January 2010

New Year, same story

Far from the festive slowdown into Christmas and year-end that many had predicted, the most recent data on UK residential property reveals a market still buoyed by persistent supports; namely low interest rates, a shortage of supply and by a high proportion of equity and cash-rich buyers.

Nationwide building society reported a 0.4% rise in UK house prices in December from the previous month, a 5.9% gain from December 2008 and an 8.9% rise from their February trough. Meanwhile, rival Halifax reported a 1.0% change in December month-on-month, with an 8.9% hike since the low in Halifax data in April 2009 as the year finished with a flourish and demonstrating strength that very few of even the most optimistic of commentators predicted a year earlier.

Nationwide’s chief economist noted that key supports included the “significant amount of pent-up demand” that had begun to build up in the housing market and that UK unemployment “has not risen by as much as would normally be the case in such a deep recession.”

Strong start to 2010 at Black Brick

Once again these gains have been at their largest in prime central London where the supporting factors of limited supply and cash-rich buyers in no need of financing are at their most pronounced. Indeed, the compelling nature of the opportunity provided by prime central London property at the present time has been reflected in an extremely strong start to the year at Black Brick.

Camilla Dell, Black Brick Managing Partner, said: “January is often considered to be a quiet period for property transactions in the UK – but that notion has been pushed firmly to one side by what has been a very strong start to the year for us. Since the start of the year we have signed up over £20m of new mandates. Professional international property investors have continued to exploit their currency advantage in the prime buy-to-let market. Interestingly, we are also assisting a number of high-net worth families who are moving to London from overseas – attracted by the powerful combination of strong schools and London’s increasingly cosmopolitan nature. With £5m of property already acquired it’s certainly a very encouraging start to the year for us.”

Within our prime central London universe supply remains thin on the ground, but we expect the recent strength in prices to coax back on to the market many who put off selling in early 2009. The bottom of the property market was in February and March of last year. Therefore the advent of the first annual rental renewals since this time may provide a perfect opportunity for those who became reluctant landlords to return properties to the market for sale at a higher level.

£10m+ bracket enjoying renewed focus

Several months ago we highlighted the discrepancy between the buoyant and fiercely competitive lower end of the prime London property market (£1m – £3m) and the £10m+ segment where we saw better choice and better value. That gap has closed and we have had a sharp pick-up in enquiries in the £10m+ bracket in recent weeks – reflecting the general case for prime central London property and the particular value of this niche prime segment. We believe the strong increase in enquiry levels also reflects the importance of a wellconnected search agency.

Media coverage in recent weeks has focused on the strength of the prime market with The Daily Telegraph reporting that prices of property valued above £1m outside of London rose across every region in the UK in the fourth quarter of 2009. This is the first time this has happened since the third quarter of 2007.

In its most recent update on the top end of the UK capital’s property market, Knight Frank echoed this theme. Knight Frank reported that prices in prime central London rose an extremely robust 2.1% in December, up 6.1% from a year ago and some 13.8% from the low in March 2009. Knight Frank also calculates that prices are still some 13.4% below their peak. This figure is in sterling terms and therefore does not include the additional and significant benefits of a weak pound to the vast majority of international buyers. The report highlighted Chelsea, Kensington and Knightsbridge as the strongest growth areas – all three posted 3% rises in December alone.

Bankers’ bonus tax a nonevent in property terms

From our perspective the additional tax on bankers’ bonuses has had little discernable impact and fears that it might stop the prime market in its tracks have so far proved very wide off the mark. Major investment banks appear to be either delaying bonuses or simply finding other ways to remunerate their employees.

Whether or not these policies will remain in place should there be a change of government this year in the UK, remains to be seen. But what is not open to debate is that the fiscal background will get considerably more difficult as the year progresses.

The UK general election must take place this year with most political pundits expecting it in the first week of May. Given the fragility of the UK government’s finances – with some City commentators even questioning the UK’s ability to maintain its AAA rating – a considerable increase in taxes is inevitable whichever party wins. At Black Brick we believe that tax rises are likely to have a more pronounced impact on the wider UK housing market than on prime central London given the cash-rich nature and international status of so many prime buyers.

Prime central London to continue to outperform

At Black Brick we have treated the rally in house prices in both prime central London and the wider UK with a degree of healthy caution. That caution stems from the fact that these rises have been predicated on transaction numbers well below historic norms. With strong profits growth from the major investment banks and continued weakness in sterling providing an important fillip to potential overseas buyers, the short-term outlook certainly looks to be well supported.

The availability of mortgage finance is key to the broader UK residential property market but has less impact on prime property. Recent figures from the British Bankers’ Association for the main high street banks showed some nascent signs of loosening credit conditions with growth in both the number of mortgages approved and the overall value of mortgage lending. That said electoral uncertainty, inevitable tax and potential interest rate rises all suggest that the gains recorded in recent months may not be sustained into the second half of the year post-election.

Black Brick celebrates 3rd anniversary in style

It is now three years since Black Brick was established. In that short space of time we have successfully acquired over £180m of property for clients and in the last twelve months have saved our clients an average 10.5% off the asking price, despite fierce competition in a tight market. A review of the geographic breakdown of our client base over the last three years reveals that 84% of our clients are foreign buyers, primarily from Africa and the Middle East and 16% are UK residents. More recently we have noticed an uplift in the number of Indian clients looking for London property. Indian nationals now account for 11% of our client base. We are committed to developing relationships with our international clients and we have trips planned for Africa, Asia, India and the Middle East throughout the year.

Finally, may we take this opportunity to wish all Black Brick clients a Happy New Year. We look forward to helping you fulfil your property goals in 2010.