October 2013

No signs of demand slowdown

Sealed bids and fierce competition remain part and parcel of the market for the best homes in London as growing international and domestic demand continue to outstrip supply. From a global perspective the recent volatility in emerging market asset classes has demonstrated the vulnerability of asset prices in the developing world to short-term capital flows – further reinforcing the attractions of prime Central London (PCL) property as a safe-haven asset to the fast growing global pool of high net worth individuals.

Evidence of these trends is hardly difficult to come by. As reported in the Financial Times, 45 investors recently exchanged contracts at Hong Kong’s Mandarin Oriental Hotel for flats some 6,000 miles away at the Galliard Homes Capital Towers all-private homes development in Stratford, East London. Elsewhere, a small development of five 2 to 4 bed lateral apartments and a penthouse in Battersea sold out within a day in September – one of a number of boutique developments we have seen snapped up within hours of coming to market or without ever being formally marketed at all.

Help to Buy – good news or bad?

There has been a lot of press coverage recently about the Governments initiatives to help first time buyers onto the property ladder, with David Cameron recently commenting that he did not want to be the person telling young people that they can’t buy a home unless they have rich parents. In our view, the Help to Buy scheme is good news for first time buyers who, for many years, have been unable to get on the property ladder and have been forced to rent. However, the consequences of the Government’s intervention into the market in this way may not be for the better. Undoubtedly, the market sub £600,000 is likely to rise and get quite competitive, particularly as the second phase isn’t limited to just new build. The knock on effect is also likely to cause changes in the lower end of the rental market. Help to Buy will potentially take hundreds of tenants out of the market and could cause rents for properties valued up to £600,000 to fall. In central London, this is likely to be seen on one bed and studio flats.

Whether it will be for the best remains to be seen – overall, we are not sure it will be. Camilla Dell comments, “The problem with Help to Buy is it’s a bit like credit cards – people take on debt they can’t afford, which is dangerous. In my opinion, the Government should really be addressing why housing is so expensive in the first place, rather than finding a way to fund it. We need to build more homes so that supply eventually meets with demand, and that’s where Government’s focus should lie.”

Chelsea barracks finally on track?

In development news, work on the 13 acre Chelsea Barracks development bought by the property and infrastructure arm of Qatar’s sovereign wealth fund and the Candy brothers in 2007 for £959m from the Ministry of Defence will start shortly, according to press reports. Outline planning permission is already in place for 448 houses and flats, a sports centre and retail outlets, but the project has been held up for five years by a number of setbacks including widespread criticism of the original development design by high profile figures including the Prince of Wales.

Since Prince Charles’ infamous letter of March 2009 to the Qatari authorities effectively derailed the original design, prices in prime Central London have risen over 60% in sterling terms. Within walking distance of the King’s Road and London Victoria, demand for units at this prestigious development is likely to be strong.

We also note with interest that a London mansion in South Kensington with an unprecedented half acre of gardens has gone on sale for a record £105m. With 15,000 square foot of accommodation and existing planning permission to add a further 8,000, the property is described as “arguably the best private house to become available in prime central London in the past quarter of a century”.

Black Brick data shows international demand is broadening

With regard to the current state of the PCL market our own statistics at Black Brick paint what we believe is a very clear picture of the major trends. In the three months to end-September 2012 Black Brick completed on £32m of property for buyers from five different countries. In the same period this year we have completed on properties with a combined value of £53m, a rise of just under 66%, for both investors and owner occupiers from 10 separate countries, double the number of nationalities from 12 months ago.  The overall message from both data points is, we believe, unequivocal: international interest in prime Central London is strengthening as international interest continues to widen.

Unlike a number of PCL specialists, we are happy to advise clients with budgets starting from £500,000 and we have completed on a number of investment properties for clients at or below £1m in recent months. This segment of the market continues to enjoy the strongest price growth. Among these recent deals was a three bed, three bathroom apartment in a modern portered building we acquired for an overseas client as a buy-to-let investment for £675,000. On the border of Maida Vale and Kilburn, the flat further benefits from underground parking and a branded David Lloyd gym in the same building. We are managing the letting of the flat, including selecting a suitable letting agent and preparing the flat’s presentation for market.

In addition to these completed sales we have signed some 20 new clients in recent weeks heralding from countries including Nigeria, Saudi Arabia, Zambia, Turkey, Mauritius and Azerbaijan. Calls from prospective UK resident clients also gives further ammunition to the argument that domestic interest in PCL property is reawakening too; 30% of our new clients over the past month have been UK citizens.

Rental demand robust….in the right areas

On the rental side of our business 100% of properties that we currently manage on behalf of clients are let. Yields on prime Central London residential property currently range from below 3.0% to 5.0%.

With the domestic economy picking up and even the much maligned banking sector showing signs of a return to health, we believe that demand for rental properties in the right areas will remain strong. Indeed, Marsh & Parsons, an agency specialising in Notting Hill, Holland Park and Kensington reports a 42% increase in corporate inquiries for high end properties above £1500/week.

However, we would urge any potential off-plan buy-to-let investors to speak to us first to help avoid some of the pitfalls of remote investing in secondary areas of London – and to ensure their investment really does have the characteristics that will support long-term rental values. We have come across a number of unadvised buyers recently who have got their fingers burned buying into speculative off plan developments in zones 3 and 4.

The importance of good advice has been powerfully demonstrated by recent data from Savills, which showed the best performing decile of prime Central Lomond properties rose 190% in the eight year period to end-June 2013 while the worst performing decile rose just 63%. Clearly, such significant price variation can be further amplified over longer-time periods.

Latest data shows prices rising 0.7% in September

According to Knight Frank, property prices in PCL rose 0.7% in September. The value of homes in London’s most sought after postcodes has now risen by 5.5% year to date and by 7% over the past 12 months. Their research also concurs with our own experience – most activity is happening below the £2 million level.

Meanwhile, the UK public’s growing confidence in the economy and their own financial prospects is also evidenced in the strength of the broader UK housing market. Supported in no small part by recent government initiatives, the widely-watched headline balance recorded by the monthly survey by the Royal Institute of Chartered Surveyors jumped to +40 in August from +37 in July, it’s highest level since November 2006. Activity levels are also increasing, albeit from a relatively low base, with RICS reporting the average number of sold properties per surveyor rising to its highest level since January 2010.

Black Brick deals of the month

Our recent client activity has included securing a £2m investment apartment for a repeat client from Jordan. The property is a rare new build in a boutique development of just six apartments in Hanover Street in Mayfair. The development is due for completion in a few weeks and we believe its excellent location will mean strong rental demand as well as underpinning the potential for the long-term capital growth. The completion of the Bond Street Cross Rail station in 2016/2017 is also likely to further improve the property’s attractions to potential tenants.

Further afield we recently completed our first acquisition of a Scottish estate. This very important Ayrshire property close to the West Coast of Scotland and with some 150 acres of accompanying land had been on the market for several years with major agencies without a single offer.  Through our client base and contacts we were able to match this unique property to an Asian buyer who had also been looking for the right estate in Scotland for some time. Clearly, Scotland is not is not our usual market – nor do we expect it to be. However, we believe that high-end property is a personalised and not a commodity market – and that success is all about matching the right buyers with the right properties and this is where we excel.

Back in London we were recently appointed to manage the sale of a big lateral flat in Chesham Street in Belgravia. To protect his privacy the owner did not want the apartment openly marketed and we were charged with finding a buyer privately. Contracts were exchanged in a matter of weeks for just over £11 million.

We welcome Jessica Parkinson to the Black Brick Team

Finally we are delighted to announce the recent appointment of Jessica Parkinson who has joined the team as a buying consultant.

Jessica started her career at CBRE after obtaining a first class degree in Real Estate from Newcastle University, where she was awarded the impressive title of “Youngest Chartered Surveyor in the UK” after she gained her RICS qualification in 2009. Since then, Jessica has been involved in starting up a niche commercial property practice, Dowley Turner Real Estate, where she gained a vast amount of knowledge and valuable experience as a commercial property agent. Jessica is a natural people’s person and has a solid track record in building strong and trusting client relationships.

Jessica comments: “I am very excited to join London’s leading independent buying agency. It has been a long term ambition of mine to move into the residential property market, and I look forward to using my previous commercial property experience to enhance the Black Brick offering”.

Camilla Dell, Managing Partner of Black Brick, adds: “Jessica brings a diverse and valuable skill set to the Black Brick team having worked across several sectors, including retail, industrial, office, property management and residential development, so she will be a valuable asset.”