One of the key reasons why Black Brick’s buyers opt for an apartment over a house is convenience. They want a home which they can lock up and leave whenever they please, which has on-site security, and where tiresome matters like maintaining communal areas and keeping insurance up to date are automatically taken care of.
This kind of service doesn’t come for free, of course. Building owners – freeholders – or the management companies they use to run their properties recharge all these costs to the individual apartment owners.
And the service costs in London can vary wildly building to building, with older properties generally offering only essential services and billing accordingly. But the cost of buying into one of London’s most luxurious new build developments includes paying an annual fee to help with the upkeep of what is often a very comprehensive array of residents’ amenities, from spas and swimming pools, to screening rooms and resident’s lounges.
What Are Prime London Property Service Charges?
Like any managed developed, service charges in luxury London developments are a way for building owners or managers to fund ongoing costs, including building insurance, maintenance and repairs, services like gardening and window cleaning, and utility bills for communal areas and lifts.
They may also include a charge for security or concierge staff, a charge to go towards paying for shared residents’ amenities, and – usually – a sum paid into a central sinking fund which can be utilised if really major repair work is required.
Most buildings levy service charges based on the square footage of your home – so you will pay four times as much for a 2,000 sq ft penthouse as you would for a 500 sq ft studio.
When going through the legal process of buying a property in a prime London development, a buying agent will be able to talk you through the service charge structure in the building you are interested in, and put the cost into the context, by benchmarking against the cost of service charge in other similar buildings nearby.
It is well worth paying close attention to the small print of a service charge.
Rising inflation since the mid-pandemic has increased service charge costs substantially with buyers in Prime Central London routinely paying around £15 to £20 per sq foot of their property per year which equates to around £17,500pa for a 1,000 sq ft home.
In some cases the fee is £30-plus, hiking annual costs to £30,000 for a 1,000 sq ft home.
Service charges don’t usually cover the cost of any cleaning or maintenance to the interior of your home, or “extras” like meals at the in-house restaurant, or treatments in the residents’ spa.
It is also important to look at past price rises at the building, and to really understand how future price rises are structured to ensure you don’t end up footing spiralling bills for years to come.
Why Service Charges Are Higher in Luxury Developments
Luxury developments in London have been upping the ante in terms of amenities in recent years, in what has become a highly competitive market. And London property service charges have been increasing as a result.
At 1, Grosvenor Square in Mayfair, for example residents enjoy the services of a concierge, security staff, and a private health club with a 25m pool, spa, gym, yoga, and ballet studios.
At the OWO Residences by Raffles, in Whitehall, there is 30,000 sq ft of private amenity space, including lounges, a private dining room, extensive wellness centre, a cinema, and a private landscaped garden.
The scale of these shared amenities simply costs more to upkeep than a more modest building with just a daytime doorman and communal hallways and stairs to consider.
How to Assess Value Beyond the Annual Fee
As prices have increased so service charges have become a controversial issue in the prime London property market.
According to property giant JLL the average service charge paid by owners on new developments in London have increased by an average of 43 per cent for mainstream buildings, and by 89 per cent for luxury homes in the last five years.
To make matters worse, some owners have complained that the breakdown of their annual service charges is not transparent; they don’t actually know how their money is being spent Others accuse managing agents of needless overspending.
Another issue is that the standards of management across London’s buildings are not equal. Irrespective of the cost of service charge, some are beautifully maintained and run, others leave something to be desired.
This is where Black Brick’s encyclopaedic knowledge of London’s property market comes into play. We are independent and can advise our buyers about whether a building has a reputation of being well run, and would not even show a client a home in a building where we were aware of serious issues.
Service charges are an almost-inevitable fact of London apartment living (the only exception is if you opt for a home which comes with a “share of freehold”, something Black Brick can advise on).
And, of course, living in a well-serviced building provides you with the luxury of hotel-style living, complete with dog walking services and florists on call, whenever you are in London. For many the seamlessness of the services on offer are well worth a substantial annual cost.
But even if buyers are willing and able to pay high service charges, they do need to consider whether they are actually good value for money.
If not, you could be creating a future problem. Because, while a building with a high service charge might seem worthwhile whilst everything is brand new and state of the art. But by the time you come to sell a home in a slightly dated building with high running costs might be difficult to move on from – an issue which Black Brick helps its buyers assess.
What Buyers Should Check Before Committing to a Purchase
Due diligence is an essential part of a property investment, and Black Brick has an extensive contact book of legal and financial advisors who can assist. Having a buying agent in your corner is also hugely time saving when it comes to assessing whether a building’s service charge structure is reasonable and clear, or overpriced and likely to escalate in price.
Questions you will want answered include how much service charges have increased within the past few years, whether there are any major works on the cards, whether there is a sinking fund and how substantial it is, and how building owners intend to calculate future increases.
Buyers must also be clear on precisely what their service charge includes, and what amenities they will need to pay extra to enjoy.
And while having a bio-hacking spa, a curated wine cellar, a golf simulator, a padel court, and a billiards room might sound like tremendous fun, buyers also need to think through how much they will actually use these facilities.
Are you looking for property in London, or need an expert to manage your property investment goals? Contact our team with your requirements using our simple form, or call us today on +44 (0)20 3141 9861