The number of property transactions are usually low at the beginning of the year and poor or average properties or properties with “baggage” will always take a hit in softer markets. But the figures do not show the qualitative difference between a really good property and a poor one.

For example, we have been considering a new build apartment which was bought for £3.45m about 18 months ago and has had £300,000 spent on it. We think we can buy it for £2.8m. So, if you factor in other costs including Stamp Duty, the owner will have lost c. £1m.

This is despite it being in an excellent building with genuinely stunning views of London. The significant discount to the original price gives us a margin of safety but there is one issue that my team and I deem as too big a risk: the service charge is £18,000 per annum. How many future buyers will fancy paying such a fee for services and facilities they may never use?

We have decided that at this price level the service charge - a good example of “baggage” - will deter too many buyers to make it a good acquisition.

Conversely, a client is selling a fantastic flat we bought for him a decade ago. This spans the entire first floor of a classic stucco-fronted villa in Notting Hill with a large terrace, high ceilings, good views and access to a garden square.

Although is not on the open market yet, a good offer has already been received. I would be very surprised if we did not achieve a higher price when it is openly marketed as there are only a handful of these flats in the area.

And this is the key. If you buy an average or poor property (irrespective of price range or area), you will have to accept discounts to fair value in a weaker market (assuming you have to sell). Meanwhile, in strong markets, the same properties will go up in price but will not command the premiums of the “best in breed”.

Stats are misleading

This is why the stats and information churned out by the estate agents and property portals are far too general to be of much use and can only give you an idea of buyer and seller sentiment.

No-one negotiates with the market as a whole anyway, you negotiate with the owners of the property you wish to buy while taking into account what is happening in the market for that particular type of property. There are a host of other factors and variables to consider when negotiating. None of this shows up in the stats but many are misled by taking them as gospel.

Depending on the prevailing sentiment of the day, a price rise can be seen as further proof that the market has lost all reason and will make the next crash even worse. Or it can be taken as proof that it really is different this time and prices will only go up.

Likewise, a price fall can be seen as a sign that the market is about to crash and it’s time to batten down the hatches. Or it can be viewed as a great opportunity to buy before the next surge in prices. The skill is working out which is which.

The situation is complicated further by the dozens of market segments within the “London Property Market”. This is why London prices as a whole have reportedly increased by 20% while some areas/price ranges have “crashed” by 10%. Again, these figures are totally misleading.

Ask 100 people to describe what they think is the “prime London Property Market” and you may get 100 different answers.

Be wary of new build

My advice is to be very wary of the new build developments. While some of these will prove to be good investments, others will be expensive burdens. Several members have thanked me for talking them out of buying apartments off-plan as prices look to be dropping while the incentives from the developers to buy are growing.

We are currently seeing a natural correction in the traditional market rather than anything more sinister. Firstly, the lending over the last five years has been incredibly responsible and solid. Research by Lloyds showed that over 50% of properties over £1m were bought with cash and a further 25% were bought with mortgages of under 50% LTV between 2011-2013. This is a million miles from the reckless lending of the early 2000s.

Secondly, as interest rates do not seem to be going anywhere soon, there are very few forced sellers - one of the reasons why transactions have been so low. Just as many purchases in prime central London are discretionary, so are many sales.

More price increases to come

But these are passive reasons why the market will not fall into a death spiral. There are various reasons why I think we will see huge price growth in coming years. But please note this growth will not be steady. There will be years of explosive house price increases while other years will see minor falls.

Two of these reasons are:

  • Corporation Tax – Osborne announced that Corporation Tax would be reduced to make it the lowest in the G20. This will attract a vast amount of investment into the UK which will feed into higher land prices.
  • Credit will become more available – The scars of 2008 are still raw which is why everyone is so jittery. It was exactly the same in 1998 after the crash of 1990. Any weakness in the market is seen to herald the “proper crash” as 2008 was regarded in prime central London as a false dawn.

Lending has been incredibly conservative but this will change and the mainstream banks will slowly start to lend more. They will dip their toes in the water, then start paddling and eventually there will be a massive pool party as the mainstream are joined by all and sundry in a frenzy of lending and consequent steep price rises.

This will be the harbinger of the next crash. However, we are years away from this scenario playing out in the traditional prime London market.

We are currently seeing a correction in response to the numerous tax changes announced the last 18 months including:

  • The increase in SDLT
  • The reduction in mortgage interest rate relief for buy-to let investors
  • The additional 3% payable on SDLT for investors and second home buyers
  • The proposed changes to the tax regime for non-domiciles (the details are still awaited).

If the market hadn’t corrected in the face of so many changes and uncertainty, then I would be worried as “irrational exuberance” would have taken over.

London will always be a great city

It’s important to remember that the demand for London property is not just driven by the tax and investment case. The vast majority of non-doms buy property in London because not only is it an easy place to do business but it is also an exciting, vibrant, cultured, politically stable and relatively safe city.

The immense tax breaks they enjoyed were the icing on the cake. Yes, some will flee London because their entire focus is legal tax avoidance but - judging by my conversations with various tax advisers and wealth managers – they are the minority.

Are they happy that they have to pay more tax? Obviously not. But it is not a catastrophe either (unless there is a surprise in the final plans).

The effect of a Brexit may be a concern but, whatever happens, I find it very hard to believe that London and the UK will suddenly change dramatically to become a barren wasteland. Ultimately, the world will keep spinning and London, for now, will continue to be one of the greatest cities in the world.

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