Auction investors active but cautious
LAST YEAR’S residential market faced a number of challenges, including deepening unaffordability and significant political uncertainty on the back of strained Brexit negotiations and a General Election. This was further compounded by the three per cent stamp duty surcharge introduced in 2016 and tougher lending criteria hitting buy-to-let investors with four or more properties.
By the end of 2017, Allsop’s residential auctions had raised £425 million in total, £7 million lower than 2016, however with a success rate of 79 per cent, one per cent higher than the previous year. September 2017 saw confidence return to our residential auction room, achieving a £71 million result and a success rate of 80 per cent, surpassing all September residential sales figures on record.
With sterling weakening in 2016, resulting from the UK’s decision to leave the EU, demand from overseas investors had risen in the market and competition in the auction room had strengthened accordingly.
The first quarter of 2018 saw investors’ appetite for London lots return, despite concerns that central London residential values had cooled.
Our March residential auction was testament to this; it showed active and enthusiastic trading.
A freehold building in Maida Vale arranged as eight flats, mainly let, sold in excess of its guide price of more than £3.8 million. This was the largest lot sold at this auction. In addition, a 1,730 sq ft flat in Abbots Court, Kensington with a regulated tenant in occupation raised £1.89 million. Residential development opportunities and office blocks with permitted development rights also achieved good prices.
May’s residential auction brought to market a number of attractive buildings in prime locations, including a stunning four-bedroom end-of- terrace house in Chelsea.
With sellers looking for success before the summer slowdown, the catalogue showed a large number and wide variety of lots. More than 300 properties were initially listed, making the sale one of the largest of the year.
Despite investor caution, the auction raised more than £70 million with a success rate of 80 per cent. Lots that were sensitively priced and of high quality were particularly sought-after. These included a number of investments in London and the South East.
An unbroken block of flats in the affluent commuter town of Royal Tunbridge Wells achieved £3.08 million and was the largest lot sold under the hammer that day.
We also saw investments in the regions perform well, with a block of flats comprising ten units in Oadby, Leicester raising £1.54 million at 5.84 per cent.
Amid concerns about the country’s political future, the market is still determined to get business done. While business perseveres, caution within the residential market is on the rise and getting the guide price right is proving especially critical.
Opportunities presented at modest guides have done incredibly well, whereas lots priced optimistically have drawn limited attention.
Overall, we believe 2018 will progress to be a year of correction, as the different sectors of the market and regions of the country come to terms with tougher taxation and mortgage regulation, rising interest rates and political instability.
In the short term, we are likely to see investors continue to adjust their portfolios in response to tougher market conditions this year, rather than leave the sector, particularly those with larger portfolios. So far landlords have mostly shown they want to stay in the game and we have seen good appetite for investment, which we anticipate will continue throughout the year, albeit with some investors seeking yield and greater capital value growth from further afield.
Gary Murphy is a partner at Allsop