February 2012

It is hard to escape the clutches of the seemingly all-pervasive Eurozone debt crisis at the moment. At the time of writing, the talks between Greece and its creditors roll on, the International Monetary Fund has slashed its forecasts for 2012 global growth while successful bond issues by Italy, Spain and Portugal have been greeted by both equity and bond investors with cautious optimism.

But if economists and the financial media are understandably obsessed with the potential economic permafrost that may follow any escalation in the European crisis, events at least thus far have only served to harden interest in prime Central London (PCL) property from overseas. Meanwhile a weak pound, emerging market wealth creation, a focus on ‘hard’ assets, safe haven qualities from economic and geopolitical risks and wealth diversification all continue to drive a steady stream of the world’s financial top tier towards property in the most sought after postcodes of the UK capital.

Certainly, the start to 2012 has been a strong one commercially at Black Brick. Indeed, we completed five sharply contrasting deals in the first three weeks of January with a total value in excess of £15m. The properties varied from a penthouse in Hampstead, a large lateral apartment in need of full refurbishment close to Hyde Park, a buy-to-let property in Kensington, a house in Marylebone and an apartment in The Lancasters. The deals reinforce our belief that demand from international buyers remains robust across all sub-sectors of the PCL market. The diversity of nationalities within our growing client base also continues to be a noteworthy feature: recent buyers have come from the Middle-East, Malaysia, India, Sri Lanka and Nigeria, while new client sign-up has been similarly diverse from a geographic perspective.

Camilla Dell, Black Brick Managing Partner, says; “On the supply side there is still a marked shortage of high quality properties on the market to satisfy demand that remains strong from a broad base of international buyers. This situation is often exacerbated when a significant proportion of the few owners who are selling have price expectations for their property that have run well ahead of the market. Our clients are well advised and the vast majority have a keen sense of value.”

The latest industry statistics show price growth continued in December with a 0.8% rise in the Knight Frank Prime Central London index for the last month of 2011. This latest monthly rise takes overall price growth over the past twelve months to 12.1% with rises in Chelsea, Hyde Park, Kensington and St John’s Wood posting gains. According to the report, there has been a sharp rise in applicants searching for properties valued above £5m over the past year. Despite the rise in stock in this segment it is failing to keep pace with this surge in interest – suggesting that the mid to higher end of prime property in London may be best insulated from any potential fallout from the Eurozone crisis and best placed for price growth in 2012. Despite rising stock levels, the overall ratio of new clients to new sale instructions rose to 4.3 in December, according to one major real estate agency.

Data for the wider residential market in the UK continues to be mixed. With unemployment hitting a seventeen-year high and widespread concerns about the outlook for the economy, confidence among buyers outside of London remains low. With the UK economy struggling, many economists believe that the Bank of England will print more money in an additional round of quantitative easing to help boost the economy. With UK official interest rates likely to remain low for the foreseeable future, there is little in the economic tea leaves to suggest that the weakness of the pound is likely to reverse any time soon. Ironically, this is likely to provide just as significant a support to international buyers incentivised by a weak pound as it will aid domestic homeowners and buyers.

In truth, market dynamics in the wider UK housing market have changed little in the past year as evidenced by averaging the 1.3% fall in the Halifax House Price Index for 2011 and the 1.0% gain in the Nationwide Index for the same period. We believe that a lack of supply and low interest rates will broadly cancel each other out in the months ahead.

Bankers’ pay under pressure

The political furore and widespread media campaign against perceived excess remuneration in the City and in boardrooms across the UK looks set to ensure that, at the very least, the cash element of the annual bonus round will be substantially lower for many in 2012 than in previous years. The campaigners are seeking a structural change in favour of longer-term incentives that more closely align employee and shareholder returns. A decade ago such an out-turn might have had a significant negative impact on property prices in prime Central London. However, given the continued strength in overseas demand and the current lack of supply, we do not believe that these developments will have anything more than a muted impact on prices in PCL.

The greater impact may well be felt on prime property outside of London, where domestic buyers represent the largest demographic. In previous property cycles the rule of thumb has been that price rises and falls in London filter down to the so-called ‘home counties’ commuter belt and prime country house market around twelve months later. But as the demographic of London property buyers has changed so has the relationship between London – and particularly prime Central London – and the wider UK. While accepting that there will always be regional differences, UK property is no longer a ‘two speed’ market – prime Central London is a distinct and separate market to itself, driven by demand and supply dynamics that simply do not apply to other parts of the UK – prime or not. Contrasting with the double-digit gains enjoyed by prime property owners in central London in 2011, prices in prime regional markets fell 3.3% over the year as a whole. Property closest to London did outperform – but only marginally – prime real estate in the South-East fell 2.0%.

With UK nationals representing an estimated two-thirds of buyers at the top-end of the country house market, overall market confidence is, unsurprisingly, notably more sensitive to the vagaries of the domestic economy. With banker bonuses down sharply and widespread job cuts in the domestic financial services sector, the outlook for overall prices in prime property outside of the capital appears mixed at best, at least in the short-term.

However, the significant under-performance of prime property prices outside London compared to those in the centre of the UK capital does at least represent an opportunity. For some potential buyers, the country house market can represent the best of all worlds, offering space, privacy, very attractive value for money on a square foot basis with strong educational and leisure opportunities – all within striking distance of the bright lights and business opportunities of London.

New Black Brick Services

We are keenly aware that managing a property can sometimes be time consuming and stressful – all the more so if you are a landlord based in a different country to your investment. The new Black Brick Property Management Service is designed to ease those stresses but it is about more than simplifying the process of property investment and co-ordinating your tenancies. It is as much about protecting your property asset and maximising its return potential. The provision of a high quality and efficient management service can significantly increase the appeal of a property to potential tenants – helping to attract both higher rents and higher quality tenants. We are also launching a Vacant Care Service to help those clients who are away from their property for extended periods. The service is designed to help ensure our clients’ properties are maintained to the high standards they expect, are kept safe and secure – and perhaps most importantly – that the house feels like a home when clients return.

For more information about either of these comprehensive services, please contact our highly experienced Property Manager, Yasmin Gale on +44 (0)20 3393 6093 or on yasmin.gale@black-brick.com