The rise and rise of super prime - Boodle Hatfield

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03 Apr 2024

The rise and rise of super prime

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Listening to the news, anyone would be forgiven for thinking that investing in UK property could be risky – or, for many, an impossibility, given prices and the current cost of borrowing money. Indeed, the UK backdrop does not look too promising at first glance due to an accumulation of negative factors.

Stamp duty has more than doubled and we are dealing with high inflation, cost-of-living issues and interest rates not seen in a generation. These factors are underpinned by political uncertainty, with an upcoming general election and the possibility of a Labour government.

Despite all this, the super-prime property market has continued to flourish, especially in London. During Covid, demand for super-prime property outside the capital grew strongly as people sought access to more space and flexible working became the norm. It seems this market has settled, but demand remains strong for the best super- prime properties. According to Knight Frank, the number of sales above £10m in the capital has hit an eight-year high.

So, what is behind the super-prime market’s resilience? The global economy since the pandemic has seen the rich increase their wealth and seemingly increasingly so. Foreign wealth especially is a key factor in driving the current high demand. The resilience of the US dollar against sterling is also making the UK effectively cheaper.

Against the backdrop of a highly uncertain geopolitical climate, the UK remains a relatively safe place to live. Wealthy individuals with a global perspective will look to the UK as a fairly safe place to invest in property where, historically, over an extended period there has been significant growth. In real terms, the flipside of the UK’s perceived financial weakness, and the resulting relative weakness of the pound against the dollar, proves to be a bonus for foreign investors.

A significant number of clients from the US and the Middle East are looking either to live or simply to invest in the UK property market, especially at the super-prime end. This includes many cash purchasers, who are having to work at pace in a competitive market where private offers are being made and properties are going to sealed bids.

Any buyer ought to ensure they have everything ready for a seamless transaction given time is of the essence. For example, anyone wanting to acquire property using a non-UK registered company should ensure the entity is set to them and registered on the Register of Overseas Entities so that there are no delays to the transaction.

Tax considerations

There are potential additional tax considerations beyond the usual ones of stamp duty land tax, inheritance tax, capital gains tax and annual tax on enveloped dwellings if buying in a corporate vehicle. And in the wake of the recent Spring Budget that scrapped non-domestic tax regimes, investors should ensure that they are well advised on their tax position.

There remain very high levels of demand in the super- prime market, but agents say this is being hampered by insufficient supply, which is creating a crunch. The lack of supply of suitable properties is resulting in competition for the best-in-class properties, with many being sold off- market and with lock-out agreements being agreed.

For now, wealthy clients are willing to pay premium prices – even over and above normal market prices – to secure their target trophy properties. However, it is clear that to secure a trophy asset property, the differentiator is ease and speed. Purchasers will need to have things ready and have professional advisers who can support them in being able to act quickly to seal the deal.

This article was first published in Property Week.

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