International buyers are back but it’s not business as usual
Overseas buyers have been more prevalent in London since UK travel rules were relaxed but the full impact of their return on the property market will take time.
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Since we reported last month that overseas buyers were gearing up for their return to the London property market, the number of international arrivals in the capital has picked up.
Some 2.57 million passengers came through Heathrow airport in September, more than double the number 12 months ago. That figure is bound to rise again in October, the month many of the travel changes came into effect.
However, it is unlikely to mean ‘business as usual’ for the London property market just yet.
In simple terms, not all international ‘buyers’ are yet ready to buy.
For some, purchasing a property currently comes second to visiting London’s restaurants, shops and cultural venues.
That’s understandable. October is a time of the year when needs-driven international purchases are more prevalent.
Covid concerns
Furthermore, a degree of Covid uncertainty persists. While overseas buyers are glad to be back in the capital, some would rather wait to see how the pandemic pans out, pushing decisions into 2022.
It’s also worth remembering that not all global economies are opening up at the same pace.
Contained numbers of hospitalisations in the UK means further lockdown restrictions are off the table for now but that is not the case in all parts of the world. A buyer may find a property during a trip to London but priorities can quickly change.
The result is that overseas activity in the property market has been erratic in recent weeks. Barring any unforeseen developments, next spring could signal the return to something approaching normality.
So, where are overseas buyers currently more active?
In addition to needs-driven buyers, smart money is unsurprisingly taking advantage of the current hiatus. There are opportunistic international buyers who can see that demand will recover meaningfully next spring and are acting or doing the necessary groundwork now. We have already explored how the ‘escape to the country’ trend has left some central London bargains in its wake.
Something similar is happening in the mortgage market. More people are agreeing fixed-rate deals, fairly safe in the knowledge that a base rate rise will see mortgage rates follow suit. An increase has already been priced in by swap markets.
It is certainly a good time for opportunism, as we have seen in the super-prime lettings market. Prospective tenants are now agreeing pre-let deals to secure the right property, which is a new trend.
For buyers, one obstacle is ambitious asking prices. In some cases, vendors believed the re-opening of international travel meant demand would quickly return to pre-pandemic levels and set prices accordingly.
There is already evidence of prime properties transferring from the sales to the lettings market in south-west London because sellers have been unable to achieve their asking price.
New-build benefits
Meanwhile, prime new-build developments are benefitting from the return of international buyers to a greater extent than the second-hand market.
In many cases, these are re-activated transactions put on hold during the pandemic. There is also an obvious appeal for properties that are ready to move into and require no work, particularly given how supply-chain disruptions have affected the building industry.
“The pandemic has not altered London’s status as a global safe haven,” said Rupert des Forges, head of prime central London developments at Knight Frank. “West End developers have received over £250 million of offers in the W1 postcode alone in the last month.”
Houses vs flats
It’s therefore safe to assume the balance between house and flat sales will start to tip back in favour of apartments in the coming months. As we discussed earlier this month, the London pied à terre is already back on the radar of buyers.
As with many other areas of the economy, we are on the path to normality but not quite there yet.