The number of super prime rental properties on the market in the posh areas surrounding London has jumped 56% year-to-year amid uncertainty caused by stamp duty and the Brexit vote.
According to Knight Frank, the real estate consultancy who undertook the analysis, the increase in the region, known as the Home Counties, is the result of skepticism over the short-term prospects for price growth in the sales market, which has led more would-be sellers to rent out their properties rather than put them up for sale.
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At the same time, the number of viewings conducted by Knight Frank offices in the Home Counties’ super prime market, where the average monthly asking rent is £22,975 (US$28,929), has also more than doubled year-over-year. Meanwhile, the number of leases signed in 2016 is higher than in both 2015 and 2014.
The primary reason that both would-be sellers and renters are turning to the rental market is that the government increased stamp duty, a sales tax, on more expensive properties at the end of 2014.
The higher rates mean that the tax for a £6 million property, for example, jumped from £420,000 to £633,750, dampening demand at the top end of the market, especially in prime central London.
The Brexit has further weighed on uncertainty, and sellers are worried that they won’t get the price they want for the property. Plus, there’s concern over the higher taxes they’ll have to pay if they purchase a new property.
Potential buyers, meanwhile, either don’t want to pay these higher taxes at all or are waiting to see if prices fall further against an uncertain backdrop.
"When you consider that the stamp duty on the purchase of a £10 million property in the Home Counties is £1.1 million, rising to £1.4 million if it is a second home or additional residence, that’s equivalent to more than three years’ rent," said Jemma Scott, a partner at Knight Frank.
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The recent increase in stock levels has also resulted in greater negotiations on the part of tenants. In some cases this has led landlords to be flexible in terms of rents.
"This flexibility can make renting look like an increasingly attractive option, although best-in-class properties, which are in a ‘ready-to-move-in’ condition with the latest fixtures and fittings are holding their value," Ms. Scott said.
The super prime rental market in the Home Counties is concentrated on a relatively small number of areas, primarily in Ascot (home to the eponymous horse races), Virginia Water, Cobham and Esher, which are all easily commutable to London and where many wealthy bankers live.
According to Knight Frank, there is a strong correlation between the market and proximity to international schools such as ACS Egham, ACS Cobham and TASIS, the American school, with education a big driver at the top end of the market.
Since 2014, international tenants have accounted for 81% of all super prime deals completed by Knight Frank across the Home Counties, although that this is a small sub-sector of the market as a whole.
U.S. renters have been the most active nationality over that time, accounting for 36% of all super prime tenancies agreed, followed by tenants from the U.K.
The exact number of rental properties and leases signed were not made immediately available by Knight Frank.