November 2012

On the basis of recent overseas business travel to meet potential investors, our overall feedback from this diverse group is that international interest in prime Central London (PCL) property remains both broad and strong.

Whilst some buyers await the details of the government’s proposals for new charges on residential properties held by “non-natural persons” – others are taking the obvious route to sidestep the potential charges by buying in their own name.

It is widely expected that the government will confirm in the coming weeks the measures it first proposed in this year’s March budget. The measures include the introduction of a new annual charge on residential properties held by “non-natural persons” and the extension of the capital gains tax regime to include the disposals of UK residential property held by non-UK residents in off-shore vehicles. However, those fearing a significantly more onerous tax regime for the wealthy should be heartened by Conservative Chancellor, George Osborne’s recent decision to rule out a general tax on high end property or any so-called �wealth tax’ on total assets.

Demand still strong – particularly below £2m

Certainly, recent Black Brick activity underlines the continued strength in demand for PCL property – particularly in the sub £2m sector. In recent weeks we have acquired a house in Notting Hill and a small pied-a-terre in Chelsea despite strong competition from rival bidders. The sales process in both cases went to sealed bids. For the best properties, competition remains extremely fierce.

These factors are also reflected in the latest industry data. The Knight Frank Prime Central London Index rose 0.7% in September. After a 10% gain over the past twelve months, this puts PCL prices at yet another record high � 15% above their pre-crisis peak of March 2008 and 51% above the low of March 2009. That the market should continue to rise despite the uncertainty about an annual charge and changes to capital gains tax shows the depth of demand. In a clear demonstration of faith in the market, the billionaire Reuben brothers have recently announced plans to develop the former In and Out club on Piccadilly that they bought for £130m in July last year into what is likely to be London’s most expensive home. The property is expected to fetch in excess of £200m once development work is complete.

Looking forward, we see prices as being well underpinned in the medium to long term. Certainly, we believe that the prospect of a sharp fall in the short-term is remote. The vast majority of foreign buyers that have dominated the prime Central London property market in the last few years have been cash rich. The shrinking of bank balance sheets and the increasing in lending standards has actually helped create a more stable ownership dynamic – while simultaneously keeping speculative new build to a minimum. We therefore see the number of potential �distressed’ sellers as relatively insignificant.

Of course, our overseas clients are not immune from a protracted global economic downturn: but a worsening of the economic backdrop is, we believe, hardly likely to result in a large volume of new sales instructions from the many international families that now call London home.

By definition, our investor clients are perhaps more sensitive to any changes in the economic backdrop. But many of these investors came to London property to diversify their portfolios away from other asset classes that were not providing the downside protection they sought. We don’t believe this perception is something that can or will change overnight. In our experience, for buy-to-let investors with high quality tenants on long-term lets, the month to month movement in prices is rarely a material concern.

With limited supply, a thriving international business community, strong education across all age groups, diverse arts and leisure opportunities – we believe that the long-term case for PCL property remains very much in place.

Value in prime markets outside of London

In the wider UK residential property market the recent data has been brighter. The Nationwide House Price Index posted a welcome 0.6% rise in October � though prices remain 0.9% lower than a year ago. The monthly survey conducted by the Royal Institute of Chartered Surveyors also sounded a note of cautious optimism in the wake of government measures to increase mortgage availability. A net balance of 26% of respondents expect transactions to increase in the final three months of the year.

In recent weeks we have begun searches for a number of clients in prime areas in the so-called �Home Counties’ that surround London. In the main these clients are keen to exploit the relative value outside of the capital and are attracted by larger green spaces and significantly cheaper prices. Unsurprisingly, family owner occupiers are the dominant buyer group in prime markets outside of London and as recent industry research shows, commutability to London and good schools are often the key factors in the price performance of property in these areas.

Our recent searches have tended to focus on the commuter belt of Surrey. For potential buyers, there is significant value here compared to Central London. Even in the most sought after enclaves such as Oxshott, Cobham and the private estates of St George’s Hill and Wentworth, prices have been relatively insulated from the downturn in the wider domestic property market. Despite these areas all ticking the good schools and strong transport links boxes prices here have yet to break the £1,000 per sq ft barrier. In Central London, it is almost impossible to acquire any property under £1000 per sq ft and we have seen properties changing hands at more than three times as much. Number 1 Cornwall Terrace, a 21,500 sq ft Grade 1 listed property overlooking Hyde Park, recently went on sale at £100m – or over £4,500 per sq ft. Developers too have also been in touch looking for suitable plots. Given the strong valuation attractions, we believe there will be an increasing focus on prime areas close to London in the months ahead.

Black Brick now in the Big Apple

In other news we have recently formed a strategic alliance with a New York based property consultancy. The point of this move is to provide a transatlantic search and advice service for our many clients with diverse portfolios of international property. Hurricane Sandy aside, New York offers many of the same characteristics as London including limited supply, a diverse international business community and a long-established position as a leading global financial centre.

If you would like more information about property opportunities in New York, please call us on +44 (0)20 3393 6091.