July 2013

Renewed tensions in Egypt, unrest in Turkey, political instability in the Eurozone, a sharp fall in global equity and bond markets (and corresponding spike in yields), and rising concerns about the impact of a looming credit crunch in China’s shadow banking sector; in our view the last few weeks have hardly diminished the long-term attractions of prime Central London property as an asset class.

Despite the increase in purchasing costs following the rise in stamp duty for properties changing hands for more than £2m, property transaction costs in London compare favourably with those in other ‘global’ cities – and particularly those in Singapore and Hong Kong. It is little surprise then that affluent Asians keen to diversify away from their domestic market are an increasingly prevalent theme in PCL property. In recent weeks the Dalian Wanda Group, owned by billionaire Wang Jialin, announced a £720m project to build a luxury hotel and apartment development on London’s South Bank.  The development’s water-side location and high specification is bound to appeal to Chinese and Hong Kong investors.

Competition still fierce

Evidence that there is still fierce competition for the best properties has been abundantly clear in our own recent activity at Black Brick. We secured a stunning apartment in a sought-after building for £2.6m in South Kensington for a Middle-Eastern client despite the active interests of two other buyers. A non-refundable deposit and a relatively swift exchange helped us to secure the property.

Other deals we have secured for our clients in recent weeks include a £3m flat with high ceilings in Chelsea needing work at just under £2000/per square foot for a repeat British client of ours who will renovate and redecorate the property.  Elsewhere we have also bought small investment properties in Kensington and Chelsea just below £1m for a West African investor keen to broaden his London property portfolio.

Meanwhile we have managed to secure a £6m three bedroom apartment for a repeat client in the prestigious Holland Green development in W8. At the south end of Holland Park and within just a few metres of the varied attractions of Kensington High Street, Holland Green is a boutique development of just 57 properties around the proposed site for the new Design Museum.  Our Singapore-based client had been shown the details of a large number of new build London properties from sales agents and developers touring in the Far East and was unclear about the true merits and value of each development.  Having been well advised by us when acquiring a property at the bottom of the market in 2009, he once again sought our assistance. Given the development’s ideal location and other high quality developments in the immediate vicinity we are extremely confident that this off-plan purchase will prove successful in the long-term.

London – the place to do business

Recent market analysis of international demand provides some powerful proof of London’s many attractions to international buyers as a place to work, live and raise a family. Contrary to some press reports an overwhelming majority – some 93% – of PCL resale property buyers work or have business in the UK.  Current levels of international demand are also not out of kilter with historical data. According to the report overseas buyers accounted for 38% of PCL resales – the same proportion as in 1990. The picture is different in the new build market so favoured by Asian buy-to-let investors. In 2012 43% of new build sales were by international investors for letting.

Meanwhile the UK’s low corporate tax rate continues to attract international businesses.  Noble Corporation, a US$9.5bn-capitalised oil drilling contractor, recently announced its plans to relocate from Switzerland to the UK to benefit from the UK’s less restrictive corporate law.

PCL prices post 32^nd consecutive monthly gain

The strength of international demand for PCL property is once again reflected in the latest industry statistics. The widely-watched Knight Frank Prime Central London index rose 0.4% in June,  a 32^nd consecutive monthly rise, for a 3.7% gain calendar year-to-date.  According to the report the lower end of prime London below the £2m threshold for 7% stamp duty continues to post the strongest gains. Due to investor demand, properties below £1m have risen 6.6% in 2013, and properties priced between £1m and £2.5m have risen 5.4%. Looking forward we do expect to see some slowdown in overall activity during the Holy Month of Ramadan which starts this year on July 9^th and due to the summer holiday season.

In the prime rental market a shortage of family homes and the continued increase in overseas interest in London has resulted in strong competition for larger properties in good locations in recent weeks. This is traditionally the strongest time of the year for the rental market as tenants seek to move ahead of the start of the school year in September.

In a UK context London continues to demonstrate greater strength than the wider UK housing market. The greater demand base is clearly reflected in a recent survey which revealed the average time to sell a property in London takes just 4.1 weeks from the time the property comes to market. This compares to 8.4 weeks for the UK as a whole. Meanwhile house prices across the UK continue to gather momentum, boosted by a gradual improvement in confidence in economic prospects and by recent government lending initiatives. The Nationwide House Price Index rose 0.3% in June. The annual change of 1.9%, though low in the context of gains in prime Central London, is the fastest rate recorded since September 2010. Elsewhere the latest monthly report from the Royal Institute Chartered Surveyors points to higher levels of activity and higher house prices in coming months. The headline RICS price balance jumped from +5 in May to +21 in June, the highest level since January 2010. House price expectations and new buyer enquiries also rose significantly.

Black Brick news

In Black Brick news we are delighted to have been selected in the inaugural Private Client Practitioner list of top 25 Residential Property Buyers and on a final note to everyone in Britain and around the world observing the holy month of Ramadan, we wish you Ramadan Kareem.