said.

The recovery in global stock markets from their March lows enabled them to place their bonuses and capital gains in property, he added.

Ben Tobin, a consultant at property advisory Strettons, said that auctions are a strong indicator of the mood of the market and outlook.

The company's auctions of distressed and other properties of around £500,000 to £1.5 million exceeded the firm's predictions, he said.

In December, during the beginning of lockdown restrictions and ahead of Brexit, almost all the properties were sold during the auctions.

According to building society Nationwide, house and apartment prices climbed by 7.3 per cent last year, taking average prices to £231,000.

Furloughs and restrictions helped generate savings of some £200 billion, and a proportion of this cash filtered into the property market.

The Bank of England reported that approvals of mortgages at negligible rates rose 7 per cent in November to reach 105,000 - the highest number for over 13 years.

A sizeable proportion of the properties were relocations from central London to spacious houses in the suburbs and the country, agents said.

Hamptons estate agents estimated that in 2020, Londoners bought 73,950 homes worth some £26.7 billion in areas within commuting distance from the British capital.

Seven Oaks, Maidenhead, Oxford and Cambridge, for example, experienced a surge in purchases from Londoners who now enjoy working at home.

Illustrating the financial benefits from such transactions, the central London average residential property price is now £1.27 million.

This is higher than the average in south-east England (£396,000), the Midlands (£223,000,) and north-east England, Scotland and Wales (between £180,000 and £190,000).

The question is whether the property boom will last. Mr Schneiderman is concerned that companies will fail and once the furloughs end, the unemployment rate will surge.

Investors who hold residential and commercial offices and shops "may well find themselves out of the comfort zone", he warned.

London is highly dependent on international purchases and, to a large extent, the market has been propped up over the years by wealthy buyers from Hong Kong.

Some families are immigrating to the UK because of China's clampdown on Hong Kong's democracy. Others, who had not previously purchased London property, have bought apartments as bolt holes for the future.

"From April this year, overseas buyers face the impact of a stronger pound, higher stamp duties and a 2 per cent surcharge on purchases," said Tom Bill, head of UK residential research at Knight Frank.

"The question is whether these costs will cut pent-up demand in prime London and home counties markets after travel restrictions are relaxed."

Local and foreign purchasers are currently paying zero stamp duty tax up to the first £500,000 of the property value, provided the transaction is fully completed by the end of March this year.

From April 1, a foreign buyer faces a steep rise in property tax. An apartment costing £500,000 will then incur duties of £25,000. A two-bedroom London apartment of £750,000 will incur stamp duty of £42,500, while a £1.5 million property will face stamp duty of £123,750.