July 2012

For all the media column inches dedicated to the higher tax changes impacting high end property in London – and particularly those affecting purchases by wealthy foreigners in tax ‘envelopes’ – there is scant evidence yet these charges are having any impact on the broad strength of demand for homes in the UK capital.

Safe haven demand from those concerned about rising economic and geo-political risks continues to underpin prices, while London’s enduring attraction as a trophy asset and international business centre is also an important factor behind resilient overseas interest.

With the Eurozone lurching from one crisis to the next, political and economic uncertainty around the globe appears unlikely to dissipate any time soon. We therefore believe international buyers looking to protect their wealth will continue to hone in on London’s unique attractions. A good example is the sharp increase in enquiries from wealthy French buyers looking to escape both the prospect of a euro break-up and the grim reality of sharply higher taxes under new president Francois Hollande.

Overall demand remains strong

Meanwhile, the vast majority of recent foreign buyers in London have reacted to the higher tax charges on “non-natural” buyers by acquiring in their own name – exactly as the Chancellor intended. Some have also attempted to mitigate their Inheritance Tax (IHT) liability by borrowing heavily against the property (In the UK the mortgage is deducted from the property value for IHT purposes). This is a simple and relatively elegant solution to the demise of off-shore companies for property transactions, but is not always appropriate in a market where cash is most definitely king and where vendors prize highly the ability to complete quickly.

Indeed, while private banks and specialist lenders are still happy to write new business at the top of the property market, the simple fact is that the mortgage process now takes longer than it did with significantly more stringent lending criteria. In a market where sealed bids continue to be the norm rather than the exception, this approach relies somewhat on a patient vendor and competition that are not cash buyers, neither is common.

Our own growing and geographically diverse client list reflects these forces and recent activity provides meaningful insight into current market conditions. We have had a very small number of clients adopting a ‘wait and see’ approach in the wake of the latest tax regime changes. However, for the overwhelming majority it is very much a case of business as usual. We have acquired a fabulous £16m family home in Holland Park in the last few weeks on behalf of an African client. Despite no real marketing whatsoever, three other parties were aggressively pursuing the property. However, it was our client’s ability to complete quickly that secured this outstanding home for his family against fierce competition.

Elsewhere, we have also recently acquired two adjoining apartments in St. John’s Wood for an Indian client for a total of £5m. Overlooking Lord’s Cricket Ground in a modern portered block, we believe there is significant scope for adding value once the apartments have been knocked through and refurbished with Vastu principles to the client’s high standards. Indeed, even after the strong run in prices there is still scope to add value to properties in London, particularly when lateral living spaces of this size in such a desirable location are so rare.

Our overall view of the PCL market is that while there has been a small increase in available stock, there is still a severe shortage of high quality properties in the most sought after areas. To put that assertion in context, we viewed some 30 properties on behalf of the aforementioned African client, but only the one in Holland Park fulfilled the exacting criteria. Simply put, competition remains fierce for the best properties.

Safe-haven, culture and business – a powerful combination

The continued imbalance between demand and supply is reflected in the most recent market data. Knight Frank’s monthly Prime Central London index rose 0.7% in May, leaving prices 10.7% higher than a year ago and some 47.3% higher than the low of March 2009. To quote a recent report from CBRE, the world’s largest commercial real estate advisory: “Super prime London is seen as both a safe haven for international capital, and somewhere to enjoy in sunnier, more prosperous times. It is unique in this respect and stands out from the elite group of super prime cities thanks to a combination of its cultural heritage, the position as a leading global financial centre and a strong track record as an asset class in its own right.”

In contrast, overall house prices in the UK remain broadly unchanged from a year ago on both the Halifax (-0.1%) and Nationwide (-1.5%) House Price Index measures. This picture is backed by the latest monthly survey by the Royal Institute of Chartered Surveyors, which revealed 67% of surveyors reported no change in prices over the last three months. The only other data of note is the sharp slowdown in transactions at the bottom end of the UK housing market following the expiry of the stamp duty holiday for first time buyers at the end of March.

In the prime London rental market, official data points to recent weakness. But to reiterate a point we have highlighted in a number of recent updates that is certainly not our experience on a day-to-day basis, nor is it the experience of our clients. Given the difficulty in obtaining mortgage finance, many would-be purchasers are being forced to rent. While there are certain peripheral areas of prime London where there is ample supply relative to demand, in the core prime post codes rental demand remains strong and supply constrained.

Property Management Services

It is now six months since we launched our Property Management and Concierge offering and we have been delighted with the popularity of these services. The team currently manages 20 rental properties on behalf of clients with a further 10 managed on a Property Concierge basis. For those who do not spend much time in the UK, the Property Concierge service can be particularly helpful, ensuring everything is in order when the client visits the UK. The service helps owners make better use of their property rather than having to use a hotel. Prolonged vacancy can also nullify insurance claims so insurance compliance is an important part of the service offering that is tailored and personal. We believe this clearly differentiates us from other managing agents who look after upwards of 200 properties.

Black Brick welcomes Hend Maktari

In other Black Brick news we are delighted to announce the arrival of Hend Maktari to the new role of Business Development Manager. Hend brings a wealth of experience in the high end international property market to Black Brick, having specialised in high-end developments and properties in the Middle East and West Africa market for the past decade. In 2009 Hend pioneered the successful launch and opening of the West Africa sales office for The First Group, a leading independent residential and commercial developer based in the Middle East. She successfully grew the team there from two to over 160. Over the course of her career Hend has built up an extensive global network of loyal clients and trusted contacts. She joins the Black Brick team to help drive new sources of business.