November 2013

Fresh surge of buying interest spurs prime Central London property prices to new highs

A continued broadening of international demand alongside a marked pick-up in interest from domestic UK buyers have combined to provide firm support to prime Central London property prices in recent weeks.

According to the latest data from Rightmove, a leading online real estate portal, asking prices across London jumped 10.2% from early September to early October as sellers seek to exploit the capital’s increasing desirability to buyers of all types.

While it is possible to point to specific recent economic and geopolitical uncertainties including the US government debt stand-off as specific catalysts to international safe-haven demand, our own take at Black Brick is simply that the pool of high net worth individuals seeking portfolio diversification continues to deepen and broaden.

That breadth is evidenced in the doubling of nationalities we have acted for in recent weeks compared to the same period last year. Central London property is, rightly in our view, perceived as a stable and solid asset. For the fast-growing pool of international high net worth individuals, one or a number of London investment properties are likely to form a component of a larger and diverse portfolio of assets which may include other international properties. Unlike equities or bonds, prime central London property offers owners genuine utility value via a host of leisure, education and business opportunities in this increasingly cosmopolitan city.

Many of the ‘overseas’ buyers referenced in analysis of the PCL property market clearly call London ‘home’. Recent research of 3,500 property sales in London over the 12 month period to June 2013 by Knight Frank showed that while 49% of buyers were not UK nationals, only 28% actually lived outside of the UK.

Case for London as ‘World’s Capital’ strengthened by recent business and tourist developments

Indeed, London’s position as the world’s pre-eminent international business centre has been given further support by a number of recent developments. As we write, London is playing host to the 1,800 delegates and 15 national leaders attending the World Islamic Economic Forum.

London is the first city outside of the Islamic world to host the event, which last year saw deals worth £5.8bn struck. According to recent press reports, the UK is set to become the first non-Muslim country to issue debt that complies with Islamic financial law in a further bid to boost the UK’s position as a centre of Islamic finance.

Looking forward, the recent efforts of Chancellor George Osborne and London Mayor Boris Johnson to court Chinese tourists and forge stronger trade links between the UK and China also bode well for the London economy. As part of the recent pact, Chinese wholesale banks will be allowed to set up branches in London for the first time.

Meanwhile, the easing of visa requirements is, we believe, likely to result in a significant increase in Chinese tourists to the UK capital. A new, 24-hour “super-priority” visa service will become available to Chinese nationals from next summer, while officials are also expected to expand the VIP mobile visa service that currently operates only in Beijing and Shanghai.

Smaller is better: dynamics in sub-£2m sector remain strongest

At Black Brick, our continued advice to investor clients is that smaller is better in London. Indeed, in the vast majority of cases we believe it is better to own a portfolio of smaller rental properties than one large one.

Rental demand remains highest for properties priced at £1000 per week or less, and we see no obvious reason why this should change materially for the time being. Mortgage availability may be increasing, but as we have seen, competition remains fierce, resulting in many would-be owners needing to rent. One of the larger London lettings agencies recently reported that rental applications across the company’s branches in the capital and the South East rose 18% over the summer while agreed lets jumped 36% compared to the prior three month period. While some of this can be explained by seasonal factors, there is clearly robust demand underpinning the lower end of the prime London rental market.

The corporate market is now focused on this area too – creating a fresh pool of rental demand at the lower end of prime. The corollary of this cost consciousness is that corporate demand for large and expensive rental properties has all but evaporated. These forces are likely to continue to drive the corporate market for the foreseeable future.

Importance of advice: ‘true’ value hard to determine in current market amidst new sales tactics

On the sales side we have noticed a distinctly different approach to the marketing and sale of sought-after mainstream London properties compared to pre-2007/8. Back then, mainstream estate agents largely won new clients by providing the highest valuation. This time, we have seen many homes in Central London, but outside of the most sought-after prime postcodes being placed on the market at competitive levels in order to maximise initial interest. Estate agents are then holding one morning/afternoon ‘open houses’ for viewings and then overseeing a sealed bid process. For both vendor and agent, this process has obvious time management benefits.

However, in such an environment it is very difficult to know where the ‘true’ value of a property lies and what the appropriate bidding level should be for any given property relative to its asking price. This is precisely where expert local knowledge can add significant value to a buying process that is often seen as opaque and impenetrable by frustrated buyers unaware of the tactics estate agents use to maximise the price for their clients.

As in the rental market, the lower end of prime, below £1 million, remains the strongest of the segments within the PCL sales market. If any evidence were needed, we have been involved in seven sealed bids for properties below £1 million in recent weeks including our Property Acquisition of the Month below. That said, demand interest at the top end of PCL property is clearly in rude health too: according to news reports it took the agents of the Saudi royal family less than 48 hours to sell 10 properties on Bishops Avenue in Hampstead for £80 million to investment company LJ Capital.

Property Acquisition of the Month

Our UK client was a first-time buyer looking at properties around £600,000 who felt they needed assistance in what is currently an extremely competitive area of the market. Our service has proven very valuable in a number of ways. Unsure which areas would provide the best combination of lifestyle and investment security we guided our client to specific areas which fulfilled this criteria. We short-listed suitable properties and won a sealed bid for an apartment in Islington in which there were five separate bidders following a two-hour open house. In this pressurised scenario having someone with in-depth property knowledge has been invaluable to our client.

Growing confidence of domestic buyers change market dynamics

Our own experience of the market’s recent strength is reflected in figures from the larger mainstream agencies. According to Savills, prices in across all prime London increased by 3.2% over the three months to September 2013 and by 9.2% compared to this time last year. According to Knight Frank, prices in prime Central London rose 0.6% in October from September and 10.1% from a year earlier.

Evidence of growing domestic confidence in the housing market can be found in the continued rise in UK nationals within our own new client sign-up. Many of these UK clients have already tried and failed to acquire the property they want – and have recognised the value to be added by specialist skillsets in such a competitive market.

According to the British Council of Mortgage Lenders gross lending rose 41.2% in September from a year ago as consumer confidence in the sustainability of the UK economic recovery grows and the government’s various supports to the residential housing market kick in. The widely-watched Halifax House Price Index rose 1.0% in October and 5.8% from a year earlier. Elsewhere the headline price balance of the monthly survey conducted by the Royal Institute of Chartered Surveyors (RICS) rose to +54 in September, its highest level since mid-2002. Sales numbers also hit a four-year high, according to RICS.

At Black Brick we believe that rising domestic economic confidence may herald a change in the dynamics of the prime Central London property market in the months ahead.

Caspar Harvard-Walls, Partner at Black Brick, says: “Over the last few years the principal driver to transaction levels has been the trickle-down effect from properties at the top end selling and PCL vendors moving outwards to gain more for their money.”

“Looking forward we believe the market will be fuelled more from the bottom up than has been the case since 2008/2009. We see the number of transactions at the lower end of prime continuing to increase as first time buyers have easier access to finance through both Help to Buy and the increased appetite from high street lenders. Coupled with the continued international interest we see both prices and transaction numbers rising into 2014.”

Black Brick wins Property Adviser of the Year

We are delighted to report that Black Brick won Property Adviser of the Year at the recent prestigious Spear’s Wealth Management Awards. The judges said that Black Brick “offered the most comprehensive service in a very competitive market under head Camilla Dell, a decisive character in the industry and the go-to for banks”. The judges also praised our free concierge service for buyers.