January 2012

English wordsmith, Samuel Johnson, famously wrote the following to a friend in the late eighteenth century: “Sir, when one is tired of London, one is tired of life, for there is in London all that life can afford.” At the time, the English capital was probably the most populous city in the world and almost certainly the most ethnically and culturally diverse. As the centre of world trade London was attracting wealthy migrants from Africa, Asia, the Caribbean and North America who came to prosper from the unique business opportunities and to enjoy the diverse cultural, leisure and educational attractions that could not be found in any other global city. Nearly two and a half centuries later, London is not the undisputed centre of the modern world it was in Johnson’s day, but its many and varied attractions remain as strong as ever to a demanding and diverse pool of international elite.

Demand levels strong right up to year end

Activity in the last few weeks at Black Brick certainly bodes well for the coming year. Despite the on-going travails in Europe – and in some respects precisely because of the travails in Europe – demand for property in the most sought after postcodes of prime Central London continues to be robust. Indeed, we have seen a sharp rise in enquiries from Greece in recent weeks. We have not yet signed any new clients from Italy, but there has been a dramatic spike in internet traffic originating in Italy to the Black Brick website!

Indeed, rather than the customary slowdown ahead of the Christmas holiday, activity at Black Brick continues to be brisk with international investors to the fore. In terms of geographic diversity interest from the Middle-East has strengthened in recent weeks as political stability begins to return to most states in the region. However, the stand-out feature of the market continues to be the imbalance between demand and the shortage of available properties for sale. Camilla Dell, Black Brick Managing Partner, says: “Tight supply has remained a feature of the prime Central London property market throughout 2011 and we see little reason why this might change materially in 2012. High quality properties in the most sought after post codes are difficult to find and even more difficult to secure. A close relationship with selling agents can be a crucial advantage in this environment.”

In the last few weeks we have completed the purchase of our second property on behalf of a client in the highly sought after Lancasters development. The Lancasters is a parade of striking, Grade II listed houses overlooking Hyde Park that marries the space and light of these hugely impressive period buildings with the very best of modern interior design. With 24 hour concierge service, strong security and excellent leisure facilities the development has, unsurprisingly, sold extremely well with prices exceeding £3,000 sq/ft. Due to our strong relationship with the agent we were able to secure a significant saving for our client – acquiring the apartment and underground parking space for £7.85m. Identical apartments in the development have previously sold for in excess of £8m.

Elsewhere we have recently completed our first deal on behalf of a client with Ireland’s National Asset Management Agency (NAMA) – a body established by the Irish government in December 2009 to manage the property assets of the country’s beleaguered nationalised banks. NAMA has valuable property assets in London and we acquired a substantial house in North West London in a prime location for a client for £6.55m. On completion the client’s bank valued the property at £7.1m.

Contrasting fortunes in UK property

The latest figures from the sector’s data gatherers confirm how London’s finest property continues to withstand the pressures of the worsening global economy. The Knight Frank prime Central London index rose 1.0% in November. Prices have now risen 12.6% in sterling terms since the start of 2011 and stand some 6.2% ahead of their previous peak prior to the demise of Lehman Brothers in March 2008. The strongest price rises have been seen in the £2.5m to £5m bracket – the focus for many investors – with a 16.1% rise since November 2010.

The difference in market conditions inside and outside of central London remains as stark as ever. Job losses, shrinking real incomes and concerns about the economic outlook are weighing heavily on the confidence of potential purchasers. However, extremely low interest rates remain a powerful counter to these negatives.

The European crisis has seen a flight to UK gilts – pushing down yields and corresponding interest rates across the economy. Five year fixed rate mortgage rates recently hit an all-time low of under 3.7%. According to Nationwide, UK house prices rose 0.4% in November for an annual gain of just 1.6%. The mortgage provider highlighted that “house prices have remained surprisingly resilient in recent months” but warned that “demand conditions remain extremely subdued in the UK housing market.” The widely-watched monthly survey from the Royal Institute of Chartered Surveyors also reported a mildly firmer tone to recent activity, albeit that the headline net price balance reported by its members remains in negative territory and only rallied from October’s -24 to -17 in November. RICS also reported new buyer enquires rose modestly – for the third month in a row – while price expectations remained negative. The Halifax House Price Index posted a contrasting 0.9% fall in December.

2012 – Year of the Dragon

So what may 2012 hold for those interested in prime Central London property? In the Chinese zodiac 2012 is the Year of the Dragon. The dragon holds special significance in Chinese culture and is considered the ultimate in auspicious symbols – symbolising power, success and happiness. As omens go for 2012, it’s not a bad one.

However, the European debt crisis rolls on – and we are not in a position to second guess what solution, if any, the continent’s politicians and technocrats may yet determine at this critical juncture. Thus far the problems in Europe have accelerated demand for prime London property as a safe-haven asset. At a time when many traditional safe-haven assets are proving anything but, we believe that the case for tangible assets where supply is limited within a diversified wealth portfolio will remain a compelling one.

According to the many year-end economic round ups we have read in recent weeks the outlook for the global economy in general and for developed nations in particular is far from rosy. The vast majority of economists are forecasting economic growth in emerging markets to continue to outstrip that of the developed world. HSBC forecasts GDP growth of just 0.6% for the developed world and a relatively robust 5.3% in emerging economies in 2012. In short, wealth creation will continue in the developing world – and it is this secular trend that looks set to remain a key support to London house prices. While a sharp contraction in the global economy, should it occur, will have some repercussions for property prices in London, we believe prices will remain relatively resilient given the cash-rich nature of the overwhelming majority of buyers.

London is, of course, host to the 2012 Olympiad – and we expect media momentum for the Olympics to build appreciably in the coming months – showering further global media attention on our capital. We believe the games will act as a further fillip to our market, showcasing many of the capital’s attractions.

Looking forward, the main negative as we see it is likely to come from the City. We do not expect the domestic financial services to be an influential buying force in prime London in the months ahead. With bonuses sharply lower than previous years and widespread redundancies across London’s investment banks the sector is unlikely to provide its customary source of fresh capital into the prime property market at the start of the year. However, we do not believe this will outweigh continued demand from overseas.

Black Brick News

We are delighted to announce a new addition to the Black Brick team: Caspar Harvard-Walls. Caspar brings to Black Brick an extensive knowledge of the prime Central London property market from his time at Foxtons where he sold over £80m of property. Caspar has worked closely with both high net worth individuals and corporate clients. He has a thorough understanding of how to secure the best deal for his clients and a deserved reputation for discretion and integrity.

In other Black Brick news we are further broadening our offering to clients with the launch of a complete Property Management Service. This will assist our clients by both ensuring that the needs of tenants in rented properties are met and managing vacant properties when our clients are not in London. Further details of our property management service will be announced in the next few weeks.

Finally, may we take this opportunity to thank all our clients for their business in 2011. We wish all a peaceful and prosperous 2012 – and look forward to assisting you achieve your property ambitions in 2012.