Brexit, London Property & Catastrophization

Stats, Facts & Points of Interest

- Sanofi and Henkel issued bonds worth €1.5bn at a negative yield of - 0.05%, a first for private companies. (Moneyweek)

- Wells Fargo has agreed the purchase of an office for its London HQ – c. £300m in one of the largest deals since the Referendum (Estates Gazette)

- The government has injected £1bn into the project to develop the area around Birmingham’s HS2 Curzon Street station.

- Ralph Lauren has agreed to almost double its rent in New Bond Street after a review setting a new retail record. This beats the old record for retail rent by 11.5%

- The number of homes started in London fell 58% in the first 6 month of the year compared with the second half of last year. (Estates Gazette)

- The number of lots sold in July auctions was down 13.3 per cent from a year ago, partly due to vendors holding back with 8.7 per cent fewer lots made available for sale… Despite the fall, that was still the third-highest amount raised in July during the past 10 years. (EIG)

-Transactions in London were down 46% year on year for May to 5,111. They were down 33.5% in England as a whole (LandRegistry/ONS)

- Shanghai-based developer Greenland Group will build the tallest residential building in Western Europe. The £800m development will be over 1m sq.ft. and will be known as The Spire London. (China Daily) 

- Since the Referendum properties in PCL have achieved an average of £1784 per square foot, or 3.8 percent less than in the same period a year earlier. (Lonres)

- Transactions fell 42 percent in the 10 weeks after the vote and new instructions dropped 25 percent. (Lonres)

- Starts on new builds in central London are down 65% from the final quarter of 2015 to the second quarter of 2016, when there were 1,380, while the number of new units applied for slumped to 2,830, 54% below the quarterly average for the past three years. (International Business Times)

- Leeds Building Society will now consider lending to borrowers up to the age 80 instead of 75.


Received wisdom in marketing says that one has to become ever more daring to stand out in the modern world.

We are all bombarded with so many adverts on TV, Radio, Billboards, PopUps, Banner Ads, Junk Mail and Spam emails, that it is harder than ever for businesses to get their message across.

Consequently, newspapers and politicians now think they have to grab our attention with headlines that will shock and soundbites that the half-witted voter will remember.

So the Referendum debate descended into farce: on one side the Remain camp said that the UK would collapse and that an austerity budget would be inevitable, i.e. they would punish all of us for our stupidity if we decided to leave.

On the other side, the Leave campaigners warned of millions of Turkish immigrants swamping our shores in an invasion that would have embarrassed the Saxons, Vikings, Danes and Romans combined. Of course, if we voted out then they would be able to give £350m per week to the NHS.

Amazingly an austerity budget was decided to be a distinctly bad idea by the very people who proposed it and that actually a bit more cheap money for the economy was exactly what was required. Meanwhile, the Brexiteers claimed that they had never promised to give £350m to the NHS despite video evidence to the contrary…

But, hey, all’s fair in love and politics and politicians think that if they are to galvanise voters they need to shock them into action. Hence the catastrophic scenarios that were laid before us and the continued pessimism that dominates press coverage (there are some optimistic voices but they are being drowned out by the “bad news brigade”).

Now I am not saying that the Brexit vote is good or bad. It is far too early to take a view and probably will be for at least a decade. However, there are an extraordinary number of people who seem to be certain about the outcome and who paint an incredibly dim future for London and the UK.

These predominantly focus on the loss of passporting rights, a brain drain and the general eviction of the UK from world trade. This will result in a collapse in the economy, house prices and a return to the 1970’s when the UK was the “sick man of Europe”.

Now, this cannot be ruled out. However, is it the only outcome and is it even a likely outcome? And just because the entire premise of the Referendum was idiotically simplistic – decide whether you want to vote in or out – rather than looking at a range of possibilities, it doesn’t mean that the “split” has to have a binary outcome which is good for one side but bad for the other – why can’t it benefit the whole of Europe?

And we are not as far removed from European opinion as many would have us believe. After all immigration is actually far more of an issue for Germany,  France, Italy, etc. than it is for the UK; a fact that has not been lost on populist politicians in these countries.

Is it not possible that the right of free movement may be restricted to certain types of people, based on skill levels, place of birth, length of time within the EU, etc. to placate the voters? And would this then open the doors for an amicable agreement with the UK?

If we lose the passporting rights will every banker leave London?

Is it possible we might strike more attractive trade deals with countries such as India, China, Singapore, the U.S., etc. than would have been possible in the EU? Would this attract more bankers and commerce to London from demographic powerhouses?

If China wants the RMB to become a reserve currency would London be a more attractive centre than New York or Frankfurt, the homes of the dollar and the Euro?

Will the fact that we will have the lowest corporation tax in Europe by some margin and much friendlier labour laws turn us into the Hong Kong of Europe?

Frankly I don’t have a clue and this is only the tip of the iceberg. But as it is in no-one’s interest to see a trade war and animosity between us and Europe, I find it very hard to believe the worst case scenarios are the likeliest outcome.

But what about the lack of strategy and the animosity between our politicians and their European counterparts?

Various opposition politicians and their acolytes in the press are berating Theresa May and the government for not having a plan and explaining it to us. I don’t know whether they are complete idiots or are just trying to score cheap political points – either way such bleating is unimpressive.

Because laying all your cards on the table at the beginning of a negotiation rarely proves to be a good idea. Indeed positioning everyone for a “hard Brexit” at this early stage means nothing. It is just an opening position in the negotiations.

The same is true when Juncker mouths off about what he is going to do to us. He is just playing bad cop to Merkel’s silent cop. It is likely we will see a lot  more posturing and positioning from both sides over the next 5-6 months before Article 50 is even triggered.

Indeed expecting Teresa May to have developed clear objectives, strategies and tactics at this early stage of her new government is expecting rather a lot. Yes, they will most definitely need to be in place in time for the start of the negotiations, but she has time.

What does this mean for prime London property?

Well, London has yet to descend into purgatory:

“More than 80 investment deals have been agreed on central London buildings since the referendum, according to Stephen Down, head of central London at Savills; in 80 per cent of transactions, the buyers were from overseas. Turnover of City of London buildings in the third quarter is on track to be about 10 per cent below the same period a year earlier” Estates Gazette

Meanwhile, Knight Frank’s Prime Central London Index for August showed that annual price growth fell 1.8%, but viewing numbers and properties under offer are still on the rise. The index showed a 22.1% rise in the number of new buyers since the EU referendum in June versus the same period in 2015.

And there are certainly more transactions taking place across most price brackets including at the very top of the market. We have acquired a number of excellent properties at very favourable prices for our members over the last three months. Indeed, when you also factor in the currency falls for some of them, the savings have been 30+%.

Meanwhile, we have also accepted more new members than normal for this time of year. This doesn’t mean that the market is about to explode upwards, but we are not about to see a repeat of 2008 either and this is the key point.

Eight years ago prices crashed because liquidity evaporated overnight. This was caused by a land price crash which destroyed the value of Mortgage Backed Securities and Credit Default Swaps which in turn severely crippled many of the banks and the financial system.

What we are seeing now is completely different. The majority of the price falls have been due to SDLT increases and the uncertainty caused by other tax changes. This is a good thing as it shows a normally functioning market  responding to increased transaction costs (not that the increased costs are a good thing).

If the market had kept flying higher then I would have been worried about a crash, because it would have mirrored the irrational exuberance we saw in 2006-7/early 2008. Instead the market has corrected and price falls seem worse than they actually are because:

a. The media likes to catastrophize

b. Transaction levels are very low

There are very few people who bought in 2014 who are sellers now. Equally if you bought 15 years ago and are selling now a ten percent drop from the peak, while irritating, is by no means a disaster. Indeed if anyone could time the top and bottom of every market swing they would make Bill Gates look like a pauper.

Ultimately the market is in a period of correction where transactions will stay low not because there is a lack of cash but because there is a lack of certainty. Buyers consequently want a discount and are finally being more selective. Meanwhile most sellers are sanguine about the future and are happy to delay plans to sell or hold out for their price.

Recent examples of this are a couple of houses in Belgravia which are asking for record prices per sq.ft. and have turned down offers within 12% of the guide price. This is hardly indicative of a market under immense duress. 

Indeed there is still the odd insane valuation. I inspected a house last week with an asking price of £20m. When asked what I thought it was worth, I said “£12.5m”.

The agent said “Yes, I think it is worth about £14m”.

“Then why in the name of all that is good would you list it at £20m?”

“Because the seller wants us to” was the rather feeble answer.

which highlights the stress that many agents are under because they rely on transaction volumes and many are struggling for stock. Hence the desperation to take on property at any price even if in the long run it will probably cost them money in wasted man hours, the price of the brochures and a client who is irate because they haven’t sold the house…

Infrastructure, Printing Presses & Sterling

Transactions are happening but they are at a much lower level than normal for this time of year. Nevertheless, the increase in transactions since the referendum is almost certainly due to the collapse in sterling.

As stated in a previous report, dollar buyers (US, Singaporean and HK) are now effectively buying property at 2012 prices. Euro buyers are also getting a substantial fillip in purchasing power.

These people believe that London will continue to be a global super city and that these discounts represent a significant opportunity.

In sterling terms the probability is that prices will be substantially higher in 10 years’ time. There are a number of reasons for this which I have covered in previous reports, but one of the key factors is that we are at the stage of the cycle where we will see a vast amount of infrastructure investment.

This only ever has one effect on land and, therefore, house prices and that is to drive them higher. The most obvious example of this in recent times is Crossrail. If you own a house within ten minutes’ walk of a Crossrail station then you have won the lottery.

The mistake people are making is to underestimate how high this can drive prices. Most think that all the gains from Crossrail have already been priced in but this is wrong. Because once the stations are functioning, more people will move into the area, better shops will follow and prices will continue to surge higher. You can see this pattern by looking at historic infrastructure improvements.

The press and various “action groups” refer to this in a rather derogatory fashion as gentrification. But if we didn’t have gentrification, which is actually the sign of a healthy, growing city, we would all still be living and working within London Wall, i.e. this is not a new phenomenon as the talking heads would have you believe, but something that has been happening for centuries.

And there are huge infrastructure plans afoot from new bridges over the Thames to HS2 to Northern, Bakerloo and Jubilee line extensions on the Underground. There may even be a third runway somewhere near London (although don’t hold your breath…). Indeed George Osborne’s northern powerhouse has been swept aside by Theresa May as being too narrow–minded. We need infrastructure improvements across the UK.

How will this be funded? Either through international investors - as Hinckley Point has proven there is still appetite to invest in the UK. Alternatively the government will turn to their favourite toy, the printing press! As Hammond has just announced: When the facts change so do we! The fact that we have a shocking deficit hasn’t changed but that is by the by – fiscal prudence be damned!

Funding will not be an issue.

Am I too optimistic about what the future holds?

Well, we certainly can’t rule out the possibility of our politicians negotiating a shocking deal. But then we can’t rule out the possibility of them negotiating an excellent resolution either. However, the likeliest scenario is a relatively amicable deal otherwise known as a “FUDGE” despite what both sides are currently proclaiming – remember they have to be seen to be playing hardball.

But whatever happens we will see significant infrastructure investment which will feed into land prices. In sterling terms prices will almost certainly be considerably higher in 10 years’ time if the property cycle holds (with the exception of certain types of property).

There is over 400 years of evidence to support this and the cycle has only failed twice – during the two World Wars - which gives you an idea of what it takes to disrupt the cycle.

However, quite what happens to sterling depends on who has their finger on the printing press and how trigger happy they need to be.

So don’t panic! This is true whether you are a buyer or a seller. Unless of course you are selling to us in which case I have it on good authority that the Four Horsemen of the Apocalypse are on their way and they are not in a good mood.

Yes, there will be another property market crash because the cycle demands it, but it is several years away and there will be considerable price rises between  now and then. These won’t happen in a straight line because they never do, but I believe that now represents an excellent buying opportunity.

So the strategy remains the same – Buy best in breed properties at fair value or less. If you do this you are guaranteed to outperform whether you acquire a wonderful home or an investment.

As the current market has highlighted, there will always be demand for the best properties while the average and poor properties will gather dust unless priced at substantial discounts.

Of course, if the discount is big enough then even a poor property can be a good investment, but you need to ensure that it is a significant discount to compensate for the additional risk.

So if you believe that London will continue to be a global super city, then now is the time to act. If you would like to discover how we have helped our members acquire their ideal homes and investments for prices that they didn’t think possible and the guarantees we offer, then please call 0800 389 4280 (+448003894280 from outside the UK) or email me at

Best Regards,