Brexit Property Bargains Are Only for the Rich
(Bloomberg Opinion) -- There's a price for everything, even in Brexit Britain. London's absurd property bubble is a case in point: Even with the threat of foreign investment drying up, financial-sector jobs heading abroad and emerging-market cash under scrutiny, rich bargain hunters are stirring once more. It's less a bullish appraisal of Brexit, more a dive for pearls among the wreckage.
Price falls in London are starting to slow, especially in the top bracket. Between June and July prime property in the center saw no price change at all, according to Knight Frank, while year-to-date values dropped between 1 and 2 percent. Upper-crust followers of the Coutts London Prime Property Index will be glad to know that values for super-prime residences, above the 10-million-pound ($13 million) mark, grew 2.2 percent in the second quarter from a year earlier. More prospective buyers are looking, and more deals are being done.
This hardly offsets the price destruction that’s already happened. Central London's best districts have fallen almost 18 percent from their 2014 peak. The shares in posh realtor Foxtons Group Plc sum up the mood: they’re up 15 percent in one month, but down 75 percent in three years.
Why would anyone take the plunge? Calling a bottom to London property seems an exercise bordering on the mad, given the not impossible risk that in 2019 the U.K. might crash out of the European Union and install Labour Party leader and proud socialist Jeremy Corbyn as prime minister.
Still, the type of buyer able to swoop at the moment tells you something about who isn't feeling the pinch of Brexit uncertainty – Chinese money may be cooling after a domestic crackdown on wealth abroad, but Japanese investors' appetite for European real estate is rising. The broader point is that sterling's weakness offers an extra discount to foreign buyers, who still account for a fairly big chunk of London money, according to Hamptons International. This softens the pain of higher transaction costs and taxes.
Top-end asset owners have a different calculus. Being able to dictate the price on a trophy asset in a Western capital offers its own advantages, especially to wealthy investors who prioritize lifestyle and personal security over things like jobs. Facebook, Apple and Google are throwing up huge temples to technology in London, and their workers will need a place to stay – that generates tenants. If the dream is to send one's child to a posh U.K. private school, a flat helps.
The ability to trade up or take advantage of a Brexit discount doesn’t look like it’s trickling down. Many Brits still can't afford to scrape together a deposit or get on the property ladder. For those tied to a mortgage, the Bank of England's recent quarter-point rate hike is another burden – about a quarter of homeowners in Britain are on variable interest rates. Knight Frank estimates that someone with a 250,000 pound mortgage pegged at 1.3 percent above the benchmark would have to pay around 625 pounds more annually.
The London property bust has eased at the top of the market, but its leveling effect has yet to make an appearance.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering finance and markets. He previously worked at Reuters and Forbes.
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