If the rich turn to renting how might that affect the sales market

Monday, August 24, 2015 by Ed Mead

If it floats, flies or fornicates you should rent it. For as long as I can remember this phrase has been used as a throwaway line by [often I suspect pretending to be] rich people looking to create an impression. It is increasingly looking as if you could add fortress. Months of political uncertainty, which included barmy and swingeing new Stamp Duty rates, followed by an “emergency” budget, followed by ongoing financial uncertainty in Global markets – not least a potentially cataclysmic devaluation of China’s currency have meant that prime central London has seen a staggering fall off in transactions from which it may or may not recover in the short term. Similar action in Scotland has seen transactions, and SDLT take, reduce by 90% so the portents are there.

A corollary of this is wealthy people are renting rather than buying. Why buy if you’re rich when the Stamp Duty alone on a £5m house would rent you a passable PCL property for five years. This is exacerbated by the fact that the City is employing again meaning that for the first time in years demand is outstripping supply. It takes guts to be a top end investor but as in 2009 those looking to sell very expensive property can’t sell whilst buyers digest [have nightmares about] empirical SDLT amounts that make you weep. These people are therefore renting their properties out and have seen rents rise 5% in Q2.  A c. 2.5% gross yield will not have buy to let investors stampeding to PCL, especially when smaller units have seen a small oversupply and a 1% fall in rent.

Long term, if the rich decide renting IS their preferred medium I wouldn’t want to be the person presenting the new SDLT take figures to George Osborne this time next year.

 

This text was the basis for a CityAM column last week