I was thinking about writing a review of 2017 but realised it would be rather short as it can be summed up like this:

Quarters 1-2 – transaction numbers remained very low while political ineptitude uncertainty continued.
Quarters 3-4 – there was a noticeable shift in sentiment despite continued political uncertainty. According to Property Industry Eye, “Transactions were up by 4% in the third quarter of this year compared with the same period a year ago. 

The biggest rally was in prime central London where sales volumes were up by 25%.”

Now I must point out that despite the huge increase in transaction numbers since September, they were still lower than one would expect. Nevertheless, it shows that buyers are becoming more confident while sellers’ expectations are also now more in line with buyers’.

Indeed, nearly all the private client solicitors, private bankers and tax advisers that I speak to have been rushed off their feet. After all, there are vast piles of cash that have been sitting idle in bank accounts earning nothing for a couple of years and people now seem to want to take action.

Meanwhile, despite all the negative press and commentary, markets have been moving steadily higher and the world has kept spinning. Of course, the moves higher are seen as bad news and have even been described as “the most hated bull market ever”.

 According to the Evening Standard:

“Champagne corks should in theory be popping but, strangely, a huge amount of investor’s funds is sitting idly on the sidelines in cash.

Some estimates put the figure at between $60 trillion and $70 trillion, a sign that fund bosses are nervous about stock markets”.

I know I bleat on about how press coverage, which is predominantly negative, shapes opinions and misleads people. But, if you were an alien who landed on our planet and your only source of information was the news, then you would assume that all the human race does is fight wars, murder each other, renege on our debts and occasionally appear on reality TV shows.

Now, I am not suggesting that the world is perfect but actually things are on the whole much better than they were even just 30 years ago (pollution, etc. excepted). We are making huge and positive progress:

People are living longer, they are more educated and most importantly of all the number of humans living in extreme poverty has plummeted: since 1990 the number has fallen by 50%, i.e. one billion less people are living in extreme poverty which is an extraordinary and unprecedented reduction in poverty levels. 

Of course, there is still more to do but we are definitely heading in the right direction. Tragically, this progress is woefully under-reported. But as an article on Singularity Hub points out: 

“The media is partially to blame for adding fuel to the fire. In fact, studies show that bad news outweighs good news by as much as seventeen negative news reports for every one good one. News agencies know very well that we will pay more attention to bad news and hence, “If it bleeds, it leads.” 

Another team of psychologists from McGill revealed that people tend to choose to read articles with negative tones and respond much faster to headlines with negative words. You’re not constantly seeing negative headlines because the world is getting worse, you’re constantly seeing negative headlines because that’s what audiences react to.” 

This affects reporting on every subject and therefore it is unsurprising that it affects one of the most emotive subjects of all – housing.  Consequently, many of the forecasts for London property this year are still weak with the most optimistic that I have read being prices remaining flat. But most commentators are predicting minor falls of 1-4% in prime central London. 

My own view, as stated last year, is that prices in 2018 and the first half of 2019 will surprise on the upside. Indeed, I expect the market to be much stronger than people anticipate – this is true for global stock markets as well as property markets.

But why am I so positive when Brexit still looms over us and Corbyn continues to be a political force?

Well history has proven that politics actually has very little effect on the UK property market – indeed even in the 1970’s prices went up despite the UK being in a woeful economic mess and regarded as the “sick man of Europe”. 

In my view, the GQ cover featuring Jeremy Corbyn represented “peak Corbyn” while it is becoming increasingly evident that Brexit will be fudged as it won’t suit either the Eurozone or the UK to create a “disaster scenario” or a trade war. 

Of course, that is just my opinion. Time will tell. However, I thought I would list some of the positives which will have a massive effect on the market, but which are given very little coverage and are underplayed in the press.

These include new jobs, the displacement of old industries by new services and how banks and other institutions (especially private equity) will find new ways to inject capital and credit into the market:

 “The 800 new staff represent an addition of more than 50 per cent to Facebook’s British workforce at a time when technology executives have warned that Brexit is limiting their ability to hire highly skilled coders and developers.

Big Silicon Valley companies have set aside these concerns, reshaping London’s property market with plans to hire workers and open new offices in the city. By the end of the year, Amazon’s UK workforce will have increased by roughly a quarter to 24,000 while Google has announced plans to recruit an additional 3,000 people in its London office over the next few years.” (Financial Times)

 Britain maintained its place as one of the top 10 countries in the world for ease of doing business despite worries that political turmoil and the Brexit negotiations could dent the country’s appeal to companies. 

New Zealand, Singapore and Denmark retained their top spots, while South Korea moved ahead of Hong Kong into fourth and the US leapfrogged the UK and Norway to move up to sixth overall. China, the world’s second largest economy, ranked only 78th, while India rose by 30 places to 100th. (The Daily Telegraph) 

 The Bank of China has recently opened its private banking arm in London to help Chinese moving themselves and assets to London 

 The fifth edition of the World Ultra Wealth Report analyses the state of the world’s ultra high net worth (UHNW) population, or those with $30m or more in net worth, and this year revealed global growth of 3.5% to 226,450 individuals and a 1.5% increase of their total combined wealth to $27 trillion. Wealth X Report 2017 

 “In London we have seen that sector’s (Financial sector) decline from more than 40% of the demand in the office market 20 years ago to less than 15% today. Headlines suggest that this is purely a Brexit phenomenon. It isn’t. Fintech and tech are rapidly replacing the banks” Estates Gazette 

 The proportion of prime central London property bought by international buyers increased to 51 percent in the third quarter, rising from 44 percent in the previous quarter… Hamptons said that likely factors for this quarter’s increase are strong global growth coupled with relatively cheap London property due to the exchange rate. (Arab News) 

 The Wall Street Journal reports that Goldman has purchased Los Angelesbased Genesis Capital, which provides short-term loans to investors that buy, renovate and quickly resell distressed, single-family homes… Goldman has been working to build up new revenue streams, as traditional money-makers such as bond trading face challenges. The firm also started an online bank for consumers. (BBC) 

 LendInvest, an online marketplace platform for property lending and investing, was named the most valuable tech company at the prestigious Investor Allstars event… The company looks to disrupt the customer experience of "getting a mortgage" by leveraging technology to make mortgage applications faster and easier. 

 “The NHS is to pilot a new ‘Airbnb-style’ scheme in which home-owners will be paid £1,000 a month to host patients in their spare rooms in a bid to alleviate ‘bed blocking’ in hospitals. The patients will be those newly discharged from hospital, but who lack support in their own communities. The partnership is with start-up company CareRooms.” (Property Industry Eye) 

(My comment - This is what happens in every property cycle - as property becomes more expensive different ways are found to pay for it. Initially houses would have been single family  households, then we saw the rise of sharers, HMO’s, etc. This is just another iteration and part of the new “sharing economy”. Housing units will continue to become smaller as prices increase and technology advances, e.g. instant delivery by drones will reduce the need for storage.)

 “Record numbers of landlords are now building their buy-to-let portfolios using cash, Countrywide claims. Analysis by the agent shows that over the past 12 months, 65% of all homes bought by a landlord were paid for in cash, surpassing the previous high of 60% set in 2011. Landlords buying  with cash bought £21bn worth of homes which is £0.2bn more than in 2016 and a 32% increase on 2007 when they spent £15.9bn.” Property Industry Eye 

And if you think that Brexit will mean the downfall of London property prices then you are ignoring over 400 years of property history that has proven conclusively that politics and even business cycles have little effect on prices. In fact, there is virtually no correlation between the stock markets and prime London property. 

Indeed, high property prices are nothing new. People have been protesting about exorbitant land prices since the 1600’s (and earlier when most people weren’t even allowed to own land, e.g. The Peasant’s Revolt in 1381), but nothing has fundamentally changed in how land value is captured. It is just different people capturing it now – note how Blackstone and Cerberus amongst others are becoming the new “land lords”.

Wages never have and never will keep up with land prices – a point made by numerous economists including, most recently, Thomas Picketty who showed that returns on capital outstrip growth and wages. 

This will only change if there is a significant change to the property system in this country, which seems unlikely as several prominent politicians from both parties have petitioned for this, including Winston Churchill, with no success. 

lease note, that I am purposefully not taking a moral view on any of this. All I am trying to do is to show you how property prices in the UK work to help you take advantage of the property market and protect you from the misinformation printed in the press and elsewhere.

But, if you are convinced that Brexit is the end of London, I leave you with the words of Ambassador Liu Xiaoming at the Opening Ceremony of the Bank of China Private Banking Service Centre in London on 14th November 2017: 

“The outcomes have been fruitful.

• Last year, China's Ministry of Finance issued in London three billion RMB sovereign bond. This was the first of its kind ever issued outside China.

• Also in London, the first Green Covered Bond of the Bank of China was successfully listed. The response from investors across the UK and the world was overwhelming. 

Looking ahead, China-UK financial cooperation is going deeper, more diversified and customized. 

By opening the Private Banking Service Centre, the Bank of China has caught the latest trend and will give new impetus to China-UK financial cooperation.” 

There is no shortage of money in the world, but it is not distributed equally. There are a few cities that will continue to benefit from disproportionate investment and London will be one of those, if not the largest beneficiary. 

You simply have to decide whether you want to benefit from these price rises or miss out. Yes, there will be another monumental crash because the property cycle demands it, but that is years away and prices will have doubled between now and then. 

I believe this so much, I bought another property in London last year to put my money where my mouth is. However, you must be selective. Prime London property is not a bullet-proof investment and it is essential that you a buy a property that outperforms. 

Again, this is a statistic that I use time and again, but I make no apologies for ramming the point home: 

Research from Savills showed that between 2005 and 2013 the top 10% of properties in prime central London returned 190% while the bottom 10% only returned 63%. In real terms that is the difference between investing £2m and having a property worth £5.8m or £3.3m. Which would you prefer? 

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