Auctioneers are an upbeat bunch. However, many admit privately that the past year was something of an anticlimax and hope the sector will pick up in 2016. Auction sales growth in the year to November 2015 was less than 1%, compared with the previous year’s 15%, and there was a 5% drop in the number of lots offered.
Perhaps it is unfair, and unhelpful, to compare an election year with a preceding period that saw the breakup of several major portfolios amid signs of economic green shoots. But the contrasting outcomes of the previous two years make it challenging, and fascinating, to crystal ball-gaze into 2016.
One of the biggest changes over the coming year will be the introduction in April of a 3% stamp duty surcharge affecting buy-to-let landlords with fewer than 15 properties. This followed separate plans, revealed in the summer Budget, to restrict mortgage interest tax relief to the basic rate from April 2017.
The stamp duty changes, which could affect around a third of residential auction-goers, may push prices down, believes Phil Arnold, auctioneer at west London-based Phillip Arnold Auctioneers and president and chair of the National Association of Valuers and Auctioneers.
An investor who previously would have bid up to £200,000 for a property might now decide to stop at £190,000, he predicts. However, Arnold expects the overall effects to be relatively minor. “There may be a slight re-adjustment in the reserves, but I am expecting a good year, and still think that the signs are that there are a lot of buyers out there,” he says.
The changes could provide a boost to sellers in the run-up to April. Savills has slotted in an extra auction date on 2 March to give more clients the chance to capitalise on the expected rise in demand before the increased stamp duty comes into effect. And Allsop’s head of residential auctions, Gary Murphy, has already sensed a “buoyancy” from buyers eager to invest before the tax hike.
His pre-Christmas auction saw a three-bedroom flat in Wandsworth, SW18, offered by the Ministry of Justice with a guide price of £375,000, sold for £450,000. As recently as October it had been offered with a £400,000 guide, but failed to sell. However, Murphy says the danger is that the government’s approach to buy-to-let will affect not just prices, but also confidence. He suspects ground rents may look increasingly attractive to smaller investors looking for safer auction purchases.
New tax regime
Could the new tax regime encourage buy-to-let landlords to consider commercial investments instead? Acuitus chairman and auctioneer Richard Auterac says his auction house is already “working energetically with clients who want to understand the benefits of commercial property, how to go about investing in the sector and how to finance it”.
James Emson, managing director and auctioneer at Clive Emson, feels it is too early to judge what the precise effects will be while the final policy details have yet to emerge, as “there are a lot of question marks at the moment as to who it will affect”. Small investors with one or two properties are most likely to feel the impact of the change, he says, but he does not think their bids will drop significantly.
Savings
Property will continue to be seen as a safe way to boost long-term savings, and the government’s decision in December to halve rates on pensioner bonds to 1.4% will encourage some over-65s to seek alternative investments, Emson believes.
He and Murphy agree that the tax change could deter buy-to-let investors away from prime central London and towards cheaper lots elsewhere. These, says Murphy, are likely to be in commuter towns, particularly along the Crossrail and HS2 lines, but also in areas with good tenant supply such as university towns and those with high employment rates.
But do not rule London out, advises Savills auctioneer Chris Coleman-Smith, who reminds auction-goers there are still houses within the M25 being auctioned for less than £300,000. However, he adds: “I get the feeling that quite a few of our investors are looking further afield,” not just to the broader South East area, but also cities such as Hull, Birmingham, and Manchester.
Commercial
On the commercial side, Auterac predicts the “health of occupier demand outside London will continue to improve and close the gap with London”. This includes areas of higher disposable income and strong GDP growth – starting with the South East and the Midlands, and then on to the South West and the Northern powerhouses.
In general, Auterac believes, demand for commercial property investments will continue to grow in line with the economy, reflecting the reduced risk of tenant failures, void periods and falling rents – particularly among the retail and office sectors. The supply of investments will continue to grow as portfolios are unwound, he says, meaning there “could well be an increase in the number of interesting opportunities coming to market into which property companies can get their teeth.” And he expects residential conversions of redundant commercial space will remain popular.
Technology
The auctions sector itself will continue to evolve in 2016, with technology playing an ever-bigger part. Most auctioneers still feel secure about the continued demand for traditional, in-room, auctions; at Savills’ most recent auction there was not one internet sale. Even younger, very tech-savvy bidders appreciate the ability to attend in person to network, talk to other attendees and soak up the atmosphere, says Coleman-Smith.
However, Savills plans to start moving away from printed catalogues towards more online marketing, to bring greater flexibility over how long to market properties, and allow for late lots and amended details.
Arguably one of 2015’s unique projects was Allsop’s online-only sale of a new development in West Drayton, towards Heathrow. Was this a game-changer? Murphy initially saw the sale method as a way of harnessing overseas interest in the UK property market, but admits this seems to be waning. However, a change in buyer behaviour such as this could in itself drive developer interest in faster, more efficient methods of sale for new homes such as online auctions, he believes. Murphy hopes to carry out a similar type of online sale in the coming year, but only if he is confident of replicating the success of the last one, at which all lots sold.
More legislation pending?
Further regulation could be on the way, says Phil Arnold.
The authorities, he says, are “going to be looking seriously at the auction market” in relation to money laundering next year. He understands that regulators want to visit auction houses to assess procedures such as pre-registration for bidders.
“It’s going to potentially have a major effect on how we all operate. I’m sure they will want to make an example of somebody,” he says.
The National Crime Agency said it was unaware of these plans, while a HMRC spokesman did not confirm the plans.
The prospect of additional box-ticking may irritate some auctioneers, particularly on top of changes to the guide price rules, which are not policed. Does this mean people are flouting the [guide price] rules?
“Yes,” says Arnold, adding: “Big boys and small boys. It is happening.”
