Blog Post No. 196
Real Estate Freeze, EV Charging Demand, Wealth Exodus, Airbnb Retreats – 26th Sept Property Bulletin
Investment in London’s real estate market is heading into a deep freeze, with nearly half of its commercial properties showing a decline in value, according to a recent analysis by MSCI Real Assets.
This trend is not limited to London alone, as cities like Washington, D.C., and New York are following suit.
The study, conducted by MSCI Real Assets, examined the average price drops of assets in various global cities and assessed how long they are typically held, shedding light on the impact of loss aversion on market liquidity.
London emerged as the most affected city worldwide, with over 50% of its properties experiencing a decline in value, as reported by Tom Leahy, the Head of Research at MSCI. Hong Kong closely trailed behind London in this regard.
In major U.S. cities, Washington, D.C., had the highest proportion of assets potentially incurring losses, with 30% in the red, followed by New York and San Francisco. Conversely, Boston and Los Angeles appeared to be in a more favorable position, according to the analysis.
The revelation that assets are now worth less than their initial purchase prices carries significant implications for the market, noted Leahy. Studies conducted by behavioral psychologists consistently find that humans are inherently averse to losses. In the context of commercial real estate, this translates to owners being more inclined to sell their profitable assets while holding onto underperforming ones, reluctant to acknowledge losses on their previous investments, even when further depreciation is expected.
This aversion to recognizing losses is contributing to a global freeze in investment markets, according to Leahy’s analysis. Regions with the highest percentage of assets likely to incur losses are witnessing the most significant declines in market liquidity.
As a result, a substantial gap has emerged between the prices at which property owners are willing to sell and what prospective investors are willing to pay. Owners often anchor their sales prices to the initial purchase price of the asset. Notably, the most significant disparity between buyers and sellers is observed in San Francisco, with a nearly 40% gap, while London exhibits a roughly 20% gap.
Leahy cautioned that investors should take into account the persistence of the loss-aversion trend, which could continue to limit market liquidity in the foreseeable future.
Electric vehicle (EV) charging points have now become one of the top ten must-have features for homebuyers, sparking curiosity about whether they add tangible value to a property.
Estate agents are singing the praises of having an electric car charger on your driveway. It not only eliminates the worry of running out of power on your way to work but can also significantly enhance your home’s desirability. Despite Rishi Sunak’s decision to delay the ban on new diesel and petrol vehicles until 2035, estate agents assert that a home charger is a highly sought-after amenity among buyers. Moreover, they predict that the allure of green features in homes will only grow in the future.
This shift in perception is evident in agent Jackson-Stops’ recent inclusion of EV charging points in their list of top-ten must-haves for the first time this summer. Rightmove, a prominent property listing platform, has reported a 40% increase in the number of homes for sale that mention EV chargers compared to the previous year and a staggering 592% surge since 2019.
In Rightmove’s Greener Homes report, Tim Bannister, Director of Property Science, emphasizes that in an increasingly price-sensitive market, homes equipped with green benefits will set themselves apart from the competition. He envisions a time in the not-so-distant future when buyers will prioritize homes with electric charging points and excellent insulation over traditional features like Victorian open fireplaces.
However, the question remains whether an EV charging point translates into a higher property value. The National Association of Property Buyers estimates that these charging points can add between £3,000 and £5,000 to your home’s price tag. Nevertheless, some estate agents have yet to witness a direct correlation between the presence of charging points and increased property values.
Beyond the convenience of having your own charging point, there are additional advantages. James McKemey, Head of Policy and Public Affairs at EV charging company Pod Point, emphasizes the safety and speed benefits of using a dedicated charger over a standard three-pin plug. While a standard domestic socket provides only 13 amps, a typical 32 amp/7kw charger installed by companies like Pod Point is nearly three times faster.
It’s important to note that homeowners residing in listed buildings must secure planning permission before attaching a charging point to the wall. On the other hand, flat owners, renters, and landlords with off-street parking may be eligible for an EV charge point grant, entitling them to a subsidy of £350 or 75% of the installation cost, whichever is lower.
For those with idle charging points, there’s an opportunity to earn some income by renting them out. Some chargers, such as the EVIOS One home charger, offer pin access for lending out your driveway to EV users, allowing you to bill them accurately. Companies like JustPark and Co Charger can also facilitate community EV charging by connecting drivers with available chargers, and you can set your own charging rates.
The exodus of China’s ultra-high net worth individuals signals a trend where outflows from the mainland are poised to surpass the rest of the world. The primary beneficiaries of this wealth migration? Australia, the UAE, and Singapore.
Not too long ago, China was churning out billionaires at an astonishing rate, surpassing any other nation globally in terms of the pace of billionaire creation. Weekly, it seemed like a new billionaire was emerging. However, a map compiled by Visual Capitalist, utilizing data from Henley & Partners’ Private Wealth Migration report, now unveils a different reality: once you achieve success on the mainland, the desire to relocate elsewhere grows.
This year, approximately 13,500 high-net-worth individuals (those possessing over $1 million) are anticipated to depart China, more than double the number for the second-ranked India, expected to lose around 6,500 individuals. This count includes another 1,000 individuals exiting Hong Kong, which ranks sixth in this “bottom 10” list, further emphasizing the trend.
The reasons behind this massive wealth migration have been commented on extensively, particularly in the wake of China’s controversial lockdown policies during the pandemic. However, what makes this revelation noteworthy is the publication of country-by-country forecasts for 2023, presented on a map in a transparent and unequivocal manner.
Several countries on the list have apparent reasons for the exodus. The UK, ranking third with 3,200 expected emigrants, continues to grapple with the repercussions of Brexit. Russia, with 3,000 individuals heading overseas, faces the consequences of the Ukraine war and a web of sanctions and trade restrictions.
So, where are these affluent individuals heading? It appears Australia is a popular choice, with approximately 5,200 high-net-worth individuals expected to relocate there. The United Arab Emirates (UAE) follows closely with an influx of 4,500. Singapore claims third place, with 3,200 individuals opting for the city-state. Visual Capital maintains that Singapore’s appeal lies in its status as the world’s most economically free market.
Coincidentally, the government of Singapore has been implementing measures to attract family offices, although recent headlines have been dominated by a high-profile money laundering case, creating a delicate balance that has also drawn commentary.
In fourth place, the United States is expected to receive 2,100 individuals, followed by Switzerland with an anticipated influx of 1,800. Canada, Greece, France, Portugal, and New Zealand round out the top ten destinations.
Greece stands out as somewhat of an outlier due to its historical economic challenges. However, Visual Capital suggests that Greece’s golden visa scheme, which requires a relatively modest 250,000-euro real estate investment in exchange for a coveted EU passport, might be an enticing factor.
In any case, the world’s millionaires and billionaires are once again on the move. Henley & Partners anticipates a substantial increase, with 122,000 high-net-worth individuals relocating to new countries in 2023 and 128,000 in 2024. This marks a robust recovery from the lows of 12,000 in 2020 and 25,000 during the pandemic.
Exploring the Legality of Renting Out Garden Retreats on Airbnb
As platforms like Airbnb continue to reshape the landscape of property rental, new opportunities emerge for homeowners to generate additional income by renting out various spaces.
While renting out spare rooms or entire homes has become commonplace, a novel avenue gaining attention is renting out garden buildings on Airbnb. However, this trend raises important legal and regulatory questions.
Russell Atkinson, CEO of Crane Garden Buildings, emphasizes the importance of understanding the legal implications before proceeding with renting garden buildings. He advises homeowners to exercise due diligence when assessing the intended use of their garden structures, especially when considering extended residential use. There are garden buildings available in the UK market that comply with building regulations and have legal recognition as suitable accommodations. However, it is equally vital to recognize the existence of structures that do not meet these standards, as failing to distinguish between the two can lead to significant legal complications.
So, is it illegal to rent out your garden retreat on Airbnb? According to Stefan Hohhelner, manager at Your Airhost and an Airbnb property management expert, homeowners are not breaking the law by listing their garden buildings as accommodations as long as they follow legal requirements set by their local council, which can typically be found on the council’s website. It’s essential for homeowners to ensure they have the correct permissions in place before allowing guests to stay in their converted garden buildings.
Meeting specific building regulations is crucial when considering the use of a garden building for accommodation, as highlighted by Russell Atkinson. Garden buildings initially designated for office or recreational purposes usually do not fall under these regulations and do not typically require building permissions. However, if a garden building transitions into a permanent residence, it must adhere to a distinct set of regulations and standards covering aspects such as the foundation, insulation, and sanitation facilities. Renting out garden buildings without meeting these building regulations may lead to legal consequences and potentially costly remediation.
Building Regulations ensure that the quality and safety of a building’s structure are suitable for accommodating people overnight. Planning regulations cover various aspects, including foundations and floor construction, insulation, double glazing, electricity, and drainage. To classify a garden building as “self-contained accommodation,” homeowners may need to apply for a rental license through an online property licensing service provided by their local authority.
What are the penalties for illegally renting out a garden building? Hohhelner warns that homeowners who do not have the correct permissions for converting their garden buildings into accommodations may face actions taken by their local authorities. Depending on the local council, the process can vary, but typically, homeowners found breaking planning permission rules receive an official Enforcement Notice outlining necessary corrective actions. Failing to make the required changes within 21 days of receiving the notice could lead to legal proceedings or fines without a predefined limit.
For homeowners considering renting out their garden buildings while still repaying their mortgages, Anton Osborne, director at independent solicitors Taylor Rose, explains that most owner-occupier mortgages do not permit Airbnb short-term lets. These mortgages are specific in their property usage terms. In such cases, mortgage lenders can request borrowers to rectify any breach of mortgage conditions. Failing to do so may result in repossession, with legal or administrative costs incurred by the lender added to the mortgage. While some homeowners bypass legal issues related to Airbnb rentals, many local authorities lack the resources to review all Airbnb listings for compliance with planning permissions, and mortgage lenders rarely take action against borrowers as long as they continue making repayments.
Marking the one-year anniversary of the noteworthy ‘mini-budget’ unveiled by Liz Truss in September 2022, it’s an opportune moment to examine the transformative effects it has had on the UK housing market.
Kate Eales, Head of Regional Residential Agency at Strutt & Parker, provides valuable insights into the events of the past year and the lessons learned along the way.
Initially, the term ‘mini-budget’ might have implied minor adjustments to the economic landscape, but the reality turned out to be far more significant. It was intended to be a blueprint for economic tweaks aimed at navigating the energy price crisis and rising interest rates. However, the announcement of the largest tax cuts since 1972, despite the Office for Budget Responsibility’s advice to the contrary, triggered a collapse in gilt prices and a historic low for the pound against the dollar. In the housing market, the uncertainty in the financial SWAP markets led to the withdrawal of numerous mortgage products as lenders awaited clarity on future bank rates. Simultaneously, the Bank of England intervened by purchasing government bonds to protect pension funds.
This abrupt turn of events dramatically altered the outlook for the residential sector, which was still riding the wave of post-Covid market excitement.
Although Jeremy Hunt’s appointment as Chancellor resulted in the government rescinding many of the proposed measures from the mini budget, it was too late to fully reverse the course set by Truss.
In the immediate aftermath, determined buyers rushed to finalize property purchases based on existing mortgage offers. Meanwhile, sellers found themselves recalibrating their pricing expectations as buyers grappled with sudden increases in borrowing costs. The buy-to-let market witnessed an accelerated exit of landlords, while overseas buyers capitalized on a weakened pound.
At the start of 2023, predictions abounded that house prices would decline by 10% over the year. What became increasingly apparent was just how rapidly the housing market had shifted in the last quarter of 2022.
Year-on-year growth plummeted from over 10% to 4.8%, marking the first quarter of house price declines since the onset of the Covid pandemic in 2020. By August, house prices had fallen by 2% since the beginning of the year, with an annual drop of 5.3% (as per Nationwide).
Looking ahead, the possibility of a general election next year could introduce a new dynamic to the property market. Over the past four decades, property market behavior has become increasingly influenced by politics during election seasons. However, this time, the market may also respond to changes in interest rates as the election approaches. Falling interest rates could override election-related hesitancy, motivating more buyers and sellers to rejoin the market.
As witnessed over the past year, the housing market thrives when households can reasonably predict their income and expenses. While declining interest rates are generally seen as a positive, potential buyers in the prime market may closely monitor the tax implications of a change in government, particularly the potential introduction of VAT on private education.
In this dynamic landscape, it’s challenging to make concrete predictions. The election could be called as late as January 2025, and as the past 12 months have demonstrated, much can evolve in that time.