Spotlight: East of City

East of City
 
Outlook

31 October 2016, words by Frances Clacy

What's in store for the East of City property markets?

 

Sales Market

Since mid 2014, the prime housing markets of London have faced a number of difficulties. Substantial changes to stamp duty, including the introduction of a 3% surcharge for ‘additional homes’, as well as economic and political uncertainty, have shaped the market over this period.

The relative value offered by the prime markets of Canary Wharf and Wapping, in comparison to other prime London locations, means the stamp duty impact has been less severe. However, the surcharge on additional properties presents a further burden for investment buyers who have traditionally been a key buyer group in these markets. This is likely to mean the market remains price sensitive in the short to medium term as the additional costs are absorbed into the market.

The referendum in June, which resulted in the UK’s vote to leave the EU, is expected to cause added caution in the prime residential markets of London, in the short term. The weakness of sterling, however, will present an opportunity for international buyers.

Whether or not the decision to leave the EU will affect London’s standing as a world city and global financial centre is currently the most significant economic factor for the capital. There are still many questions surrounding the extent to which banks will relocate to be within the EU.

This is dependent on the Government’s ability to protect the passporting rights needed for The City and Canary Wharf to provide a full range of banking and financial services across the EU and, if so, how quickly they can do this. The Government will be highly motivated to protect the capital’s financial districts in its negotiations and there are proposed EU regulations, due to come into force in January 2018, which would uphold London’s position, provided it offers an equivalent regulatory environment to the EU.

Overall, we believe London will hold on to its position as the main European global financial centre without substantial loss of jobs or the need to relocate a significant amount of banking activities. It remains clear there is no other European city which has the infrastructure to match London as a financial centre.

Rental Market

As a result of the uncertainty regarding London’s economic outlook, the strength of demand for rental property in the capital will be difficult to determine in the short and medium term.

Caution in the sales market is expected to create additional demand in the prime rental markets, particularly in the short term, as those who aren’t willing to commit to a purchase look to renting instead.

However, there may also be an increase in the number of accidental landlords bringing more stock to the market. In this case, landlords will need to remain competitive on asking rents, flexible on their terms and ensure that properties are presented in a good condition so that they continue to attract tenants.

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