Weekly Property Round Up

Written on 17 July 2015

Samuel Fisher rounds up this week's news in the weekly WSM property report.

British billionaires cause a stir in Ibiza

London-based billionaires, the Reuben brothers, have bought 144 hectares of beachfront property in Ibiza for £25 million, demonstrating big confidence in the future of the island.

Having bought property in Ibiza, the Reubens may have plans to develop the land with super luxury tourism and property projects. Some people in Ibiza are already voicing their opposition to alleged plans to develop the land. A petition at Change.org  has collected 4,000 signatures, even though nobody really knows what their plans are.

News of billionaires spending tens of millions of Euros on real estate in Ibiza will not come as a great surprise to Ibiza watchers. In recent years Ibiza has become a destination for the super wealthy looking for a unique experience, for which they prepared to pay large sums of money.

“Many funds and private equity investors are looking for projects to back in Ibiza,” says Patricio Palomar, a director at CBRE. “Returns are much higher than traditional investments like office space, retail and logistics.”

Landlords will be happy to hear rents are rising faster than house prices

Landlords have recently been hit by the Chancellor's new rules on mortgage tax relief, but the surge in rental prices have counteracted the hit, after they rocketed 5.6 per cent in the year to June (the quickest increase since 2009).

That's according to a report by estate agents Reeds Rains and Your Move, which suggested rents are now rising faster than house prices on an annual basis for the first time since July 2013. 

Average monthly rents reached £789 in June, which is 1.4 per cent higher than the £778 recorded in May – despite inflation falling to zero per cent in June.

Surprisingly, London isn't the place where rents are rising most – that prize goes to the East of England, where prices rose 13.8 per cent in the year to June, the 15th month of consecutive rises.

The capital came second, with average rents of £1,241 and a 9.6 per cent annual increase, with the South East coming in third, with substantially less rises of 2.2 per cent to £778.

The fact that rents have risen faster than house prices reinforce the primary source of a buy-to-let investor’s income; rent rather than capital gains – capital growth is a welcome bonus, but not the be-all and end-all of rental property investment. Meanwhile, with mortgage rates so low, there’s rarely been a better time to invest in new property!

Hundreds of flats in Canary Wharf development sell in less than five hours

At a launch event for the 41 storeys of luxuriously appointed living, more than 200 apartments with a combined worth of £140m were snapped up in just four hours: the equivalent of £580,000 of sales every minute and the development won’t even be complete until 2019!

Both homebuyers and investors snapped up the flats, which started at £350,000 for a studio and went up to £1.25m for a three-bedroom apartment. The 67 swankiest flats and penthouses, on the top floors with the best views, will go on sale at a later date.

The value of London’s stock of housing has risen by £563bn – or 61% over the past five years – and developers are rushing to cash in on demand. Some 54,000 homes are planned, or being built, in prime areas of the capital, most of them costing more than £1m.

According to the Land Registry, the average London home now costs £476,000 and accountants KPMG recently said first-time buyers now need to earn £77,000 to get on the housing ladder in London, which is a fairly sizable salary, seeing as the national average salary is £28,000. So who's buying the apartments?

Property expert Henry Pryor said developers were selling properties to overseas buyers in order to finance the completion of the buildings being sold. “To do this, developers will pre-sell some properties, but these can only be bought by people who don’t need a mortgage – a mortgage offer only has a six-month shelf life,” he said.

“The biggest market of cash buyers for these kinds of properties are overseas, so this is where the developers, agents and lawyers go booking hotel lobbies in foreign capitals and selling what is really a sterling currency option dressed up in bricks and mortar.”

Pryor said the yields that investors could make from renting out the properties were low, and that this could be the last time overseas buyers rushed to buy London property in this way.

“Markets move and the time will come when the international buyer is no longer in awe of London and ceases to see the merits of owning 1100 sq ft of soulless real estate thousands of miles from home,” he said.