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Undercurrents of the property market

The market is softening, more so on the higher values. A property we purchased for £2.625m with a market value of £3.2m is sticking, and it should not be, we have had offers at £3m post completion but this isn’t quite high enough. In ordinary times this should have been sold already and long ago.

I have had firsthand reports of leading valuers marking properties in prime locations, such as Victoria, down.  The price of around £2m is especially being hit. The valuation for these types of properties are being down marked by 15-20% on 90 day valuations, the cause of this are the upcoming elections, and the dreaded mansion tax, at least dreaded to those in the London property market.

The impact of this is more severe than expected. I do think however the fear in the market is a little ill founded. What people fear is the unknown, when something becomes known the fear evaporates and a known problem can be dealt with.

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If Labour comes in there has been no firm indication of at what property values the mansion tax will be applied, neither is there any indication of how this tax will be implemented. There has been suggestion it will be applied at the £2m plus level, but how it will be applied is not clear; whether it will be done in slices or whether it will be a blanket tax has also not been clarified.

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The London market has already absorbed two rounds of stamp duty changes, the last one introduced in December 2014 being a severe one especially for higher end properties.

It seems whilst the market is still adjusting to this change, the mansion tax is another possible blow to the market coming, hence the market is in a flux, and no one truly knows what will happen.

This is however only from one perspective.

Another is there are not many choices of safe places to store your money pretty much regardless of the charges involved. London property is a safe haven for the wealthy and the corrupt.

A recent report states billions of pounds of corruptly gained money has been laundered by criminals and foreign officials buying upmarket London property through anonymous offshore front companies – making London the world capital of money laundering.

Some 36,342 properties in London have been bought through hidden companies in offshore havens and while a majority of those will have been kept secret for legitimate privacy purposes, vast numbers are thought to have been bought anonymously to hide stolen money.

This flow of corrupt cash has driven up average property prices. It is found that 75 percent of properties owned by people under criminal investigation for corruption are held through secret offshore companies.

London has become a global magnet for corrupt funds, and Britain’s relaxed rules on the disclosure of property ownership help to ease the flow into the capital. Any anonymous company in a secret location, such as the British Virgin Islands, can buy and sell houses in the UK with no disclosure of who the actual purchaser is.

UN figures suggest only 1 percent of money laundering flows are detected, these types of property purchases are nearly always layered through offshore structures.

Companies set up in the Crown Dependencies and British Overseas Territories such as Jersey, British Virgin Islands and Gibraltar are the preferred option for concealment of corrupt property purchases.

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More than a third of company-owned London houses are held by effectively anonymous firms in the British Virgin Islands. Jersey companies own 14 per cent and the Isle of Man and Guernsey 8.5 percent and 8 percent respectively.

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The lack of access to beneficial ownership information about offshore companies that hold property in the UK is a major barrier for investigations.

For this type of money, whether the stamp duty is 7% or 15%, and whether there is an additional mansion tax to pay, will make little difference; the money will still flow in from all over the world, it will not inhibit the demand.

And this is the reality; the money is coming in from questionable sources. Another triangle route is Dubai; money goes from a high risk country into Dubai for a stop over and then comes into London.

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The proceeds from land sales in India which are often done partly with a lump of cash, are banked in India and then transferred to Dubai and then find their way into London property. Ordinarily to do this directly into London would be difficult however when routed through Dubai it becomes easier for the funds to find their way into the property market.

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Bishops Avenue is notorious for attracting these types of buyers. Recently the road has fallen out of flavour and many properties remain unsold.

Sahara is a property owned by the Sahara Group which has been in the headlines recently. It happens to be a property I went to see on behalf of a Filipino pastor from the Church of Jesus Christ, a large religious movement, some years ago.  The property remains unsold and has been taken off the market.  The founder of Sahara Group, has been held in New Delhi’s Tihar jail for over a year in a protracted dispute over refunding billions of dollars to Indians who had invested in outlawed bonds.

The group is also in the market to sell London’s Grosvenor House hotel after it defaulted on a Bank of China loan for the property.

I had a request by someone to purchase Heath Hall, a property in Bishops Avenue owned originally by the Tyte and Lyle family, which was on the market for £100m, then dropped to £65m and now available for between £17-£21m depending on who you talk too.

I admired the man’s audacity, he actually wanted to purchase it for free using the difference in the valuation and purchase price as the deposit. However this property has been touted all across the market, and it doesn’t take long for someone to find this out, I was offered it at least three times and was told it is off market! I heard through the grapevine the property had been bought, developed and then refinanced, returning all the money back to the owner along with a sizeable profit. From this moment the asset becomes the banks problem and not the owners!

The Real Deal

Marylebone, London NW1

Purchase Price: £1.5m

  • A large house in a nice residential area
  • Great development opportunity
  • Freehold
  • Period building
  • Garden
  • Close to Regents Park and Lisson Grove
  • Expected end value of the property after works will be around £2.2m

Call us now to reserve!

Suresh Vagjiani

Sow & Reap

A Property Investment Company

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!Tips of the Week

Look beyond your doorstep. Investing on your doorstep is often a safe but poor option. The question you should ask is: where will your money serve you best?

Big redevelopments and infrastructure projects create new local amenities and better transport links and provide a significant long-term boost to local house prices. Invest in areas with good redevelopment projects in the pipeline if you are looking for long term capital growth.

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