Resi View - Winter 2015

carterjonas.co.uk 1
WINTER 2015

carterjonas.co.uk 3
Rory O’Neill
Partner, Head of Residential
rory.oneill@carterjonas.co.uk
01672 519705
TO THE WINTER 2015 EDITION OF RESIDENTIAL
VIEW, YOUR ESSENTIAL GUIDE TO THE UK’S
RESIDENTIAL PROPERTY MARKET
As we draw 2015 to a close and usher in
another exciting new year, there’s lots of good
news for buyers, sellers and investors. House
prices are up nearly 5% on last year and
rental yields are predicted to reach 6.5-8% in
the regional market over the next five years,
outperforming most rival asset classes. While
the market for £1 million-plus properties has
been dampened slightly by the recent stamp
duty changes, homes in the £300,000 to
£750,000 range are still selling fast.
The general outlook for the UK economy and
the residential property market is very positive
at the moment. High consumer confidence, a
strong labour market and rising wages are all
playing their part, and the mortgage market is
also moving again, with increased competition
and higher loan-to-income ratios.
So if the economic signs are so good, and the
demand is there, why are transaction volumes
still low?
In our feature article ‘Why aren’t we moving?’
we look at how limited housing stock is
negatively impacting the market. We also look
at other ‘man made’ issues, from changes to
stamp duty and lending criteria, to shifting
attitudes to property ownership, renovation
and ‘flipping’.
Bringing supply and demand into sharp
focus, we look at new homes figures over
the last year. While national new home
construction has faltered since its eight-year
high in 2007, London’s construction boom is
still going strong, with as many as 30,000
units in the pipeline.
As always, this edition includes an in-depth
analysis of the London and regional property
markets, across residential sales and lettings.
For each market, we combine the latest Land
Registry data with our first-hand experiences
to show you the bigger picture.
Finally, we take a look at so-called “branded
developments” where brands and star
architects give property values a major boost.
We also explore the impact of global currency
fluctuations on the affordability, or otherwise,
of London property.
To discuss anything in this edition, or to
request help from one of our experts, please
contact the residential team or one of our
research specialists. Details can be found at the
back of this report. We would be delighted to
help you.
THERE’S LOTS OF GOOD NEWS FOR BUYERS,
SELLERS AND INVESTORS, WITH HOUSE PRICES UP
NEARLY 5% ON LAST YEAR AND RENTAL YIELDS
BEATING MOST OTHER ASSET CLASSES.
WELCOME

4 © Carter Jonas 2015
ECONOMIC OVERVIEW
Business and consumer confidence continues to remain at
historically high levels, with headline figures, on the whole,
positive. All things considered, it is therefore unlikely that we
will experience a sustained slowdown.
Low oil prices continue to weigh on CPI inflation, with the
September figure falling slightly into negative territory at -0.1%
and, whilst continued deflation remains a possibility in the
short-term, most forecasters expect CPI to begin to rise before
the end of the year and to reach the target of 2% set by the
Bank of England’s Monetary Policy Committee (MPC) by the
end of 2017. Average wage growth also continues to gather
pace and has now outstripped inflation for the last 10 months.
With the unemployment rate at a relatively low 5.4%, we
expect this trend in wage growth to continue well into 2016.
MPC members continue to vote overwhelmingly to hold the
Bank of England base rate at 0.5% and, if forecasts are proved
correct, we should not expect interest rate rises before the
summer of 2016.
ECONOMIC
OVERVIEW & MARKET
SUMMARY
NEXT YEAR MAY SEE INCREASING HEADWINDS, NOT LEAST
BECAUSE OF HIGHER INTEREST RATES BUT ALSO AS THE
EU REFERENDUM BEGINS TO IMPACT ON BUSINESS AND
CONSUMER CONFIDENCE.
NATIONAL MARKET COMMENTARY
Trends in 2015 have remained similar to
preceding years, with average national house
price inflation running at between 4-5% pa,
falling transaction volumes and limited new
stock coming to the market. The most worrying
of these trends is the fall in the number of
homes being sold during the first half of the
year (H1). Nationally, 2015 sales to June were
12% down against the same period in 2014. This
problem was most pronounced in Prime Central
London (PCL) where the comparable drop was
30%. In all but a few areas of the country, this
fall can be attributed to a record low level of
new properties coming to the market, rather
than property not selling. But why is this? On
page 6, we take a detailed look at the main
drivers behind this lack of vendor activity in our
focus piece ‘Why aren’t we moving?’

carterjonas.co.uk 5
Transactions (Figure 1)
H1 2014 vs H1 2015
VALUES
As forecast in our last Residential View report, the previous
disparity in house price trends between the regions and
London has balanced out in the first three quarters of the
year. Values in most areas of Prime Central and Outer Prime
London have fallen slightly or made relatively minor gains,
while English and Welsh regions have experienced movement
of between 0-5% in the year to September. Unless we witness
a change to the current status quo of few new instructions
coming to the market to meet growing buyer demand, the
early part of 2016 could witness significant upward price
pressures, leading to unsustainable house price inflation.
LENDING & INTEREST RATES
Signs are that competitiveness in the mortgage market is
growing, with an increasing number of products available to
borrowers, along with a large number of lenders increasing
their maximum Loan-to-Income ratios. Despite fears that
anticipated interest rate rises in 2016 will leave a large number
of borrowers exposed to higher repayments, it is worth noting
that 44% of all current mortgages are now at a fixed rate, with
this figure rising to 86% for new mortgages. This increased
proportion of fixed rate mortgages should ensure that any
negative impact of rate rises will be gradual. One area that
may react to the upward movement in interest rates are low
yielding buy-to-let investments, as increased repayments
could result in rental income failing to cover costs. However,
we expect that the volume of landlords choosing to leave the
market due to this scenario would be more than countered
by new entrants keen to take advantage of the continued
attractiveness of residential property compared with other
non-property investments.
INVESTORS
Investors also face a more complex landscape in the coming
years. New rules relating to tenants immigration status are
being rolled-out, with landlords now required to establish if
a prospective tenant has the ‘Right to Rent’. Failure to do so
could result in a fine of up to £3,000. Alongside this, higher
earning landlords will have to begin to factor in the prospect
of reduced tax relief April 2017.
Talk of a British exit from the European Union (Brexit)
will undoubtedly grow in the coming 12 months as we
move towards the referendum on EU membership. Active
protagonists in the residential property world will be closely
engaged with the referendum debate, given the possible
ramifications of a Brexit, none more so than investors with
a significant exposure to the Prime Central London market .
High levels of correlation between PCL residential property
and the City are evident, with both tenant and buyer demand
heavily dependent on City hiring levels and remuneration.
Whilst the threat of large employers leaving the City is real
in the event of a Brexit, it is worth remembering that similar
fears were raised when the UK decided not to join the Euro.
Although the two cannot be considered directly comparable,
it does highlight the fact that the fear of change can often
be greater than the event itself. Depending largely on how
renegotiations go, we would expect May 2017 to be the most
likely date for a referendum on EU membership.
3500
3000
2500
2000
1500
1000
500
0
H1 2014
H1 2015
Prime Central London
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
H1 2014
H1 2015
England & Wales
Source: Land Registry/Carter Jonas Research

WHY
AREN’T
WE
MOVING?
The latest Land Registry figures show that the
mini-recovery in the volume of home sales in
England & Wales has recently stalled. The number
of homes sold in the first half of 2015 (H1 2015)
was 13% down on the same period last year
and a considerable 33% down on average H1
levels witnessed during the 2000-2007 peak
market. This trend looks set to continue for the
foreseeable future, with the latest housing market
survey from the Royal Institute of Chartered
Surveyors (RICS) reporting that the number of
homes currently for sale is at a record low.
The self-perpetuating scenario of homeowners
unwilling to sell their properties due to a lack of
property to buy is far too simplistic an answer.
It is also too crude to attribute one particular
factor as the sole driver behind this issue. So
which factors are creating this dysfunctional
environment? Below we analyse what we
consider to be the four most dominant forces
at play and also rank them in terms of impact.
1. GOVERNANCE
Arguably, the most significant factors are ‘man-
made’. At the end of April 2015, changes in
lending criteria came into force. The Mortgage
Market Review (MMR) set out strict guidelines for
lenders, with the goal of ensuring that borrowers
do not experience affordability issues, especially
in the event of substantial interest rate rises. These
changes have significantly affected liquidity in the
sub-£250k market (see figure 4), as first-steppers
who bought their current homes with high
income-to-value mortgages are unable to move
up the ladder due to the lack of available lending.
MMR was swiftly followed in December 2014 by
an unexpected change to the way in which stamp
duty is calculated. While the fundamental change
from a slab to a tiered structure was generally
welcomed, the percentages payable also changed
considerably, resulting in an increase to the Stamp
Duty payable on most properties above £1m.
As clearly highlighted in figure 4, these changes
have had a significant effect on the £1m+ market,
where vastly increased transaction costs have
deterred a great number of home movers.
H1 Residential Property Sales (Figure 2)
England & Wales
% of housing stock the has previous sold for a
greater figure than its current value (Figure 3)
August 2015
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
30%
25%
20%
15%
10%
5%
0%
H12000
H12001
H12002
H12003
H12004
H12005
H12006
H12007
H12008
H12009
H12010
H12011
H12012
H12013
H12014
H12015
NorthEast
NorthWest
Yorks&TheHumber
Wales
EastMidlands
WestMidlands
London
East
SouthWest
SouthEast
Source:
Land Registry
Source: Land Registry/
Carter Jonas Research

carterjonas.co.uk 7
2. VALUES
In July of this year the Land Registry average house price for
England & Wales (£183,861) exceeded its previous high-water
mark set in November 2007 (£180,962). However, this figure
masks the significantly fragmented nature of the market, with
southern and eastern England skewing the average considerably.
Using Land Registry data, our analysis has revealed that at the
end of Q3 2015 there were around 2 million homes in England
& Wales (mostly purchased in the peak market between 98-07)
that had previously transacted for a figure greater than their
current value. Although it may not be the case that all the current
owners are sitting in negative equity, this analysis does highlight
low levels of equity in these markets. When we also factor in that
the purchasers of these properties are the same people who,
in a naturally liquid market, would now probably be looking to
move on (there is a well-publicised ’7-year itch’ phenomenon), a
clearer picture of what might be happening outside southern and
eastern England emerges
3. OUR RELATIONSHIP WITH PROPERTY
There is mounting anecdotal evidence that the credit crunch
has permanently changed our relationship with property. A
growing number are now satisfied to keep their heads above
water, rather than keep up with Jones’s. This has led to a
switch in the nation’s ‘moving up the ladder’ obsession to a
more rational, calculated and risk-adverse approach. This has
resulted in large numbers of people, who would have previously
made relatively casual moving decisions, opting to stay put,
only moving up or down the ladder when their lifestyles firmly
dictate that they can do so.
4. TRADING/FLIPPING/RENOVATING
During the years preceding the 2007/2008 crash, the ‘flipping’
and buying-renovating-selling of property became almost a
national past-time. This quick ‘buy and sell’ practice artificially
boosted transactions levels, giving the impression that we were
moving home far more than we actually were. With the speed
of house price inflation now slowing in most areas, amateur
property developers and speculators can no longer rely on
capital value gains during their ownership period to turbo-
charge exit profits. The slower rate of house price inflation
now precludes all but the savviest of part-time investors/small
developers from this method of investment.
Transactions by price band (Figure 4)
H1 2014 vs H1 2015
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
London
Regions
Over£2,000,000
£1,500,001-2,000,000
£1,000,001-1,500,000
£800,001-1,000,000
£600,001-800,000
£500,001-600,000
£400,001-500,000
£300,001-400,000
£250,001-300,000
£200,001-250,000
£150,001-200,000
£100,001-150,000
£50,001-100,000
Under£50,000
Source: Land Registry

OVERVIEW OF SALES MARKET
During the 1st half of the year (H1), the fragmented nature
of the regional market became very apparent. Annual house
price inflation of 5-8% in southern and eastern England now
means that values on virtually all properties in these areas are
above their previous peak. On the other hand, the value of
most property outside desirable urban areas in the North of
England is 15-20% below its previous high water mark. This level
of disparity becomes even more evident when drilling down to
Local Authority (LA) level. In the 12 months to August 2015 the
Land Registry reported that of all the Local Authorities, Reading
was experiencing the strongest house price growth at +14.6%
(on a rolling basis), whilst values in Darlington had fallen the
most (-6.2%). Two towns similar in size, but poles apart in terms
of housing market performance.
THE REGIONAL
MARKET
On page 6 we have looked closely at the main drivers behind these historically low sales levels, including the
impact of stamp duty changes and the effect of the Mortgage Market Review (MMR).
Present Day Vs the Pre-Crash Peak Market (Figure 5)
20
10
0
-10
-20
-30
-40
%
South
East
East South
West
East
Midlands
West
Midlands
Yorks &
Humber
Wales North
West
North
East
Aug 2015 average House Price vs Peak
H1 2015 Transaction vs Peak
Source: Carter Jonas Research/Land Registry
THERE IS LESS
GEOGRAPHICAL
DISPARITY IN TERMS
OF THE VOLUME OF
HOUSE SALES, WITH ALL
REGIONS SUFFERING
FROM FALLS OF 25-35%

carterjonas.co.uk 9
Average capital value change – Sept 2014-Sept 2015
Average detached property value
Market health (0–5)
AVERAGE VALUE CHANGE, SALES VOLUME
AND AVERAGE DETACHED PROPERTY VALUE
ACROSS ENGLAND AND WALES
%
8.2%1.3
1.3
4.3
2.3
2
2
2.6%
5.8%
4.3%
8.2%
7.1%
3.1%
3.8%
5.2%
6.2%
8.6%
3.1%
8%
6.8%
£
Source: Land Registry
NorthYorkshire
Leeds
York
Northamptonshire
Shropshire
Cambridgeshire
Suffolk
Oxfordshire
Hampshire
WestBerkshire
Wiltshire
Somerset
Bath&NESomerset
Gwynedd
£196,436
£252,853
£257,493
£320,626
£277,646
£472,761
£452,723
£406,038
£286,656
£402,615
£331,489
£279,878
£267,103
£304,482
1
1.3
2
2
1.5
1.3
0.5
1.5
The Carter Jonas Market Health Check is calculated
by comparing current Land Registry transactional and
average house price data with levels during the peak
market (1998-2007).

TOWN AND CITY MARKET
The well-publicised housing shortage is notably more acute
in our major towns and cities, as the migratory trend towards
urban areas gathers pace, placing pressure on both house
prices and existing infrastructure.
A RECENT REPORT FROM THE
CENTRE FOR CITIES COMPARED
2001 AND 2011 CENSUS DATA
AND FOUND THAT, IN THE PERIOD
BETWEEN EACH SURVEY, THE
POPULATION OF OUR MAJOR
CITY CENTRES GREW BY 37%
Alongside the trend of people moving into cities from
surrounding areas, on-going positive net immigration figures
will also reinforce this trend. At present, highly valued access
to employment and infrastructure means that 95% of the
non-native population in England & Wales currently choose
to live in large cities and towns.
Regional House Price Index (Figure 6)
12 months to August (100.00 = Aug 2014)
110.00
108.00
106.00
104.00
102.00
100.00
98.00
96.00
94.00
92.00
90.00
North West
East Midlands
Yorks & Humber
West Midlands
North East
Wales
East
South East
South West
Aug14
Sep14
Oct14
Nov14
Dec14
Jan15
Feb15
Mar15
Apr15
May15
Jun15
July15
Aug15
FARMHOUSE & COUNTRY HOUSE
MARKET
The Country House Market appears to have
suffered more than most from the changes to
stamp duty, with owners reluctant to up- or
down-size due to vastly increased transactional
costs. It remains to be seen whether levels of
new instructions will return to normal once
these increased costs have been accepted
and fully absorbed into the collective psyche
of buyers and sellers. Historically the majority
of sales occur in the latter part of the year,
but low levels of current stock for sale would
suggest that this increase will be limited and
relatively lower than in previous years. The
fickle nature of the farmhouse market also
shows no sign of abating. While best-in-class
farmhouses close to urban hubs continue
to defy the overall downturn, more remote
properties in need of both time and expense
continue to struggle to attract interest from
buyers outside the local community.
Value of £2m+ Transactions outside London (Figure 7)
Previous 24 months
180
160
140
120
100
80
60
40
20
0
Q3
2013
Q4
2013
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
£2M+ MARKET
The expected post-election spike in sales due
to the lifting of the mansion tax threat did not
materialise, with transaction volumes in the
first half of the year (H1) down by 19.8% on the
same period in 2014. Early signs are that H2
transactions will follow this trend and, once
the data has been released, we expect the
full-year total of regional £2m+ transactions to
be 20-25% down on 2014. Again, increases in
transactional costs due to changes in stamp
duty are the main driver behind this fall in sales.

carterjonas.co.uk 11
1. Oxford
Marsh Baldon
Guide price £2,400,000
2. Near Boroughbridge
Aldborough
Guide Price £995,000
3. Cambridge
Leys Road
Guide price £895,000
1
2
3

THE REGIONAL LETTINGS MARKET
Average private rents in all regions made relatively modest
gains of 0.5-2.5% (see figure 9) during the 12 months to June
of this year. Stronger tenant demand in southern and eastern
areas fed through into prices, with average rents rising by
2%, although, as with house prices, the rises were far more
pronounced in desirable towns and cities where the supply/
demand imbalance resulted in annual rises of typically 5-8%.
As we move into 2016, the well-documented increase in Buy-to-
Let lending will supply the regional market with a steady flow
of rental homes. This will be supplemented by an increase in
new stock coming to the regional city markets from larger scale,
professional landlords looking to take advantage of high rental
yields and lower volatility than inside the M25.
Although largely welcomed by most, it is worth remembering
that this new wave of professional investment into purpose-built
rental stock still represents just a fraction of the overall Private
Rented market, and therefore cannot be viewed as the sole
answer to the sector’s current challenges.
Region House Prices Private Rents
North East +1.2% +1.0%
North West +2.7% +1.1%
Yorks & Humber +2.3% +1.4%
East Midlands +2.9% +2.8%
West Midlands +2.5% +3.4%
Wales +1.6% +1.6%
East +4.1% +5.2%
South East +4.3% +5.0%
South West +3.3% +3.6%
Regional House Price Index (Figure 8)
12 months to August (100.00 = Aug 2014)
Carter Jonas 2016 Regional Forecasts (Figure 9)
104.00
103.00
102.00
101.00
100.00
99.00
98.00
97.00
North West
East Midlands
Yorks & Humber
West Midlands
North East
Wales
East
South East
South West
Ave Private Sector Wages
Ave Public Sector Wages
Jun2014
Jul2014
Aug2014
Sep2014
Oct2014
Nov2014
Dec2014
Jan2015
Feb2015
Mar2015
Apr2015
May2015
Jun2015
INVESTORS
Despite a growing number of
headwinds for residential property
investors, such as increased legislation
and taxation, weaker price growth
and the prospect of increased
borrowing costs, expected returns
still look attractive in the near-to-
medium term. We forecast average
annual total returns of 6.5-8% in the
regional market over the coming five
years and, although these returns are
well below the double digit figures
recorded during the boom, they
still offer an attractive investment
proposition compared with other asset
classes. Moreover, residential property
provides a diversification opportunity
for investors seeking to adopt a more
balanced approach to risk.
Source: Carter Jonas Research/ONS/ONS IPHRP
Source: Carter Jonas Research/ONS/Experian

SALES
The year to date has witnessed a continuation
of the uncharacteristically “fickle” market that
began in the second half of 2014. A good deal
of variation was evident in capital values in the
year to September, with results ranging from
+5% to -5% (see figure 12). The Super Prime
market (+£10m) was once again the outlier from
the pack with a strong Q2 and Q3, resulting in a
+7.2% YTD gains.
Transaction volumes have continued to decline
in 2015, with the £1m+ market particularly hard
hit by increased stamp duty. An analysis of
Land Registry figures shows that sales in Prime
Central London in the first half of the year
were down over 30% on 2014. The Outer Prime
market also witnessed a significant drop in
transactions during the same period, with a fall
of over 24%. When we consider that the 2014
figures were still well below pre-crash levels, this
year’s drop is even more significant.
We forecast a relative under-performance of
the Prime and Outer Prime London markets
against their regional equivalents in the coming
24 months, as some of the heat from years of
double-digit house price growth dissipates.
Longer term, factors such as population growth
will ensure that house price inflation in London
should run above other areas. Population
forecasts by the UN Department of Economic
& Social Affairs predict that by 2029 London
will join the exclusive club of world ‘megacities’,
with a population of over 10m. With new
home delivery struggling to cater for these
new inhabitants, strong house price inflation is
expected to continue in the next 10-15 years.
THE LONDON
MARKET
0
-5
-10
-15
-20
-25
-30
-35
8%
7%
6%
5%
4%
3%
2%
1%
0%
Volume of Sales (Figure 10)
H1 2014 vs H1 2015
Forecast Total Returns (Figure 11)
Capital Value Appreciation + Rental Returns
-11.7%
-18.3%
-24.4%
-30.1%
England
&Wales
OuterPrime
London
PrimeCentral
London
2016 (f) 2017 (f) 2018 (f)
Source: Carter Jonas Research/Experian
INVESTORS
Large-scale professional investment in London’s Private Rented
Sector (PRS) is gathering pace, with 16,000 purpose- built PRS
homes currently either at the planning or construction stage.
Although this represents just a 1.9% increase in London’s Private
Rented stock, the introduction of professional, tenant-focused
landlords could trigger a contagion effect on local markets.
Smaller scale landlords in boroughs where there are a high
concentration of purpose-built PRS schemes coming through
will need to deliver a high-quality product or risk longer void
periods and lower rents.
HollandPark
Marylebone
Wandsworth
Barnes
Chelsea
Mayfair
Fulham
Knightsbridge
AllLondon
boroughs

Carter Jonas London Capital Value Index (Figure 12)
Year to September 2015
110.00
105.00
100.00
95.00
90.00
85.00
Chelsea
Marylebone
Holland Park
Hyde Park & Bayswater
Mayfair
Knightsbridge
Fulham
Wandsworth
Barnes & East Sheen
Super Prime
Dec2014
Jan2015
Feb2015
Mar2015
Apr2015
May2015
Jun2015
Jul2015
Aug2015
Sep2015
Source: Carter Jonas Research
Capital value performance Sept 2014 – Sept 2015
Gross rental yield as of Q3 2015
CAPITAL VALUE PERFORMANCE AND RENTAL
YIELD IN PRIME AND OUTER PRIME LONDON
%
%
1.6%
-2.1%
2.4%
-2.5%
-3.2%
-4.3%
-1.3%
4.5%
-2.9%
2.9%
3.2%
4%
4.1%
4%
3.8%
2.9%
2.1%
3.5%
Wandsworth
Mayfair
Knightsbridge
Chelsea
Barnes Fulham
Holland Park &
Notting Hill
Hyde Park &
Bayswater
Marylebone

LETTINGS
As with capital values, rents in both Prime
Central and Outer Prime London experienced
mixed fortunes in the year to September 2015,
with movements ranging from +4.9% to -2.6%.
Fulham led the way, with strong demand from
domestic tenants boosting rents by 4.8%. In
the year to date, Carter Jonas’s London offices
have let property to tenants from 43 countries
and, while the top three countries remained the
same as in 2014 (see fig 15), there were notable
decreases in the volume of tenants originating
from the Middle East and Asia (-39% & -38%
respectively), contrasting witha spike in the
number of European tenants.
A hot topic in the London property market is
affordability within the Private Rented Sector
and, more specifically, how rising housing costs
could hold London back in terms of attracting
and retaining businesses. While the high
correlation between Prime Central and Outer
Prime London rents and remuneration levels
in the City ensure affordability levels remain
constant at the higher end of the market, the
same cannot be said for the wider London
area. Rents in areas surrounding Outer Prime
have averaged annual increases of around 7%
for the last five years, far outstripping wage
growth during the same period. The recent
‘Moving Out’ report from London First and
Turner & Townsend recorded a number of
worrying statistics. The survey reported that 2
in 5 London employees would consider moving
out of London and taking a job in a different
city or region, specifically to take advantage of
lower rent or mortgage costs. These feelings
were most profound in younger age groups,
with 70% of 25-39 years olds saying the cost of
their rent/mortgage makes it difficult to work
in London. It is clear that a more innovative
and intensified approach to delivering more
housing stock is needed if London is not to
become a victim of its own success.
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
70%
60%
50%
40%
30%
20%
10%
0%
Rental Values YTD (Figure 13)
Year to September 2015
Tenant World Region of Origin (Figure 14)
2014 & H1 2015
FulhamEurope
NorthAmerica
Asia
MiddleEast
Oceana
SouthAmerica
Sub-SaharanAfrica
NorthAfrica
PCL(all)
Mayfair
OPL(all)
Marylebone
Barnes
Wandsworth
RPIinflation
Chelsea
Knightsbridge
HollandPark
Rank Tenant Nationality Private Rents
1 British 19.5%
2 American 11.3%
3 French 7.5%
2014
H1 2015
THE SURVEY REPORTED THAT 2 IN 5 LONDON EMPLOYEES
WOULD CONSIDER MOVING OUT OF LONDON AND TAKING A
JOB IN A DIFFERENT CITY OR REGION, SPECIFICALLY TO TAKE
ADVANTAGE OF LOWER RENT OR MORTGAGE COSTS
(Figure 15)

1
2
3
1. Kensington
Kensington Gate
2. Soho
Soho Square
£2,000 per week
3. Wandsworth
Xxxxxx

THE BRANDING OF PROPERTY HAS BEEN
APPARENT IN THE HOTEL AND OVERSEAS
RESIDENTIAL MARKETS FOR A LONG TIME NOW,
BUT UNTIL RECENTLY LITTLE HAS BEEN SEEN
IN THE UK’S RESIDENTIAL MARKET. BELOW WE
TAKE A BRIEF LOOK AT THREE AREAS WE SEE
THE INFLUENCE OF BRAND GROWING OVER THE
COMING YEARS.
1. ASSOCIATIONS WITH NON-
PROPERTY RELATED BRANDS
In a reverse structure to the phenomenon
of sports stadia naming rights, companies
such as Versace, Mercedes and Moschino are
lending their design expertise (and also their
names) to a growing number of developments.
It is reported that some branded residences
in the Middle East and Asia have achieved
premiums of up to 70% above the comparable
market. These results have ensured that
London’s overseas buyer-dominated, high-end
residential market has become an obvious
home for this approach.
Excluding initial interior design options for
buyers, the link between a development and
its associated partner is less tangible in this
area of branding. Both parties will therefore be
keen to ensure that the public perception of
their partner remains aligned with their own.
For example, a designer who makes a business
decision to target the lower end of the market
they are known for, may result in values of
their associated residence suffering. Likewise,
a designer may well re-think its partnership,
should a building fall into disrepair at some
stage in the future.
2. STARCHITECTS
Another area in the branded category is
building design. Growing premiums are being
attached to developments from high-profile
architects, or ‘Starchitects’ as they are now
commonly referred to. Two of the more
progressive architects currently active in this
field are Frank Gehry and Bjarke Ingels who,
due to the sizable premiums achieved on
their properties in North America, have been
invited to contribute to the re-development
of Battersea Power Station. Largely anecdotal
evidence suggests that premiums of between
20-25% are being achieved when compared
with very similar developments from less
well-known firms.
With the value of great architectural design
more deeply ingrained in the DNA of a
building, it is therefore expected that the
premium will become ever-more valued by
would-be buyers in the future. As the value
of residential property continues to rise and
construction techniques improve rapidly,
architects will be empowered with the tools
and scope to create even greater residences.
BRAND AND
RESIDENTIAL -
A MATCH MADE
IN HEAVEN?

3. PRS
The fledgling world of large-scale institutional
investment in the UK Private Rented Sector
(often referred to as just ‘PRS’) is also quickly
recognising the value of brand. Large-scale
operators are taking the lead from their
American counterparts in how to build a brand
that is widely recognised by tenants, who are
then willing to attach a monetary value to the
product. This level of brand appreciation can
obviously only be achieved by excellent service
to the client who, in this modern interpretation
of renting, is the tenant.
Experience from the more developed US
professional PRS sector or ‘Multi-family
housing’ sector has shown that brand loyalty
amongst tenants is widespread. In achieving
this loyalty, operators are not only able to
achieve premium rents, but also limit costs
through longer average tenancies and effective
referral procedures, reducing the need to
appoint external agencies. The coming decade
will see market-leading PRS operators emerge
in our major towns and cities.
VALUES
As with property values, brand reputations
and trends continually change. The fortunes of
branded residences will therefore rely on two
additional factors aside from property market
performance. Firstly they will rely on the entire
concept of branded residences remaining in
vogue and, secondly, they will rely heavily on
the on-going reputation of their partner. It is
for this reason that we would place returns
from branded property higher up the risk
curve. If all three of these factors perform well,
then outperformance of the wider market is
guaranteed, but if the three were to conspire
against the investor, large losses would no
doubt be incurred.
TWO LIGHT-HEARTED
SCENARIOS TO
CONSIDER…
1. In a future world where Donald Trump’s
bid to become president of the United
States has been successful, would his
foreign policy deem the extravagant
Trump Tower in Mumbai uninsurable?
2. The architectural world’s new ‘enfant
terrible’ has completed his first
masterpiece, only to meet his maker a
week later in a rock star style ending. What
happens to the value of the property?

OVERVIEW
There was some welcome news at the start of the year with
Q1 2015 data from the Department for Communities and Local
Government showing the highest number of new home starts in
England since 2007. However, Q2 figures fell back once again,
with projections for the second half of the year not anticipating
any major increases. Increased production and imports have
resulted in that the cost of construction materials levelling out
over the past twelve months, but on-going skills shortages have
continued to hold back new home starts, whilst simultaneously
placing upward pressures on labour costs.
FOCUS ON LONDON
London has witnessed a new homes
construction boom in the last 2-3 years,
with around 30,000 units currently in the
construction pipeline in Central London alone.
To place this into context, the average annual
number of new homes constructed in all
London Boroughs post-market crash is 18,000.
The medium to long-term pipeline also looks
positive, with large-scale plans for sites such as
Old Oak Common, Earls Court & Brent Cross/
Cricklewood. These three sites alone have the
potential to supply 40,000 new homes, but
with a population forecast to grow by over
16% to 10m by 2029, a continuous building
programme on an unprecedented scale is
required.
New Homes Starts (by quarter) (Figure 17)
England
Brick Stocks and Production (Figure 16)
Million
50,000
40,000
30,000
20,000
10,000
0
800
700
600
500
400
300
200
100
0
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
Q12006
Q22006
Q32006
Q42006
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42015
Q12015
Q22015
Brick stocks
Brick production
Source: Department for
Business, Innovation & Skills
Source: Department for
Communities and Local
Government
NEW
HOMES
PERMITTED DEVELOPMENT RIGHTS (PDR)
One of the biggest events to impact on the town and city New
Homes market, is the proposal to make permanent the previously
temporary office-to-residential conversion exemptions. The
scheme, which allows for the conversion of office buildings into
residential dwellings (under Permitted Development Rights)
without the need for additional planning permission, was due
to end in May 2016. However, plans have now been put in place
to allow it to become a permanent part of the planning system.
Importantly (alongside the inclusion of light-industrial sites), the
changes will now also allow for demolition and re-build, potentially
opening up a large number of sites that were previously unsuitable
for conversion. Whilst we expect that dwellings delivered via
permitted development rights will still only account for a relatively
small percentage of overall new home completions, their town/city
centre locations will provide new homes in areas where, due to
mass urban migration, demand is at its greatest.
THERE WAS SOME WELCOME NEWS AT THE START OF THE YEAR
WITH Q1 2015 DATA FROM THE DEPARTMENT FOR COMMUNITIES
AND LOCAL GOVERNMENT SHOWING THE HIGHEST NUMBER OF
NEW HOME STARTS IN ENGLAND SINCE 2007

1
2
3
1. Harrogate
North Park Road
Guide price £875,000
2. Bayswater
Leinster Square
Prices from £4,250,000
3. Near Bath
Tynedale
Prices from £510,000

Entry to this already very exclusive club has become even
more expensive for those in Russia and the Eurozone, as
weakened currencies have increased the cost to would-be
buyers by 65% and 12% respectively. Conversely, buyers whose
wealth originates from the US dollar (or a pegged currency)
have seen their buying power boosted by 4% from last year.
Chinese buyers also have a little more (+1.3%) to spend
with estate agents, with the Chinese Yuan strengthening
against GDP.
WINNERS & LOSERS
Of the currencies analysed, the Russian Rouble stands out.
The most glaring example is when we compare the entry
cost of PCL for Russian investors from 2005 to today. The
weakening Rouble, boosted by rapid rates of capital value
growth, means that it is currently over 400% more expensive
for a Russian to buy in Prime Central London than it was 10
years ago. This reaffirms the decision of many wealthy Russians
who started to place a large proportion of their wealth in
London property 5-10 years ago.
It has also been widely reported that overseas buyers in the
London New Homes market have seen currency fluctuations in
the period between placing a deposit and completion, resulting
in their end purchase price increasing significantly. Previously,
rapid rates of house price inflation had protected overseas
buyers from this effect. However, the forecasted slowdown in
capital growth will ensure that these buyers will need to factor
in currency movements when making purchasing decisions in
the future.
The notoriously difficult task of currency forecasting will now
play an increasingly significant part in the investment decisions
of overseas buyers. This will add an additional element of
complexity to what is already a multi-faceted decision.
PRIME CENTRAL
LONDON AND
CURRENCY
WHILST THE AVERAGE PRICE OF
PROPERTY IN PRIME CENTRAL
LONDON INCREASED VERY
SLIGHTLY DURING THE LAST
12 MONTHS, THE COST TO
OVERSEAS BUYERS HAS VARIED
CONSIDERABLY
70%
60%
50%
40%
30%
20%
10%
0
-10%
250%
200%
150%
100%
50%
0%
450%
400%
350%
300%
250%
200%
150%
100%
50%
0
How much more expensive is PCL residential?
(Figure 18)
1YEAR5YEAR10YEAR
The graphs below highlight exactly how much
more/less expensive Prime Central London
residential property is for overseas buyers today,
compared with 1, 5 and 10 years ago.
GDPGDPGDP
RussianRoubleRussianRoubleRussianRouble
EuroEuroEuro
ChineseYuanChineseYuanChineseYuan
USDollarUSDollarUSDollar

Lisa Simon
Partner, Head of Lettings
020 7518 3200 | 07976 761721
lisa.simon@carterjonas.co.uk
Darren Yates
Head of Research
020 7518 3343 | 07788 345915
darren.yates@carterjonas.co.uk
Rory O’Neill
Partner, Head of Residential
01672 519705 | 07801 666120
rory.oneill@carterjonas.co.uk
Lee Layton
Research Analyst
01604 608212 | 07768 308737
lee.layton@carterjonas.co.uk
© Carter Jonas 2015. The information given in this
publication is believed to be correct at the time of going
to press. We do not however accept any liability for any
decisions taken following this newsletter. We recommend
that professional advice is taken. Carter Jonas LLP uses the
information it holds about you for marketing purposes and
to administer, support, improve and develop our business.
We may send them by post, telephone or fax, email or SMS.
If you would rather NOT receive further information by any
particular format, or at all, or if your details need updating,
please contact marketing@carterjonas.co.uk. We will not
disclose personal information to any third parties without
your permission to do so, unless we believe that we should
do so to comply with the law.
To find out how Carter Jonas can
help you with the sale or let of your
property, or to book a complimentary
market appraisal, please get in touch.
020 7518 3200
One Chapel Place, London W1G 0BG
carterjonas.co.uk
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