I spend a lot of time speaking to developers and there is one question which I am asked above all others – that is, how are property investors and buyers viewing the market, particularly London?
The market is becoming increasingly polarised by two types of buyers: property investors and help to buy buyers. These two groups behave in very distinct ways. According to recent research by Molior, in Q2 2019, help to buy buyers accounted for more than a third of all sales on schemes in London (schemes with 12 or more sales).
Over the same period, just 3% of sales were classified as ‘normal sales’. At the other end of the spectrum, investors accounted for 41% of other sales, with build to rent and bulk sales accounting for almost 70% thereof. Notably, non help to buy owner occupiers and international property
investors are becoming an increasingly smaller proportion of sales. This will not come as much of a surprise to those working in the industry – by now everyone is pretty familiar with the reasons why.
Because of the very nature of these two buyer groups, there will be a broadening activity gap in sales as owner occupiers and overseas property investors, who would have typically been more active, are less and less common.
The changing behaviour of property investors and help to buy purchasers
Buyer behaviour is starting to change. Help to buy buyers are now far less concerned with location and are simply shopping around for ‘a deal’. Whereas historically domestic buyers would have a very defined idea of where they were looking to purchase, this is no longer the case. These buyers are now driven by value for money and transport. It is not uncommon for a salesperson to report that buyers no longer see the old north south divide as being a particularly big factor in their decision making process. In many instances, location does not play a significant role at all for help to buy purchasers.
Likewise, international property investors are now starting to exhibit a similar type of behaviour. Buyers are getting younger and are far more tech savvy and far less concerned with location. Many property investors now have a far more open mind – they are becoming market agnostic, and are no longer fixed on one country or one property type. They are simply looking for the best combination of currency, rental income, tax and future growth potential. Political instability in the UK has no doubt caused some of this change, however, access to real time property information is also driving this.
As this thirst for knowledge and opportunities is increasing, developers from other countries are now looking to the Asian market for purchasers. UK stock now forms a much smaller proportion of all stock being launched, with Australian, American, Canadian, Japanese, Malaysian, Portuguese and Thai properties now regularly being launched across Asia.
These changes are likely to have profound impact on the market. For developers, the polarisation of buyers is creating an increasingly large gap in a traditional marketing cycle. If they are unable to correctly determine the speed at which their stock will be absorbed by the domestic market, they will ultimately end up with stock units.
This can be seen at the moment where changing market conditions have led to a 367% increase in developer stock units in Inner London from 331 units at the end of 2015 to 1,549 units at the end of 2018. Greater planning is now required to determine the right market for stock and the timing for its sale; there is no doubt that the Build to Rent industry will grow on the back of these changes.
Developers will increasingly need to adapt to this new market reality, by better engaging with generation rent and moving them to ‘generation buy’, by understanding what ultimately drives decisions and creating products to meet these demands. Also, to learn to speak the language of large institutional investors and to work in collaboration to drive financial metrics of developments by shifting risk and enhancing returns, rather than looking at the sale equation as a discount to asking price or, more realistically, book value.
Residential agents will also need to change the way they operate and move from a traditional marketeer. Where agents operate as broadcasters and simply ‘spray and pray’ success is driven by asking enough people the question ‘is this one for you?’
This will need to change to a scenario where they are better at engaging with help to buy buyers and international property investors and facilitating them through the buying journey which is likely to be both longer and more geographically diverse. In addition, it will also be important to collaborate better internally within their own companies; to call on expertise around investment and return, in order to engage with the changing type and nature of property investors.
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