September 2013

Property prices in London’s most sought after postcodes have continued to edge higher over the British summer. August’s 0.6% rise for Knight Frank’s Prime Central London index marks the 34th consecutive monthly increase for the benchmark. Prime Central London (PCL) prices now stand over 60% higher than their market low of March 2009 in sterling terms and have posted a 4.8% gain year–to-date in 2013.

In spite of these prices, buyer interest shows no sign of dwindling and we continue to sign new clients at a record pace. In the main, the lower end of the prime market below £3m remains the focus of this attention.

With renewed volatility in developing world bond and equity markets, heightened global geo-political tensions in Syria and the European debt crisis far from over, the attractions of PCL property as a safe-haven asset are far from diminishing. Knight Frank says its new buyer applications in August rose 33.9% from a year ago.

Growing domestic presence

What is particularly noticeable among our own new clients is the increasing proportion of domestic buyers. In August, 24% of new client enquiries at Black Brick came from UK buyers Low borrowing rates and growing economic confidence are the most obvious drivers to an improving domestic market at all price levels, says Caspar Harvard-Walls, Black-Brick Partner.

“The days of the PCL market being reliant on City bonuses are long gone. Domestic demand is significantly broader now. While lending criteria remain tough by historical standards overall lending rates remain at lows. Broader economic confidence is evident in strong retail sales figures across the country. That Fulham, an area long favoured by domestic rather than overseas buyers, is the best performing area in London over the past twelve months is a clear indication of the increasing confidence of UK buyers.”

Underpinned by the government’s Funding for Lending and Help to Buy schemes the wider UK residential housing market continues to show signs of significant improvement. The headline net balance of members of the Royal Institute of Chartered Surveyors reporting price rises jumped to 36 in July from 21 in June – the highest monthly balance since November 2006. Building society Nationwide said prices across the UK rose 0.6% in August, a fourth consecutive monthly gain. According to Nationwide’s chief economist: “Consumer confidence has increased significantly in recent months, thanks to further modest gains in employment and signs that the UK economy is finally gathering momentum.”

Buyer beware – quality of new instructions varies significantly

Back in central London, the autumn market looks set to bring an increasing number of new sales instructions. In the context of Black Brick’s own strong new client sign-up and the continued breadth of demand for prime central London property from both UK and international buyers this new supply is certainly welcome. However, our view is that the quality of properties now coming to market is hugely variable – a factor which can make the market significantly harder to navigate. We would urge potential buyers to seek expert advice.

Popping the bubble myth

Since our last newsletter there have been several comments in the media about PCL prices being in ‘bubble’ territory. Unsurprisingly, we disagree. Bubbles are characterised by a conspicuous lack of selectivity – yet price rises across prime central London over the past few years have been very selective and continue to vary significantly depending on the quality of the property, price segment and location.

Black Brick’s Caspar Harvard-Walls says

Black Brick’s Caspar Harvard-Walls says “There is certainly still fierce competition for the best properties in good locations but secondary properties can remain unsold for months after coming to market. The Lancasters development is a great example of this. Prices for the best homes in this high quality and elegant parade of high-ceilinged, stucco-front Grade 2 listed houses overlooking Hyde Park, with spa and concierge facilities, have reached £3,800 per square foot. This is twice as high when compared to what other properties in the same post code sell for. It’s hard to argue prices are in bubble territory when there is such clear price discrimination.”

PCL Property – a luxury investment

There are a number of other long-term supports for PCL property which regular readers of our newsletter will be familiar with, including the impact of wealth creation in emerging markets and a general distrust of traditional asset classes. For many of our wealthy clients, acquiring a prime Central London property is prompted by differing proportions of several motivations: family relocation, wealth preservation, portfolio diversification, but also the intangible and unquantifiable benefits of owning a prestige asset which can be used.

It is no co-incidence that prime property prices have risen alongside a succession of record prices for other luxury investments including gemstones, collectible watches, classic cars and fine art.

While (arguably) not as pretty to look at as piece of fine art, a PCL property is also a store-of-value tangible asset that says a lot about the wealth, taste and international connections of the buyer to his peers. Putting a price on such benefits is clearly subjective but nevertheless, it is clearly a powerful motivation for the growing global pool of high net worth individuals (HNWIs).

According to the recently published World Wealth Report by Cap Gemini and RBC Wealth Management this pool of HNWIs (defined as investable assets above US$1m) grew by 9% in 2012 to 12 million and will continue to rise. At the individual country level some 64% of China’s HNWIs see property as their first investment, according to the Chinese Millionaire Wealth Report 2013 by groupm and Huron Report. With a growing population of high net worth individuals estimated by the report at 64,500 with assets above RNM100m (£10m) and 8,100 with assets above RNM1bn (£100m) – the combination of wealth generation and first call luxury investment remains a powerful force in our market.

Property of the Month

In last month’s newsletter we gave a brief overview of the many benefits of our new managed sales service. In the intervening weeks we have been particularly busy on this front and would highlight one deal for a client based overseas who instructed us to assist them in the sale of their spacious three bedroom, second floor apartment in a period mansion block in Maida Vale W9.

As our clients are overseas we have been able to visit the flat for them on numerous occasions. Our service included selecting the right agent for the property’s specific location, advising our client on the paperwork and liaising with the solicitors during the conveyancing. Within ten days of coming to market the apartment had four offers. A sealed bid then followed which resulted in an agreed sale £100,000 above the £1.35m asking price. Following the sale we have also recommended a removal company to clear the flat. For more information on selling your property efficiently and effectively without the customary hassle please call +44 (0) 20 3141 9861 or go to https://www.black-brick.com/