Central London has seen a 55% increase in demand from family offices, real estate funds and large investors looking to bulk-buy residential apartments in the second half of 2019, according to London property buying agency Ludgrove.
Fraser Slater, chief executive officer of the agency, says as the prime central London (PCL) market is fundamentally good value, buyers can achieve greater discounts, higher yields and lower transactions costs buying in bulk.
Wholesale buying also ‘enhances portfolio liquidity’ and, after a series of tax cuts, corporate ownership of UK property is relatively tax-efficient.
The research shows prices in PCL have fallen almost 28% in real terms and 55% in dollar terms. The duration of this downturn (60 months) has far surpassed prime London bear markets, with the last five years being the longest downturn in 30 years.
On a yield basis, PCL also offers excellent value compared to risk-free gilts. When the spread between PCL rents and bond yields is positive, the average capital return has been +8% per annum. The current spread is the highest in 19 years.
Slater comments: “Rental values are climbing as supply diminishes in response to Government changes to stamp duty and buy-to-let taxes and this is likely to underpin capital values going forward.”
“Pent-up demand is also strong and we estimate there is at least 1.5 years of demand sitting on the side lines waiting to invest in the market. Brexit and tax raids have been a thorn in the side of PCL for a long time now, although there is a strong possibility stamp duty will be slashed if Boris Johnson is returned as Prime Minister in the next General Election. Brexit may also one day be resolved.”
Separate research from LonRes found that bulk buyers are achieving discounts of 20-30% compared with the average discount on initial asking prices in prime London of -11%. When these bulk discounts are combined with a favourable exchange rate, it is understandable why overseas investors are attracted to London real estate.
“The wholesale purchase of apartment blocks can also substantially improve the Owners’ liquidity position as individual apartments can be sold piecemeal in the future as and when liquidity is required,” Slater adds. “This can be especially appealing to Fund Managers and Serviced Apartment operators.”
He concludes: “Clearly the bargaining power of large investors enables greater discounts and in turn superior rental yields. Ludgrove’s +55% increase in bulk purchase demand in the second half of 2019, suggests this is a trend likely to continue into 2020.”