Billionaires prefer renting London property to outright purchase

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Over the last couple of years we have seen a massive increase in the cost of acquiring super prime London property. A general increase in stamp duty has added a significant amount to purchase costs not to mention an additional stamp duty charge for a second home purchase. So, is this why foreign billionaires now seemingly prefer to rent London property rather than purchase?

Rental volumes significantly up

Marcus Dixon, head of research at LonRes, has been waxing lyrical about this changing strategy by rich foreigners looking at properties worth in excess of £10 million in the UK. When you bear in mind stamp duty on a £1.5 million purchase is a mind-boggling 12%, rising to 15% if this is a second home, it is not difficult to see why many are now reconsidering their strategies. It is also worth noting that last year the UK government raised £7.3 billion from stamp duty with a mind-boggling £3.4 billion coming from the London market alone.

This has led to an increase of 28%, over the final three months of 2016, in the number of lettings where the weekly rental charge is in excess of £3000 (or in excess of £156,000 a year). This is a significant increase by any stretch of the imagination and one which could well continue for the foreseeable future.

Letting numbers increasing further up the food chain

Some estate agents across London have also been talking about other super prime properties which are renting for tens of thousands of pounds a week. Indeed there is a seven bedroom house in Mayfair, with its own movie room, swimming pool and underground garage, which is allegedly available for a staggering £40,000 a week!

If, as many expect, letting numbers in some of the more affluent areas of London continue to rise then this will indirectly lead to a more stable London property market in the short term. If potential sellers are able to let their properties for a “reasonable rate” then they may well be willing to wait until markets recover before considering an outright sale. This would take some properties off the market and leave potential buyers to fight over what is left. Against this background we could see future buyers bidding up property prices to beat off the competition – prompting a recovery?

Hope for the London property market

It is a little bizarre to consider there may be hope for the London super prime property market because potential buyers are now looking to rent in the short to medium term. Against this background there are still a number of foreign investors looking to buy London property but they may need to be a little more selective about their targets in the short to medium term.

When the so-called “experts” called the top of the London super prime property market in light of the Brexit vote, how many would have predicted a switch to renting? As we have seen in similar markets over the years, an increase in demand for rental properties will ultimately filter through into the main market and attract those looking at buy to let investment opportunities.

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