Eccord: Unraveling 5 Key Trends Amidst Cash-Rich Buyers and Aggressive Tactics
Buying agent and LPF Founding Member Jo Eccles, runs through five notable themes in the Prime Central London market this summer, including the dominance of cash-rich buyers, the increasing need for diplomacy, and the return of corporate tenants….
“We have seen several instances recently where overly-aggressive tactics and tone have been deployed by a seller’s estate agent or lawyer, which has nearly derailed a transaction close to exchange unnecessarily.”
1. Prime purchases dominated by cash rich buyers
Prime central London's real estate market is currently witnessing a prevalence of cash-rich buyers, with 71% of transactions between January and May this year being conducted entirely in cash. This marks a notable increase from the 60% recorded during the same period last year. There is nearly an equal divide between buyers opting for mortgages and those making all-cash purchases.
Cash buyers are highly favoured by sellers due to their ability to act swiftly, a significant advantage in the current market characterised by prolonged transaction timescales and cautious valuations. However, sellers are also recognizing the value of mortgaged buyers and the strong commitment they bring to the table. The mortgage route entails a more rigorous process, including providing extensive documentation, navigating a lengthier approval process, and accommodating higher interest rates. Consequently, the success rates from offer acceptance to exchange are notably high for these buyers.
The purchase process is taking much longer than usual – we have seen the average time to mortgage offer increase from 4 to 5 weeks, to 8 weeks this year. We are therefore advising mortgaged buyers to be organised from the outset, with tax structuring conversations concluded and a mortgage agreed in principle if possible. Goodwill and swift progress at the start of a transaction is vital if extra time is needed further down the line.
2. Flats in High Demand as Buyers Seek Spacious Living
The demand for flats in the PCL market is soaring, driven by discerning buyers in pursuit of large lateral living spaces. Notably, apartments accounted for a substantial 44% of transactions valued at £5 million and above this year, showcasing a considerable surge from the 28% recorded in 2021.
There are positive signs that the gap between buyer and seller price expectations is beginning to close and, whilst both sides remain highly price sensitive, there is a growing willingness to find common ground to enable transactions to proceed.
The Bank of Mum and Dad makes up a proportion of activity, typically spending £1 million to £5 million to set their adult children up in homes and at the same time reduce future inheritance tax liabilities. Demand at the higher price levels is coming from predominantly international buyers.
3. Aggressive tactics pose threat to transactions
In the current market, where sentiment remains delicate, effective communication and diplomacy play pivotal roles for both buyers and sellers throughout the transaction process. Jo states:
We have seen several instances recently where overly-aggressive tactics and tone have been deployed by a seller’s estate agent or lawyer, which has nearly derailed a transaction close to exchange unnecessarily.
Instances of overly-aggressive tactics and communication tones by seller's estate agents or lawyers have been observed recently, almost causing disruptions close to the exchange stage. Maintaining a tone of respect and understanding in all communication is essential for fostering a positive atmosphere and achieving successful outcomes.
With average transaction times taking much longer, the importance of transparency, good manners and an ability to work constructively between all parties cannot be underestimated.
4. Landlords test the sales market but return to rentals
With rising mortgage costs putting pressure on landlords, many are choosing to test the sales market when their tenancies end. However, a significant number of these landlords find it challenging to achieve their desired sale prices, particularly for apartments valued between £1 million and £5 million which have underperformed the family house market.
The discretionary nature of sellers in PCL has played a significant role in the market's resilience throughout the year. Many sellers, rather than accepting lower prices, prefer to withdraw from selling and explore the rental market as an alternative.
This is a good example of the discretionary nature of many sellers and one of the primary reasons that prices in prime central London have shown such resilience since the start of this year. If sellers can’t achieve the price they want, many are choosing to simply withdraw and turn to the strong rental market, rather than sell at a loss. Their ability to hold on may well change over time, but at the moment many are in a position to do so.
“If sellers can’t achieve the price they want, many are choosing to simply withdraw and turn to the strong rental market, rather than sell at a loss”
In the current market environment, new investment purchases purely for buy-to-let purposes are scarce, as returns have fallen short compared to other investment assets offering higher yields. Nevertheless, some clients continue to invest with a dual purpose, either intending to reside in the property themselves in the future or securing it as a long-term investment for their children.
5. Prime London’s appeal remains strong with corporate relocators
Despite the challenges posed by Brexit and the pandemic, London's corporate relocation market is showing renewed activity. Jo explains:
On behalf of our landlord clients, almost every property our property management team have let within the last six weeks has been acquired by a high-quality corporate tenant, the majority coming from the US and working in senior roles within tech, media and finance.
For our acquisition team acting for tenants, just over half of the way through the year, we have already doubled the volume of relocation work we undertook last year on behalf of corporate clients.
London's global reputation as a safe haven with exceptional schools, robust financial and legal systems, and its culture, remains a powerful draw for corporate relocators. Moreover, international buyers are increasingly exploring the market with intentions to make purchases in the latter half of the year or early 2024.
Schools and lifestyle continue to be the primary draws, and there are several notable retail, restaurant and hotel launches in the imminent pipeline which highlight the substantial investment into prime locations. Safety is also a factor; we were contacted by an American couple who, due to major concerns about gun crime in the US, recently acquired a significant property in London with a plan to relocate here.
While each global location merits careful consideration, London's enduring appeal is evident. When comparing the costs associated with buying, owning, and selling property over a ten-year period, London ranks competitively among other major global cities.
THOUGHTS FROM THE LUXURY PROPERTY FORUM
The current landscape of the PCL market is undoubtedly influenced by a multitude of factors, ranging from the presence of cash-rich buyers to the use of aggressive tactics that pose threats to transactions.
The fact that 71% of PCL transactions were purchased entirely with cash between January and May demonstrates the appeal of London's luxury property market to HNWIs. This influx of cash buyers has allowed transactions to proceed more swiftly, a crucial advantage given the prolonged timeframes in the current market.
It is also interesting to note the rising demand for flats, driven by buyers seeking large lateral living spaces and enhanced security and service in new builds. This trend indicates a shift in preferences towards luxury apartments, particularly from international buyers seeking high-end living experiences in London.
The impact of these trends on luxury property in PCL cannot be underestimated. As the market continues to evolve, it is imperative for stakeholders in the industry to stay attuned to these dynamics and adapt their strategies accordingly. For luxury property investors, understanding the shifting demands and preferences of buyers is vital for identifying promising investment opportunities. For sellers, recognizing the importance of discretion, diplomacy, and transparent communication will contribute to smoother and more successful transactions.
“In light of these trends hi-lighted by Eccord, properties in Prime Central London continue to demonstrate their allure and investment potential. The city’s reputation as a global destination of choice remains strong, offering a stable environment with a diverse range of offerings for UNHWIs, HNWIs, and corporate clientele alike. Although, the current economic climate has had an impact on the property market and indeed buyer behaviour, as we move into the second half of this year and beyond, I foresee London’s luxury property market continuing to thrive. Jo’s point with regard to the promotion of effective communication and diplomacy is extremely important. Whilst buyers currently have increasingly significant power, buyers and sellers must work together throughout the transaction process. London will no doubt continue to be one of the most sought-after markets for prime property in the world and that is not going to change any time soon. ”