February 12, 2016
12:21 pm
The
impact of ‘buy to leave’ on prime London’s housing market
Graham Norwood
Fears
are growing about the number of homes being bought by investors and
left empty — but what can be done to stop it?
Should we be morally
outraged by the phenomenon called “buy to leave” or should we
dismiss it as a tiny if inevitable consequence of a resilient housing
market?
Politicians and
estate agents use the term for properties bought as assets,
intentionally and permanently left unoccupied until they appreciate
and are sold at some later date.
With prime London
housing prices rising 73 per cent from March 2009 to November 2014,
according to Knight Frank, the existence of buy to leave is perhaps
unsurprising.
Yet while the
capital’s Evening Standard newspaper claims buy to leave is so
prolific it has created “ghost towns of the super-rich”, no one
knows for sure how big the problem is, and in the absence of any
central database the authorities resort to educated guesswork.
Kensington and
Chelsea’s Conservative council, for example, has used 2011 Census
data to find 9,169 flats and houses classified as vacant — 10.5 per
cent of the borough’s total housing stock. The same authority’s
2012 council tax returns show 10,564 empty homes, which is 12.1 per
cent of the stock. Some “empties” may be second homes of people
living chiefly out of London or out of the UK; some, however, will be
intentionally vacant assets.
Labour-run
Islington, a north London borough, has adopted a Supplementary
Planning Document requiring all new homes built within its boundaries
to be regularly occupied in an attempt to prevent buy to leave.
“New homes have
to, at the very least, be lived in. I think that’s a pretty
reasonable thing to ask,” says James Murray, the council’s
housing spokesman.
One byproduct of
this debate is the agreement between political opponents that buy to
leave is in some way damaging. Conservative Zac Goldsmith and
Labour’s Sadiq Khan — the two leading candidates in May’s
election for Mayor of London — have both called for the curbing of
buy to leave, with Khan specifying that he would use planning powers
to restrict it.
Many property
industry players appear to agree that it has had a detrimental
effect.
“Buy to leave is
endemic in prime central London and the new-build sector. [It is] a
grave issue in a city where many people are looking for somewhere to
live,” says Guy Meacock of Prime Purchase, the buying arm of
Savills.
“The more
international an area, the more common it is. There’s an arc from
Knightsbridge through Belgravia, Mayfair and up as far as St John’s
Wood and Hampstead where this has been especially popular,” says
Roarie Scarisbrick of Property Vision, a buying agency.
“One Hyde Park
must be the most high profile. It’s only 30 per cent occupied at
any one time and some of the apartments have never been occupied,”
says Mark Parkinson of Middleton Advisors, another buying agency.
The temptation to
leave properties empty is enhanced not only by stubbornly low
interest rates on traditional savings and investments, but also by
relatively poor rental returns for those letting out units with high
capital values. Knight Frank claims that gross rental yields in prime
central London fell to 2.93 per cent in the second half of 2015, with
reduced demand for units from the financial services sector, a key
customer. In these circumstances, some investors rely on long-term
capital appreciation without the hassle of letting out a property.
The practical effect
of buy to leave is not restricted to the night-time phenomenon of
blocks of flats with few lights on, however. “I was struck by how
shabby Knightsbridge is looking with shops closing down. Now at night
it’s a pretty dull place,” says Mark Parkinson.
Buy-to-leave
purchasers prefer new-build units in managed blocks but for
owner-occupiers in the same buildings, services can be impaired if
most properties are empty. “It can really demotivate porters and
other service providers if they’re sitting in what is essentially a
deserted building all day,” says Jo Eccles of buying company
Sourcing Property.
Not every part of
the property industry is against buy to leave, however.
I was struck by how
shabby Knightsbridge is looking with shops closing down. At night
it’s a pretty dull place
In the local
consultation surrounding Islington’s anti-buy to leave planning
policy — which insisted any new-build unit should not be left empty
for more than three months — estate agency Savills registered its
concerns “on behalf of a client”.
It said that a
consequence of the new rule might be reduced contributions by
developers towards more affordable housing. “Our key concerns
centred around the ability of investors to secure development finance
and for buyers to secure mortgages with such onerous obligations
imposed (that is, the three-month vacancy measure),” a Savills
spokesperson said. According to the estate agency, buy to leave is a
sideshow to the main story: the lack of affordable housing.
Meanwhile, last
summer the Canary Wharf Group, embarking on 3,200 new homes plus
offices and community facilities in one of London’s two main
financial centres, marketed one 345-unit block to “UK-based buyers
first”. The group wanted to counter any criticism of allegedly
excessive overseas ownership and to counter any portrayal of the
scheme as having empty flats.
Those anticipating
that buy to leave may have been stopped dead by prime central
London’s stark housing slowdown after the late-2014 introduction of
higher stamp duty for properties above £937,500 appear to have been
proved wrong.
In the year to
December 2015 prices in Knightsbridge fell 6.1 per cent, according to
Knight Frank. In South Kensington they fell 3.7 per cent and in
Chelsea 2.7 per cent.
Yet buy-to-leave
purchasers appear more concerned by plummeting oil prices and falling
Chinese growth, according to those who help them find London
investment properties.
“Investors want a
safe haven and real estate in London falls into that category,”
says Caspar Harvard-Walls of buying consultancy Black Brick.
As if to prove the
point, Sam McArdle, of The Buying Solution, says he has just assisted
a Bahraini purchase a £2m home in Chelsea. The client will not be
using it, as he prefers hotels during visits to London. “He’s
merely seeking market stability — unlike in his home region,”
says McArdle.
Is that an outrage
given London’s housing shortage, or a logical investment? Perhaps
it is both.
Illustration by
Daniel Long
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