#9 Simon Lindesay-Bethune - London Property

The Nalu Finance Podcast

In this episode of Nalu Finance, we sit down with Simon Lindesay-Bethune, owner of John Wilcox & Co., to explore long-term value creation in the London property market.

Simon shares his real estate insights, including:

• How London properties have appreciated by up to 50,000% since the 1970s

• What overseas buyers should know about UK stamp duties and holding costs

• Why rental yields are falling and how to select the right investment property

• The role of “off-market” sales and the advantages of buyer’s agents

• How ESG rules and EPC ratings are affecting property rentals

• Why lifestyle, location and long-term thinking still drive the market

He also reflects on the trends that never materialised, like online agents replacing local knowledge.

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🎙️ Transcript: Disclaimer: 00:00 This recording was done shortly before the coronavirus outbreak. Nevertheless, it contains so much useful information that has not changed under the current circumstances, so we didn't want to postpone its release. Once the impact on the property market can be assessed, we will provide an update for you.

Simon: 00:25 Some of the property around here in that time has risen by 50,000%.

Stefan Wagner: 00:28 Wow.

Simon: 00:33 Which is ludicrous.

Stefan Wagner: 00:57 I'm here with Simon Lindesay-Bethune, who started his journey into real estate in 1981 as a junior at one of the largest real estate firms in the UK. Simon went on to purchase John Wilcox & Co. in Holland Park, London. Let's jump right in. One topic that always comes up in discussion with friends and listeners is about the London property market. And buying a property in London has changed a lot since 2013. You know, what has been your experience particularly with overseas buyers and then thinking about what kind of property would you advise and recommend for people who, let's start with I'm in a personal family who wants to live in the UK and is a resident of the UK.

Simon: 01:38 One of the first things we need to establish is what the market was looking like at the peak in 2014 and when it really was quite difficult for somebody to buy a house in London. Anything that was half decent that came to the market, even if it was expensively priced, not necessarily stupidly priced, but if it was priced attractively enough, it had buyers buzzing around you like bees to a honeypot. Almost everything went to sealed bids or best and final offers within days.

And bids usually exceeded expectations. What happened since the peak in 2014 was a succession of events, mostly self-inflicted, that have gone one after the other to knock the property market by confidence and values back further and further and further every time. The first one in the autumn of 2014, everybody was scared of a Labour win at the next election, bringing in a mansion tax. One of the great advantages that London has in terms of an international investment destination for property is we have almost no holding costs. So that knocked the market back. Then the Chancellor announced his first hike in stamp duty, first significant hike, where it went from 7% up to 7% on the entire amount up to a graduated tax culminating in 12% on everything above 1.5 million and in round numbers 97.5 grand on the first 1.5 and then 12% on top of that.

So that was number two. There was a whole series of these. We've had a number of general elections, culminating with the really big one in June of 2016, which was the Brexit referendum, of course. And anybody in the property market all agrees it was not the best decision. Then, late 2019, they were all scared of a Corbyn government, following which there would have likely been a collapse in property values. And then Boris Johnson came along, got his majority of 80, and the world suddenly looked better. And that's where we are now. I think everybody in the market, when they saw the exit poll, breathed a huge sigh of relief.

Stefan Wagner: 04:11 Huge sigh of relief.

Simon: 04:13 And liquidity was restored at the bottom end almost overnight. If I had now a flat in any condition, close to my office for, I don't know, a million and a half, two million, I could sell it in a week. No question. And I'd probably have sealed bids on it. But at the higher end of the market, liquidity has not yet improved. It'll take time. I was having lunch with a client today, in fact, and we both agreed that if somebody was going to write a cheque for 6, 7, 8, 9, 10 million pounds on a house, he's not going to sign that cheque until there is certainty on EU trade negotiations.

Stefan Wagner: 05:00 So that leads me to the question, you know, I always think about sort of, there's three types for me for buyers versus oversealers. There's obviously the people who live here, they're residents of the UK, you know, what would you advise them to look for? Then there's obviously a personal family that wants to spend regular time. I think, you know, some of the Middle Eastern people do that when it gets too hot down there, they spend the months or months, many multiple months up here, but for different regions, but they might not be a resident or they might not hold a UK passport and then there's obviously I call it investment buyers who care about the yield and they are obviously rental yields seem to have gone quite come significantly down.

Simon: 05:44 Yes they have.

Stefan Wagner: 05:45 Yeah so think about the FTSE gives you a dividend yield of four and a half percent but your rental property may be less than that probably.

Simon: 05:52 Yeah, I mean, let's deal with the investment purchaser first. Yes, UK property yields or central London property yields have reduced significantly over the last 10, 20 years, primarily because capital values have jumped so high, the rental levels have not kept up with price inflation. So the yields are, of course, going to drop by the same proportion. For the rental investor, the pure investor, where would I pinpoint if I was advising him to target? I would point them to the transient population areas of London in prime central London. The driver for all of this is location always first. I'd go to the prime central London where your investment is as well hedged as it possibly can be. You'll have limited volatility, you'll have very quick recovery after a downturn in the market, and that downturn will not last very long. but mostly you will be able to rent your property quickly if necessary.

Then I would advise a difference between either an apartment or a house. If you're looking purely as an investment, I would be looking at an apartment and a smaller apartment. If you look at a four story, five story house, it's going to be worth several millions of pounds that translates to thousands of pounds a week in rent, which for the private rental sector means you're going to be probably dependent on the financial services sector for your tenant, with all the volatility of that market. And if the city's going through a rough patch, where they're reducing headcount, the private rental sector at that level takes a significant blow as well.

So I would be looking more at the two, maybe three bedroom apartments where young professionals can rent them at lower price points and there will always be demand for them. If it's someone who wants to have a London base, for a couple of months a year, six months a year, however long it is, a lock-up and leave, that automatically is pointing to an apartment as opposed to a house, because with an apartment you can get service, you can get a porter, you can get a caretaker, somebody who's going to know if there's a leak.

And can fix it if necessary. And mostly the thing that's going to drive that is location. Again, come as close to prime central London as you possibly can to protect the capital value. But apart from that, it's going to be what suits them. Lifestyle generally is what drives the market. And if you're looking for somewhere to live in, lifestyle is absolutely everything.

Stefan Wagner: 08:44 In a sense, obviously, everybody talks about greenhouse gas emissions, everything from sources, and quite a lot seems to come in the UK from residential property. I think that's probably also because any protected building, you're not allowed to do double glaze and other things. Do you see, does it affect your business at all? Well, I think, I think they will only get to the target, they adopt the existing housing, but they're not allowing it.

Simon: 09:15 Yes. I mean, the, the, the, when you buy a house in the UK or you buy an apartment, you get something called an EPC, which is an energy performance certificate, which is rather irritating. One of those graphs that you find when you buy a fridge, you get one of those for a house now. Generally, the market ignores them as a nuisance.

But in the rental sector, it is a serious consideration. There is a grading below which you are not allowed to rent your house out. And if it is below a certain grade, it is illegal to rent it out without carrying out improvements to the property to raise the level of efficiency to what is considered the minimum essential.

Stefan Wagner: 10:03 Now, many properties don't seem to make it actually into the open market. You talked earlier on liquidity, how long a property is on, but I think also many properties don't even seem to make it on them. And this is a little bit driving buyers to some creative ways of finding, I think, their dream property, often using sort of some called buying agents with access to properties that may not be on the open market. Number one, what is a buying agent? Would you recommend to use one? Is there another alternative? A lot of people said everything will go online. No, it won't. But it didn't, in a sense.

Simon: 10:40 Yeah, I mean, we'll get to a discussion of the online agents later on. But when it comes to acquisition, First of all, the difference between buyers agents and estate agents. Estate agents work on behalf of the seller to maximise price. Buying agents work on behalf of the buyer to minimise price. Their job primarily is to identify, negotiate, purchase at the best possible price and then make sure an acquisition goes through on behalf of their client with a minimum of fuss and bother. And at the same time have a full professional team that they can recommend to their client purchaser to make sure everything happens quickly and efficiently. Estate agents charge a fee anywhere up to about 2, 2.5%. Buyers’ agents will charge the same.

Stefan Wagner: 11:39 But why would a seller not put the property into the public market?

Simon: 11:46 Now we're coming to another, we're coming to the whole mindset of the seller. Especially where you have a difficult market as we have seen since 2014. If you have prices under pressure to go down, where the seller is of a position that he doesn't actually need to sell, he's only going to sell if it suits him to do so. And he's only gonna sell at his price. The perfect example of this is the guy who lives next to the man who sold his house two years ago for six million pounds. If two years ago the next door neighbor sold for six, why on earth should he sell for four? That is his mindset.

And it's difficult to argue against. So rather than go to the open market and have every estate agent in London walk around him and tell him what the market they think should be an accurate asking price to pitch it in the market at a level which will produce a buyer at the price that the market thinks is fair. What a lot of sellers want to do is to offer their house discreetly off the market. have conversations with half a dozen estate agents and say, yes, you can sell my house.

And if you sell it, I'll pay you a fee, but you cannot market it. You can certainly not put it on the internet. You can't hang a sign in your window. All you can do is you can pick up the phone and you can talk to people, do it the old fashioned way. You've got a bank of buyers on your books, rinse through them. go through the purchases, find the right guy, bring him to see my house, and if he wants to buy it, he can pay my price.

So yes, the relocation agents, the purchasing agents, the buyer's agents, they will have access to all the off-market houses because they also have phenomenal relations with all the estate agents. And if we as estate agents are asked to sell a house worth, say, five million or more, there's a very good chance that the purchaser for that house has hired somebody to stand in front of him. because he's a busy guy. He doesn't have time to do it all himself.

And he usually comes from a mindset where professional fees are part of the job. And we have wonderful relationships with all the buyers’ agents because I know point blank without thinking that if they've got a buyer, they're a good buyer. They will perform. They have got the money. They've already been identified for money laundering purposes, they've jumped through every loop, and they are committed to buying, because they've already paid a retainer to somebody to start the process.

Stefan Wagner: 14:38 Yeah, you wouldn't do that if you're just sniffing around. Exactly. But I believe you also, John Wilcox offers a service.

Simon: 14:44 Yeah, we offer a private client's acquisition service, and strangely enough, we undercut all of our competitors. We offer the fee at only 1% plus the VAT, as opposed to the 2.5% that everybody else sells. And yes, we have all of the skills in-house. We have all of the services that need to be recommended to ensure that a buyer's experience is as good as it can possibly be made.

Stefan Wagner: 15:11 I mean, that sort of leads me to my next question, probably. What has been your most significant learning in all your time in real estate?

Simon: 15:20 Well, the most important thing, of course, has to be product knowledge. If you don't know your marketplace inside out and backwards, nobody will trust you to do a decent job for them.

Stefan Wagner: 15:31 And going forward, what kind of themes and trends do you see or expect to happen in the market?

Simon: 15:37 Well, one of the largest impacts that actually never occurred was what everybody was expecting from the low-cost online model, the likes of Purple Bricks. Everybody thought that the world of property was going to go online and estate agents were going to be written out of the model. In fact, the opposite has turned out to be true. The other thing I suppose that is, I would suggest again, a non-impact is social media marketing.

Stefan Wagner: 16:15 You mean Instagram or Facebook?

Simon: 16:17 Instagram, Facebook, all of this. Estate agents have tried social media marketing to actually sell property, certainly in central London. And in my opinion, it simply has not worked anywhere near well enough to point at any statistics to say it's been a success.

Stefan Wagner: 16:38 I mean actually going back a little bit, we forgot to mention this earlier, I mean you not only sell but you also have a big letting book.

Simon: 16:46 Yeah, our lettings department is of course tremendously important because when times are tough on the sales side of the business, the lettings book brings in an annuity income. which naturally relieves the stress at the beginning of every financial year, knowing that you don't have to work for nine months before you start to pay yourself. Landlords have a bit of a rough ride in London. For a start, there's a 3% surcharge on stamp duty if you already own property anywhere else in the world. If you already own a home, when you buy another one in London, the government charges you not only the 12% over one and a half million, but they add 3% to every level of that transaction.

So for a first time buyer, or if you're trading your main home, the stamp duty is in round numbers, 97 and a half grand on the first one and a half million, and then 12% over that. If you already own a home somewhere else in the world, anywhere else in the world, uh, or you're buying an investment, the stamp duty rather than 97 and a half thousand becomes closer to 140 grand on the first one and a half million. And then it's not 12% over that it's 15% over that. Like every government, they're hungry for money.

Stefan Wagner: 18:21 And they're texting the people who can't vote them out of.

Simon: 18:23 Well, that is, of course, very attractive to them. Now, incidentally, John Wilcox was started in 1978, I think. We have all the files here, the commission books, going back to that moment. Nobody else around here has the sort of level of history and the actual transaction records going back that far. And I recently undertook the exercise of trying to calculate how much Central London as an asset class, Central London property, has grown in the time that this company has been running.

Stefan Wagner: 19:00 So you're saying 1976?

Simon: 19:02 Well, mid to late 70s to now. So 40 odd years. And some of the property around here in that time has risen by 50,000%. Wow. Which is ludicrous. You know, what was selling then for 100,000 or even 50,000 is now worth 50 million. I have many examples in my time of owning this company where I've acted for a lot of very successful, very intelligent, very clever people who've had terribly good, successful careers in a variety of different industries and sectors. I remember acting for actually another Swiss gentleman. who owned a property in London and had it for many years. And he moved to, I think, Zurich, and he set up an art gallery there, and he did tremendously well, made an awful lot of money for himself.

And a few years later, he asked me to sell his flat. And when I sold it, I had lunch with him, and he said, you know, of all the things I've done in my life, the cleverest thing I ever did was to buy that flat, because that has paid me more money than everything else I've ever done combined, just by owning that flat and keeping it. That's what London Property has done.

Stefan Wagner: 20:25 Excellent. Thank you very much, Simon.

Simon: 20:27 Well, thank you.

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