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London becoming a global hub for the rich

By Camilla Dell

The London property market has long attracted buyers from around the world. If we take a look back to when the market last crashed in the 1990’s, the crash was much more drawn out than the price falls we have witnessed this time around. UK house prices started falling in 1989 and the market finally bottomed out in 1995, resulting in a 13.2% fall in UK house prices over six years. Back then, the fall in the market attracted foreign buyers, particularly from the Middle East, who saw the drop in prices as an opportunity and hence began to buy a large volume of property in London.

Fast-forward 13 years and the crash of 2008 has been much more acute. Prices fell sharply between September 2008 and February 2009, as much as 20 – 25% in central London, but from February 2009 onwards the market suddenly started creeping back up, and hasn’t stopped since. Prices today are almost back to where they were at the peak of the market, and in some parts of London, we have even begun to see evidence of transactions taking place back at record levels. Motivated in part by a 30% devaluation in Sterling, foreign buyers have started pouring back into the London market. According to a recent report by Knight Frank, between December 2008 and March 2009 the international buyers’ share of the £5m+ market soared from 39% to 48%. By June of this year it had hit 68%. So what is it about London? Why does it attract buyers from around the world?

For many investors, the recent turbulent financial times have resulted in a fear of investing in the stock markets or funds. With interest rates so low, keeping money on deposit in the bank also makes little sense. At Black Brick, many of our clients make their wealth in high-risk regions and so seek to diversify and look to acquire assets outside of their own countries. The London property market has long been viewed as a safe haven by many investors. In addition, the enduring attractions of London’s excellent schools are a real pull to the international elite. The relatively light regulatory burden on companies wishing to gain a public listing in London, in comparison to New York, means that London is the stock market of choice for many international corporates seeking capital. Meanwhile London’s geographic position enables access to Asian markets in the morning UK-time and American markets in the afternoon and evening – an important factor for many companies.

The combination of these factors has resulted in demand for London property becoming truly global. If we look at our own client base at Black Brick, we now look after clients from Nigeria, Ghana, Uganda, Kenya, South Africa, Zambia, Russia, India, Pakistan, Malaysia, Singapore, Hong Kong, Greece, Cyprus, Italy, Saudi Arabia, Dubai, Egypt, Lebanon, US and Australia. India and the rest of Asia are particular hotspots at the moment in terms of expressions of interest – reflecting the area’s fast-growing high net worth contingent and strong historical links with the UK.

So where are people buying and are there any trends? It’s difficult to generalise, but we have begun to identify certain trends amongst different nationalities of buyers. Buyers from the Middle East and India tend to favour Knightsbridge, Mayfair and Belgravia as their preferred locations. They prefer to buy lateral apartments and like buildings that have a porter, good communal parts and an impressive entrance. Buyers from Asia tend to prefer the modern, new build, purpose built blocks in prime locations such as Kensington. African buyers like to buy in areas such as St John’s Wood, Hampstead and Regents Park and like gated developments with high security.

One of the biggest challenges in the London property market today is finding a good deal, and this is something that all our international clients ask for. London is currently experiencing a huge imbalance in the supply/demand ratio, a direct result of the globalisation of the London market. As many existing owners are not British, domestic changes such as the recent rise in income tax have little effect, and most property purchases by the overseas contingent are viewed as long-term commitments that will pass down through the generations. If there is no pressure to sell, then foreign buyers tend to keep hold of their property indefinitely.

The supply and demand imbalance is most acute in prime areas such as Kensington and Chelsea, Knightsbridge, Mayfair, Belgravia, Regents Park and St Johns Wood. With choice so limited, finding the right property has become increasingly difficult. This has led to the rise in popularity of buying agents, the most reputed of which will have prior access to properties before they hit the open market, and are even able to source properties entirely off-market, through direct liaison with vendors. For instance, at Black Brick, we currently have over 50 properties on our own internal database where we are in direct contact with the vendor. In such a competitive market, choosing the right buying agent to represent you in your search can really make all the difference.

The big question on everyone’s mind is “is the London market sustainable”? Surely prices cannot rise any higher, and with the global outlook still looking shaky, surely London cannot be immune? Looking forward we would not expect prime central London property to remain completely untouched by the potential storm clouds gathering over the broader domestic housing market, and more generally fears of a fresh downturn in the global economy. But we believe that there are separate and stronger long-term supports to the London and South East housing market that will allow it to weather a so-called ‘double-dip’ better than the wider UK housing market and the majority of other asset classes. Indeed, there is an argument that heightened risk-aversion among high net worth investors only increases the attractions of prime central London as a relative safe-haven.

Havens on earth

London has long been one of the world’s truly global centres. The financial powerhouse of Europe, the UK’s capital is home to some of the most prestigious real estate around and has been a consistent location of choice for investors in the Gulf looking to put their money into overseas property. And when you take a closer look at the market, argues Camilla Dell, managing partner of independent search agency Black Brick Property Solutions, it is easy to understand the attraction. “We have a ‘transparent legal system’ for property ownership and a ‘light touch’ regulatory system,” she says. “Compared to the US, it’s much simpler and more straightforward for companies to incorporate in the UK and there is a favourable tax system for overseas investors as they do not pay capital gains tax if they have lived outside of the UK for over five years and spend less than 90 days a year in the UK,” she says.

As a property market, London has very tight planning restrictions compared with other urban centres, creating ‘prime’ spots. “The whole of prime central London is popular, but particular areas such as South Kensington, Kensington, Chelsea, St John’s Wood, Regents Park and Hyde Park are all very popular with tenants and make sound and stable rental investments,” she says. “The key to a successful investment is ensuring you end up buying in an area that will rent easily and to a good tenant and also an area that will show capital appreciation over the medium- to long-term.”

Dell advises first-time buyers to avoid deals that look too good to be true. Often, apparent ‘bargains’ can be explained by a little local knowledge. “We tend to avoid areas that are far from the Tube or public transport, and areas outside of what we term as ‘prime central London’, which is essentially a six-mile square radius,” she says. “While yields and prices may look more attractive in secondary and tertiary areas, the further out from central London you go, the harder it will be to secure a tenant and the potential for capital appreciation will be less, as there is less demand. Lastly, if you ever needed to sell your property quickly, it will be much harder to sell in a less desirable area. Prices also tend to be much more resilient in a downturn in the prime areas, as evidenced by London’s quick recovery since September 2008. Prices in prime central London are almost back to peak levels.”

But buying in central London is not always a clear winner. Despite a transparent legal scheme, it is all too easy to be taken for a ride by agents who know the anomalies and peculiarities of the London market like the back of their hand. “People rarely hesitate to seek professional advice when investing in the stock market or assets such as art, and the property market should be no different,” she says. “This is especially true for those looking to buy in unfamiliar markets, and in London there are certain pitfalls that foreign homebuyers can avoid by employing a reputable search agent.” The London market is unique and very complex and values can fluctuate significantly from one area to the next, from one side of the street to the other, or even between floors in apartment blocks, says Dell. “These subtleties in value are something that independent search agents are able to advise on, and experienced negotiators will always ensure properties are secured for the best possible price.”

Foreigners pounce on top homes in London

By Richard Warren in London

Weaker pound fuels rush from overseas

The number of nationalities buying property in London has risen by two-thirds since 2008. The pound’s weakness enabled buyers from 51 nations to buy property in the British capital in June. Chinese and Vietnamese are among the new investors.

According to the Knight Frank London Residential Review, half the homebuyers in prime central
London, which encompasses districts such as Kensington, Chelsea and Mayfair, are from overseas. The report says 51 nationalities bought property in these areas in June, compared with 30 in mid-2008.

Foreign buyers are making their presence felt at the most expensive end of the market. They account for 68 per cent of buyers of homes valued at £5 million (HK$61.95 million) or more, the report reveals.

Their strong appetite for multimillion-pound homes means they make up more than 60 per cent of buyers in Mayfair, Knightsbridge and Hampstead.

Liam Bailey, the head of residential research at Knight Frank, said investment by foreigners had helped prime London home prices rise 20 per cent over the past 12 months.
Hong Kong buyers are the most prominent in Wapping, Canary Wharf and the Hyde Park Estate, and they account for 2.3 per cent of all international buyers, the report shows.

Buyers from Russia form the biggest group at 14 per cent, while 11 per cent are from the United States.

Ed Lewis, the head of London new homes at estate agent Savills, said all brand-new, £5 million homes sold by the firm in London’s prime districts this year went to overseas buyers.

“International buyers continue to exploit the opportunity that the cheap pound offers across the capital,” Lewis said. “In the past month, we have had to polish our linguistic skills in, among others, Mandarin, Vietnamese and Afrikaans.”

The pound fell 28 per cent against the Hong Kong dollar between March 2008 and June this year. It has recorded similar falls against other currencies, including the US dollar and the Saudi riyal.

Camilla Dell, the managing partner of Black Brick Property Solutions, said international buyers were attracted to London’s reputation as a safe haven and its educational establishments for their children.

“We have clients from Nigeria, Ghana, Uganda, Kenya, South Africa, Zambia, Russia, India, Pakistan, Malaysia, Singapore, Hong Kong, Greece, Cyprus, Italy, Saudi Arabia, Dubai, Egypt, Lebanon, the US and Australia,” she said. “At the moment, London is particularly popular with those from India and the rest of Asia, where there is a fast-growing high-net-worth contingent and there are strong historical links with Britain.”

Dell said the large overseas influx meant demand outstripped supply in many districts and would support prices in a market downturn.

Adam Blaskey, a director of developer Northbeach, said all interest in its Kensington project, 3 Queens Gate Place, where it is marketing five flats, had come from overseas.

“Through our website, we have traced this interest back to over 50 countries around the world, with the Far East and the Middle East dominating,” he said.

Non-Britons, especially Russians, dominate demand for apartments at One Hyde Park, the Candy & Candy development in Knightsbridge, where sales prices reached £28 million in April.

www.scmp.com

High Security

By Daniel Thomas

Buried beyond the wrought iron gates and tree-lined façades of mansions in fashionable locales of prime London lie the real gatekeepers of the ultra-wealthy: the guards hidden among the shadows; the microphones, pressure pads and sensor beams that criss-cross the gardens; and, deeper still, the concealed panels, panic rooms and vaults at the heart of the home that protect the true valuables, such as the spouse and children.

One of the appeals of London is its relative safety and financial stability but the influx of international buyers over the past two years, particularly from eastern Europe and the Middle East, has brought with it heightened security demands for some of the world’s most expensive properties, with a sharp rise in the use of ex-army bodyguards to sit alongside the high technology installed in walls and floors. Andrew Ellinas, director of independent property consultants Sandfords, says: “For very [wealthy] Russians, security has to be absolute and these clients may require bullet-proof glass, a house with two entrances and a bodyguards’ room with security cameras and monitors. One such house that we marketed had a lock-down top floor that in the event of a violent incursion could be shut off from the rest of the house. Such a set-up might cost £500,000 to adapt a house.” And that’s before staff costs. Fully secure panic rooms with independent air supplies come as standard in the world’s top residences. Technology has boosted security measures to Bond-movie levels, with gadgetry ranging from iris-recognition scanners to vehicle number-plate-recognition software.

Nick Candy, an interior designer and development manager – most recently of flats at One Hyde Park in Knightsbridge – says that recent projects include entire walls that slide in a variety of directions and angles to reveal secret vaults, panic rooms and hidden floor panels that reveal storage spaces. “We have created safes that are disguised as books and slide-away TVs that reveal Picasso paintings. We have also devised entire personalised entry systems that can sometimes include six levels of access. Not forgetting that sometimes the simplest of innovations can be the most effective and the most popular, for example artwork sensors,” he says.

Security is not the only consideration. Having the right brand and look has become important. And it matters where your security guards were trained. British army training carries the highest kudos. Camilla Dell, managing partner of Black Brick Property Solutions, says that there has been an increase in demand for security provisions among the wealthy for their homes. “As a result we are now working a lot more closely with security firms that we can introduce to our clients once we have sourced the property,” she says. “Their needs range from the basics – such as wanting a safe – through to much more complex security, such as surveillance.” London, in particular, has seen a rise in more visible deterrents for both the safety of the owners and their homes. Gated developments that boast underground or secure parking, electronic gates, surveillance cameras and security guards are in particular demand. One Hyde Park allows occupiers to park underground via a car lift, which means that they need never step outside the cosseted world of their luxury interiors.

Security advisers say that this minimises the risk of kidnapping. Dominic Grace, head of development at Savills, says: “Buyers of new-build developments get the bonus of tailoring the property to their specifications. For instance, they can choose where they want to put the safe, its size and shape and therefore where the reinforced floor will have to go.”

The Kenwood Place development in Hampstead is typical in offering state-of-the-art systems. While a digital visual intercom system operates electrical barriers and Maglock door latches, the intruder alarm linked to vibration detection devices and wireless movement detectors connect to a security terminal on the concierge’s desk. The escalating level of security can in part be traced to the typical buyers of such luxury accommodation over recent years. The market has been fuelled by the influx of buyers from eastern Europe, and in particular from Russia, where security concerns are real given the political and social upheaval. The other main group of buyers is from the Middle East. Dell says that many clients are from emerging-market countries where security is an issue, and they want to replicate measures even in major cities such as London where the risks are lower. This generally means some sort of bodyguard or chauffeur, and the UK has seen a remarkable rise in the use of such services in the past few years. The number of close-protection licences (an exam qualification recognised by the security industry) has risen three-fold in the past four years from 1,992 licences in June 2006 to 6,220 last month. London agent Gary Hersham has noticed a sharp increase in guards, particularly at the mansions along “Millionaires’ Row”, or Bishops Avenue in north London.

“I have noticed this security aspect much more frequently, particularly when the resident is from eastern Europe,” he says. He says that the majority of central London homes of more than 10,000sq ft have full security rooms that could monitor dozens of cameras, while some on Bishops Avenue and Eaton Square in Belgravia also have strongrooms and “safe haven rooms” generally well concealed behind a library bookcase or a dressing room cupboard. But the desire for security also relates to the nature of the tenure for many owners, for instance those who leave their homes empty for months, raising serious risks of burglary or even squatting should they not have people on site. It is perhaps not surprising that agents report high demand for security systems that allow owners to monitor CCTV from remote locations. One agent was even asked for a direct link-up to a yacht in the Caribbean. Heta Shah, partner of agency The Residence Collection, says: “High-end security systems are no longer an option but very much a must in prime and super-prime residences. Buyers at this level spend so much time away that they are increasingly requesting remote monitoring systems, via secure networks, to be in place.” Chris Hartley, director of Vigilance Properties, a security firm that employs ex-army guards, says house security is a growing part of the business. “We’re normally in there alongside alarms that are linked to the police. We work across west London, with homes ranging from £50m down to £5m, mainly to protect against squatters [who] have become more opportunistic and aggressive.” All owners of such properties have an interest in keeping valuables protected, of course. Trevor Abrahmsohn, a London estate agent, says that panic rooms and strong rooms to keep family heirlooms, paintings, silverware and the family jewellery now come as standard in most luxury homes. “It is becoming more and more important for homes at this level. If you don’t install such rooms and devices, then you will have a problem selling them.” He adds that some buyers of prime property want infra-red cameras both inside and outside the property, normally monitored by a security guard around the clock. Some gardens have patrol dogs, or dog noises triggered by sensor, while others are linked to a service where remote security guards greet any visitor through embedded microphones. If the required response is not provided, they call the police.

Such requirements are driven by a real fear of burglary as well as for personal safety, he adds. “The police coverage is deemed insufficient. It is not just ‘Mr Russian Oligarch’: ordinary wealthy folk also want a degree of added security.” It is not only a feature of city-centre homes. Philip Eddell, who manages Savills’ country house consultancy business, is often required to set up security audits, usually involving former special forces teams who will test every window, door and potential access point to expose weaknesses. Some owners want their homes to be swept for bugs, and there are more esoteric demands reflecting the sort of assets that can be stored at home, such as considerable collections of art or wine. That the homes of the wealthy are rarely homely is always an irony, but they are rarely without a great deal of security. Luxury comes at a cost, of course, but the price of security can be just as high.

The importance of professional advice

By Camilla Dell

Investors in the stock market, or in assets such as art or wine, rarely hesitate to seek professional advice, so it is hard to understand why there are investors in the property market who fail to seek proper guidance – especially as it is likely to be one of the biggest financial transactions of their lifetime. The complexity of the London market in particular should not be underestimated, and there are certain pitfalls which homebuyers, particularly those from overseas, can avoid by employing a reputable search agent.

Firstly, there are subtleties in value that only those ‘in the know’ can understand. Value can fluctuate significantly from one area to the next, from one floor to another, or from one side of the street to the other, and independent search agents will not only be able to advise on these differences, but will also use honed negotiation skills to ensure properties are secured for the best possible price – at Black Brick so far this year we have saved our clients an average of 5% off asking prices. It is important to bear in mind that estate agents in the UK act on behalf of the sellers, so without seeking a source of impartial advice elsewhere, buyers have little way of knowing whether they are getting a good deal, or making a sound investment.

A common mistake that buyers make is relying on just one estate agent. In order to see a good selection of what’s on the market, it is important to cast the net wide and consider local as well as big name agents. The problem is that there are circa 80 agents covering the borough of Kensington & Chelsea alone, and it is unlikely buyers have the time or inclination to research all of these agents and their instructions, especially if based overseas. This is where search agents come into their own, selecting only the best and most relevant properties, and ultimately saving their clients a substantial amount of time and effort.

One thing that cannot be overestimated is the importance of building rapport with estate agents. For each new instruction, estate agents will contact those buyers that they consider to be most serious, and in the best financial position, first. Reputable search agents will often be their first port of call, as they are known to represent buyers who have already made a serious commitment to acquiring property.

Off-market sales are also an increasing phenomenon in London, with many properties being sold long before they hit the open market. Estate agents tend to favour some buyers over others so unless you have the time to build a good relationship with the agent, you can end up missing out on a significant amount of opportunities. Additionally, search agents will often be able to source properties completely off market – 12% of properties purchased for Black Brick clients this year have been off market.

Lastly, the process of putting in an offer can be a complex affair, especially for those unfamiliar with the market, and knowing the tricks of the trade can make or break a deal. When bidding with competition, the way in which buyers present themselves to agents and vendors can play a big part. A search agent will build up a buyer profile to show them in their best possible light, whilst also advising on the best team of experts – surveyors, valuers, lawyers and solicitors – in order to ensure the process progresses smoothly.

The London market is not only difficult to navigate, it is also extremely competitive. A buying agent will make the property search a much easier, more rewarding, and quicker process, whether looking for a home or investment opportunity, and will also give the buyer a competitive edge once the right property has been located. As with any unfamiliar market, the processes and protocols can vary hugely across the globe, and London is even unique from the rest of the UK, so taking professional advice is essential if you want to get it right.

More than just location, location, location

By Gwenda Brophy

Summer is here, the much derided home information packs are gone, house prices are slowly returning to their 2007 peak and you have decided to put your home on the market. This time, however, it is different – you have recession wary and double-dip conscious buyers to contend with. They will interrogate and evaluate, sniff around inside and even dig around elsewhere. But get the essentials right and invest only in improvements that will add value, and a faster sale, better price, and reduced chance of deals falling through could be your reward.

IT’S WHAT’S OUTSIDE THAT COUNTS

“At the moment it will take on average 10 weeks to sell your home”, says Nigel Lewis, property analyst at Findaproperty.com, “and people are now spending more time looking at property before making their decision.” The clock starts ticking even as potential buyers arrive. “You can add another four weeks upwards to that if a property has an unappealing front fascia or untidy garden”, says Lewis. “Outward appearance is an important factor in the speed of a property sale, second only to price”.

James Hyman, Partner for Residential Sales at agents Cluttons agrees on the importance of the exterior. “External space is always sought after and invariably commands a price premium. Utilising it to its full potential is one of the most valuable commodities from which a seller can benefit, whether it’s a balcony or capacious gardens. It needs to be exploited from the outset”. He estimates that landscaping a garden “could add up to 5 per cent to the value of a property yet be done for as little as £1,000”. Off-street parking may be less pretty than pot-plants, “but the advantages to a buyer are overwhelming”, says Nick Churton of national agent network The Mayfair Office, especially where parking is at a premium or residents-only parking permits apply. “Buyers don’t want to be regularly lugging heavy supermarket bags and unloading holiday luggage streets away, and spending time finding a parking space in the dark or wet.”

Make sure you use permeable materials, and according to Camilla Dell, Managing Partner at Black Brick Property Solutions, adding off-street parking will add around 5-10 per cent to the price of a house. George Franks, sales director of Douglas & Gordon London agents has found buyers prepared to pay between £30,000 and £40,000 for a double off-street parking for a family house in central London, “and around half that price for single off-street parking. If a house is the only property on the street with off street parking, then the value of that parking could be even higher.”

INSIDER DEALING

If you undertake work to the interior as a means of increasing value get the details right. For example, Camilla Dell advises that any loft conversion should include a bathroom, and, says while adding an en suite can be a good idea. “In terraced houses they tend not to have an external window and so can suffer from damp, so ensure it includes adequate ventilation. Mould is a big no-no.”

George Franks of agents Douglas and Gordon says the added value of creating an en suite varies entirely on whether the property is big enough to warrant it. “If there is a way of adding a bathroom without sacrificing a bedroom it can add anything from 5 per cent upwards to the value of the property. However if it means losing a room in a small house, resale value can be adversely affected.”
In this energy cost-conscious climate David Adam, head of residential property at Chesterton Humberts, sees current buyers getting hot under the collar about boilers – “whether it has been maintained annually and produces enough heat”. And forget trying to wow potential buyers with your green credentials. “While some purchasers might be interested in ground source heat pumps and solar panels, for most these are just expensive additions.”

Even new-home builders are addressing our newly developed boiler performance focus – Barratt recently brought in five-year guarantees to put minds at rest. So in a resale market it may pay to replace a decrepit one. James Bailey of Henry & James, a central London agent says “if buyers see one on its last legs, they will mentally calculate the cost of replacement, and that’s reflected in the offer.”

“One of the best interior investments is old-fashioned elbow grease”, says Ed Church from Strutt and Parker’s Canterbury office. “A clean house will always sell better then the same house in a poor state. Repaint the front door, clean the windows, vacuum and mow the lawn.”

Lulu Egerton, Partner at Strutt and Parker’s Chelsea office suggests an often neglected area, “making sure your home smells nice.”

And Simon Pritchard-Smith of Robert Bailey Property agrees. “Homes with odours and smells are a huge turn off, as is an unpleasant – or embarrassing – vendor.”

ACCOUNTING FOR TASTE

“I was once selling a property with a large nude portrait of the female owner above the bed. It was hard for me or buyers to talk to the vendor with that image in your head”, recalls Pritchard-Smith. In fact, say agents, vendors can be their own worst enemy. Having good or bad neighbours may largely be down to luck, but could raise the value of a property by as much as £5,000 while antisocial ones could reduce the price by up to £30,000 according to recent research by Halifax Home Insurance. Becky Munday, head of sales at agents Wooster & Stock, has found that “good neighbours are becoming as important as surveys for many purchasers. Savvy buyers asking about the neighbours is one of the key questions raised during viewings, and many will do their own detective work before making an offer. Sales can collapse because a buyer finds out there are loud neighbours.”

If you do have paragons next door, Camilla Dell advises talking about them – as well as highlighting advantages of the location from proximity to parks or good-quality schools nearby.

STAR PERFORMERS

Forget swimming pools, media rooms, or the latest hi-tech gadgets – light-flooded space overlooking the garden is what really presses buyers’ buttons. The reputation of badly built PVC conservatories can and has actually brought down property values in the past, but a quality conservatory can add real financial value, and help with the sale of a house. Knight Frank’s Christopher Bailey sees the role of conservatories “working indirectly through the addition of square footage in a property.” However quality not quantity is the issue, so forget oversized plastic bubbles that boil in summer and are unusable in winter. “Good design is the key”, says Jonathan Hey, managing director of Westbury Conservatories, “even the most critical buyer will appreciate that.” Think expansive and integrated living space “so that it feels a seamless part of the property and not an ill-thoughtout or hasty addition. Essentially an expertly designed, well-built conservatory equals the addition of an extra room to the property, and this can’t fail to add value. It also gives you the additional wow factor that attracts potential buyers instantly – particularly if you’re selling during the summer months when they can see the direct benefit of the extra space.”

RIGHT HOUSE, WRONG PRICE

“It may be a cliché, but the right house in the right area will sell every time”, says Simon Pritchard-Smith. “But even if it isn’t the right house, if it offers scope for redesign, many buyers will snap it up. End-of-terrace houses, good light and larger than normal gardens will always be preferred.”

If your property does not measure up on those fronts, what you do have control over as a seller is your attitude to the sale. Ed Church from Strutt and Parker’s Canterbury office believes ultimately it is “realism and commitment that sells houses. Those vendors who fail to sell or whose homes sit on the market for months tend to have overambitious price expectations.” Be realistic. And perhaps it says much about us that Andrew Scott puts competition from more than one buyer in his top 10 factors for getting a sale. So be sure to casually mention other interest to any viewers and potential buyers – nothing it seems galvanises us like thinking someone else might be after the property we’ve set our sights on.

Investment diversity

By Camilla Dell

Something we have all learned over the last two years, and most recently with the election result, is that nothing is ever certain. The mantra ‘don’t put all your eggs in one basket’ is now perhaps more relevant than ever, particularly where money matters are concerned. Property investment is no exception, and I, for one, certainly see diversity as the key to success in this sector.

At Black Brick, we have always believed that diversity is essential when it comes to investing in property, whether on a domestic or international level. Diversity minimises the inherent risk factor by spreading the impact of any change in demand for a particular property type or location. It also reduces the effect of void periods on income as it is unlikely all an investor’s properties will be empty at any one time. To this end, for instance, three 2-bed flats in different locations are a better option than one house of the same value. The key is to remember that, no matter how tempting returns may appear, it is never advisable to pile everything into one specific location or property-type.

The European debt crisis, which started in Greece, has already focussed international investors’ minds on the advantages of diversified investment portfolios, and the need for ‘safe havens’ is more prevalent than ever. Whilst property as an asset class seems to be moving higher up the agenda for investors, the unique prime central London market also offers the ‘safe’ long-term investment that is a necessity in any portfolio. As a result, buyers from troubled European economies such as Greece are currently looking to buy in London quite fervently.

The principles practiced by overseas investors – namely diversity and the importance of ‘safe havens’ – can be applied domestically as well as internationally. We often advise clients looking for portfolios in London to not only buy in established prime areas such as Mayfair or Knightsbridge, where values remain relatively stable and rental demand is high, but to consider secondary locations where the long term yields can be much higher. It’s all about balance, and acquiring a property in a prime area of London is very much the safe haven that we feel every portfolio should have.

As secondary locations, we would suggest perhaps Maida Vale and Shepherds Bush, which offer good value compared to Notting Hill and Marylebone. Also West Hampstead and Queens Park are a good alternative to the more established St Johns Wood and Hampstead. These areas share the same benefits as their more expensive neighbours, including good transport links, and trendy shops and bars, but are generally 20% – 30% cheaper.

In terms of type you can’t go far wrong with two-bedroom flats, which tend to be the best rental market properties. It goes without saying that they should be in good condition, and located in a safe neighbourhood with good amenities – lower ground floor and top floor flats without lift access should be avoided. New builds with porters, parking and gyms will always rent well in central London but may not appreciate in value as well as a period property, so you might want to consider including both types in your portfolio.

Put simply, choosing where and what to buy for investment involves identifying demand. This is what makes London a great place for investment as not only is there sustained demand from foreigners looking to take advantage of our good education system, but there will always be demand from those from other UK locations, as well as from overseas, who want or need a base in one of the world’s great cultural and business capitals.

www.buyassociation.co.uk

New build v period property

By Camilla Dell

What makes a safer investment – new build v period property?

The question of what makes the best kind of investment is one that we are regularly asked by our clients – both domestic and overseas. In general our clients are inclined to favour new build on the basis that this is a style they are both familiar and comfortable with. They like the fact that everything is new and is therefore likely to be low maintenance and are sometimes also inclined to buy off plan, on the basis that prices could well increase as the development nears completion.

Proceed with care…

We are not averse to investing in new build property but always caution our clients to proceed with care. Statistics show that over the years and the changing property markets, it is the older, period style properties which have appreciated most in value. This is often due to the critical issue of location. Many new build developments, specifically in London, are located in less sought after areas such as Canary Wharf and the south side of the River Thames. When the market deteriorates, these developments traditionally get hit worse because of their location and the high density of units.

Location is the key to successful investment…

At Black Brick, we tend to advise our clients to buy for investment in prime central London locations such as Chelsea, Kensington, Hyde Park and Regent’s Park. Whilst it is accepted that you will get less space for your money, it is also true that the potential for capital appreciation is higher and there tends to me more regular and constant tenant demand for properties in these popular addresses. The infrastructure is so established with a wide choice of cafes, restaurants, cinemas and galleries…as well as good schools and transport links and plenty of green space.

Rental Yields…

Rental returns can often suffer in new build developments where there is a high density of units available at any one time which in turn forces rents to come down. If we look back over the years, it is the prime London post codes that have appreciated most in value when the market booms and even in more troubled times, there is less depreciation in values. At Imperial Wharf – a new build riverside development in Fulham consisting of a range of studio, one, two, three and four bedroom apartments and penthouses set within 10—acres of landscaped parkland, courtyards and gardens, there was a great deal of activity specifically from overseas investors during the boom period of 07/08. At that time, prices were achieving £1000 per sq foot but in the past 12 months, prices have dropped by 20% and unlike in prime central London , where prices are now just 4% below peak levels, have shown little or no signs of recovery. This is a good example of the problems which arrive where you have a combination of high density new build in less central locations.

Of course there have been some very real success stories in the world of new build, notably at The Knightsbridge Apartments where properties continue to sell at a premium but we believe this is largely because all the ingredients are in place. Namely quality of product and crucially… location.

Location Location Location…

This will always be the key to successful property investment. Everything from post code to the best side of the road or square is relevant and these ‘small’ details can often be missed. Taking advice from an independent buying agent will ensure you are well informed and fully understand the investment you are about to make.

www.buyassociation.co.uk

An unusual boost in the downturn

By Camilla Dell

Looking back over 2009, despite the huge economic downturn, it was an unusually strong year for property prices. Prices rose substantially across the UK and recent Nationwide figures show the annual rate of growth has now risen to 8.6 per cent, up from 5.9 per cent in December — the highest rate of growth for two years.

In London, Knight Frank reported prices in the more expensive parts have actually risen 15 per cent since last March. They are now just 12 per cent below the market peaks. What has caused this growth to take place? There are a number of key drivers. There is the supply side—properties coming onto the market were extremely weak throughout 2009 with very few sellers willing to sell in a tricky market. Many sellers were under the impression they would be selling into a falling market and were concerned they would receive ridiculously low offers from the frenzy of investment buyers who were active at the time. At about the same time, demand started to pick up dramatically, particularly from foreign buyers looking to invest or own that once-in-a-lifetime pied-à-terre they had always dreamed of.

The currency-property correlation

A third factor has to do with the currency effect. Sterling’s weakness made London property even more attractive for dollar- and euro-based buyers, effectively giving them up to a 50 per cent discount off the price. This greatly contributed to demand. And a final factor came in the form of low interest rates, which in the UK are still at a record low of just 0.5 per cent. As a result, many owners who otherwise may have been forced to sell were able to hold onto their properties, contributing to the supply demand imbalance. What’s next for property prices? We have a general election just around the corner and many buyers and sellers are holding off until this has passed. The Conservatives have the city vote and are ahead in the polls, and as the party in power, they are more likely to cut spending rather than raise taxes any higher. However, many are concerned the outcome will be a hung Parliament, which would be the worst possible outcome. We think this scenario is unlikely.

But there is certainly uncertainty over how robust the economic recovery really is. There are concerns over rising taxes, cuts in public spending and, not least, interest rates. The timing of when interest rates go up will be crucial. At Black Brick, we see this is a huge influence on property values. It is therefore no surprise that there is a huge discrepancy between forecasters, with the most bearish predicating the market will fall five to ten per cent, and those bullishly inclined forecasting prices will rise ten per cent. Interestingly, some forecasters have revised their forecasts upwards. The Centre for Economics and Business Research recently put out forecasts that now predict home prices should go up by six per cent in 2010 and 20 per cent higher by the end of 2013.

At Black Brick, we don’t forecast, but we do have a view. We are encouraged by the fact we have already got 2010 off to a good start, signing in excess of £30 million (about Dh165.4 million) of new client mandates, mainly from foreign buyers. Our view is one of caution. With all that 2010 has to bring, it would be unwise to be bullish at this current time. We do see prices in prime central London, which is where we specialise, will continue to be supported throughout the year.

Market has touched bottom

This is primarily due to a shortage of stock and what appears to be a never-ending continuous demand among foreign buyers. We feel quietly confident that the bottom of the market in prime central London has been reached and the continued weakness in sterling makes property an attractive proposition. As long as investors are realistic about their timeframe, a minimum five to ten-year view, now is a good time to buy if you can find the right opportunity.

For owner-occupiers, we always advise that it’s much more about finding the right property and prices should always come second.

 

Covert Operations

By Faith Glasgow

Most homes are bought and sold on the open market, using an estate agent whose job it is to get as many serious viewers as possible through the door. Sellers put up with a stream of strangers – scrutinising the plaster, opening the cupboards and making comments about the decor – because they know they have to in order to achieve a sale, hopefully at a decent price.

This is not the only way, however – at least not if you inhabit the upper echelons of the housing market, where an increasing number of both buyers and sellers have powerful reasons for wanting to avoid the free-for-all of an open-market transaction.

Indeed, there is a whole spectrum of covert property deals being done, with not a glossy brochure or prestige property section advert in sight. Some transactions, according to Crispin Holborow, head of country house sales at estate agency Savills, are so secret that they sound more like gung-ho wartime operations, with codenames for the project, the seller’s identity concealed even from the sales team and confidentiality agreements required from everyone visiting the property or involved in the sale. He cites a sale in excess of £30m in 2007 in which no one but the lead agent in Savills’ country house team knew the client’s name or the estate’s location. It went through without a word of press coverage.

“I’ve made a number of advance trips to the homes of high-profile sellers before we show a buyer around, in order to take photographs of the owner down [off the walls], turn invitations on the mantelpiece around and generally conceal the evidence,” adds David Forbes, director of Savills’ private sales office.

Why such drastic measures to protect identities? Celebrities, of course, are keen to keep the paparazzi off their track for as long as possible; but Holborow says pure celebrity is rarely the primary reason for wanting to keep a sale quiet and, indeed, that in most cases it is the stars themselves who are responsible for leaks about a transaction. “No, it’s usually because of the house staff – owners don’t want the staff to hear rumours or be anxious or disrupted; they’d rather present the sale as a fait accompli,” he explains.

Tom Hudson of country buying agent Middleton Advisors concurs. “We see great value in discretion and vendors tend to agree. One client recently bought an estate in Hampshire that took two years to complete but no one else knew during that time. The seller had lots of staff and interests in the area, so total confidentiality was needed.”

Other sellers want to avoid any damaging links being made between their business and the sale of their home. As Jonathan Bramwell of buying agent Prime Purchase explains: “For a high-profile businessman there are risks that an open sale could lead to rumours in the City [of London]. Are they moving offshore? Is the business in trouble?”

In many cases, Forbes says, the desire for secrecy is basically to do with changing personal circumstances: “People may be selling because they’re getting divorced or they’ve lost their job or lost a lot of money or become ill – but they don’t want their friends, colleagues or neighbours to know what’s going on,” he explains. Safety can also be an issue: rich people might fear for their own security or that of possessions.

Buyers at this level can be equally cagey – often for much the same reasons as sellers – which is where the buying agent’s intermediary role comes in handy. The wealthy people, celebrities and even royalty with whom Camilla Dell of London buying agent Black Brick Property Solutions deals want their identity protected as a matter of course. “Many are not British and are using an offshore company for tax reasons, rather than buying in their own name, so we can do the whole transaction without the buyer’s name being used,” she adds.

Forbes believes that this trend towards private transactions has gathered momentum over the past four or five years, as sellers and buyers alike attempt to keep their financial affairs under wraps in the face of increasing reams of information in the public domain, a growing culture of celebrity and a more intrusive press. It is also a reflection of straitened economic times. Forbes says: “Two or three years ago there was a lot of money around; people – Russians, Indians, new money – wanted to leave the price-tag on their properties and they wanted their names attached. But that’s gone now. There were big bonuses for some hedge fund managers and other City workers but they won’t want people to know they’ve bought new property, nor how much they paid.”

A similar trend is evident, albeit on a smaller scale, in New York. Private sales there only really occur among very top-end properties (over $20m), as less expensive properties “need to reach a broader market to achieve a sale”, says Kirk Henckels of Stribling Private Brokerage (which caters for the $5m-plus market). But while the number of top-end sales in New York has shrunk dramatically since the financial crisis, “quiet” transactions have become more significant, with the growth of what are known as “pocket listings”, held back from the communal pool of listings to which all real estate brokers have access. “After the crisis, trophy spending became politically incorrect. It simply wasn’t acceptable any more to go to a cocktail party and say you’d bought a $30m apartment,” says Henckels.

While very wealthy buyers and sellers might go to great lengths to protect their identities, at the next price bracket down many sellers take a less extreme tack, in effect still working within the market but attempting to tap into latent demand without having to go to the expense of an advertising campaign or brochure. In these quiet sales agents are given a limited period of time – perhaps a month – to put the word out to specific potential buyers, either directly or through buyer’s agents. Or, on occasion, a seller might simply let it be known that although the property is not for sale he or she is open to private proposals. If no deal is reached privately and the seller is keen to move on, the property can later be released on the open market.

“With properties worth up to £2m, almost everything goes to the open market,” says Hudson of the UK country market. “Above £5m there’s a 95 per cent chance it will be put out to buyers quietly first.” Holborow suggests almost half of all country house properties (especially the more expensive ones) are being sold privately, with an average value of about £8.5m.

It is often a preferable solution in several respects. Not only is it cheaper in terms of agent fees and more civilised than the open-house regime required in the mainstream market but sellers might be able to ask a better price. As Dell explains: “Properties offered off-market tend to have an aura of exclusivity and so some sellers are choosing not to go to the open market purely so as to create a ‘buzz’ around their home.” That whiff of rarity value might enable them to ask a premium over the asking price in the open market. If they get it right, eager buyers will pay the premium to secure the right property without having to get into competition.

They don’t, however, always get it right. “Often private sellers ask too much,” growls Hudson.

Discreet deals are likely to be a feature of any property market catering to wealthy individuals. For example, Jonathan Grey, who runs Beechams Estates’ office in the south of France, says: “Most deals exceeding €15m are very secret; below that level many people use discretion but as a sales strategy rather than to avoid public exposure. They don’t want to advertise – they would rather promote their property by word of mouth because that makes it into something special.

“That’s particularly the case because the open market in the south of France is dominated by multi-agency instructions, which means you are likely to see the same property on one list after another and people just lose interest in those properties.”

Ultimately, exclusivity and desirability are closely linked, agrees Bramwell. “Sellers see the private market as an opportunity to quote a premium price, particularly if they don’t need to sell but would do so at the right price. It’s pointless to launch publicly because of the risk that the house might stick and go stale; and the right buyer will understand that they may need to pay a premium for access to a best-in-class property.”

SALES MANOEUVRES: QUIET EXPERTISE

Selling:

  • For properties worth less than £2m don’t bother – you will do better in the open market.
  • “Do not try to sell privately without a selling agent, as the chances of getting it right are slim,” says Tom Hudson of Middleton Advisors.
  • Most high-quality agents will be happy to sell quietly if you explain what you want.
  • In the UK, you need to have a Home Information Pack in place, even if you don’t go to the open market.
  • Be clear on the level at which you are prepared to strike a deal. “If you decide your house is worth £3.75m-£4m and the first private viewer offers £4m, then you can’t ask for more because this isn’t the open market,” says Hudson.

Buying:

  • Talk directly to top-end agents about what you are looking for.
  • This is a business built entirely on networks. Jonathan Grey reports that intermediaries such as lawyers and notaries are among his most important sources for both buyers and sellers – so make sure your advisers have their feelers out on your behalf.
  • Buying agents are probably the surest way to access the trickle of off-market properties available or coming up in chronically under-supplied areas such as the UK country-house market. They are also likely to know the best examples in city markets such as London, where there is generally greater supply of privately marketed property.

 

Copyright The Financial Times Limited 2010.

General Election 2010 and house sales: How to avoid a hung property market

By Graham Norwood

The election could bring house sales to a halt at what is traditionally the busiest time of year. Graham Norwood offers tips for sellers and finds bargains for buyers.

Last week’s report that the housing market could be facing a double-dip recession, with March showing the slowest rise in prices for eight years, is hardly buoying to the spirits. To add to our woes is the impending election, which, experts predict, could bring the housing market’s traditional spring sales-fest to a complete halt.

Rightmove, the housing website, says that the rise in prices in England and Wales was the lowest it has ever recorded for the month, in part because of a surge in people putting their home up for sale. While that could be a nightmare for anxious vendors, lucky buyers could get a home at a bargain price. But will it make any difference to the housing market whether it’s Dave or Gord in No 10 after May? And what should buyers and sellers be doing in the meantime?

There is growing speculation that next week’s Budget will be followed quickly by the calling of the general election; from then until well after polling day, if the past is anything to go by, buyers will sit on their hands.

Analysis of sales since 2003 by housing market commentator Henry Pryor shows that 25.3 per cent of British annual house transactions occur during the March-May period, so in theory the election could slow or halt a quarter of 2010’s sales.

But the worry now is that the belt-tightening likely to be announced by the new government — of whatever colour — will prolong market torpor well into the summer and even beyond. Worse still, a hung parliament may result in a second election in late 2010, further delaying house sales and a wider market recovery.

Even before the election gets under way, there are some signs that the underlying position of the market is not as strong as some have believed.

Hometrack, which analyses data from 1,600 estate agents offices in England and Wales, shows recent price rises occurred in fewer than 30 per cent of postcode areas — more than in the bleak periods of 2008 and 2009 but far below the 45 per cent seen before the downturn, or the remarkable 80 per cent seen back in the heady days of 2004 and 2005.

Until recent weeks there was a shortage of homes on sale compared to buyers, right across Britain, but evidence suggests the reverse is now true. A photographer hired by many London estate agents reports a 40 per cent rise in business — meaning more homes are on sale now. Likewise buying agents, often tipped off about homes before they go on sale to the public, report their email inboxes filling with new instructions.

At the same time, the prospect of a too-close-to-call election this spring is deterring buyers.

“Forecast budget cuts and potential tax rises are causing many prospective purchasers to wait and see. The sooner an election, the better,” says Alex McNeil of Bramleys estate agency in Calderdale, Yorkshire.

“Too many uncertainties are causing an uneasy feeling among buyers. Get the election done as soon as possible,” pleads Mike Sarson of TW Gaze estate agency in Suffolk and Norfolk.

HOUSE SELLING ADVICE

“Sellers in an uncertain market should do three things,” says David Adams of Chesterton Humberts estate agency. “They can have more open days, have larger and better brochures, and finally they should get the agent to take out more national or regional advertising.”

These are tactics being pursued by Nigel and Gillian McCartney, who live near Bury St Edmunds in Suffolk. They say they must sell by the summer, whatever the state of the property market. They own a five-bedroom farmhouse, with six more bedrooms in a separate barn and cottage, which they run as a b & b (applemount.co.uk), and their property has more than six acres of land.

“We live on the edge of the catchment area for a school that’s just won an excellent rating from Ofsted,” says Nigel, a telecommunications consultant. The house is for sale at £1.45 million through Savills (01284 731100).

HOUSE BUYING ADVICE

However, the McCartneys may have to fend off predatory house purchasers if the market struggles during the next few months.

“Buyers must exploit the election. They must know what drives a vendor to sell when the market is slowing — is it a death in the family, debt, or some other issue that means they must move fast, come what may?” says Tracy Kellett of BDI Homefinders, a buying agency.

“Information is king and when you know how urgently a vendor needs to sell, you can negotiate accordingly. There are opportunities for buyers if they do their homework.”

But opportunistic buyers should act quickly. Many agents believe the long-term consequence of more straitened times after the election will be that sellers and buyers alike will sit on their hands until economic improvement; homes will be withdrawn from sale and moving plans will be deferred for one, two or three years.

“In the past people have voted for one party or another hoping it’ll get in and leave them alone. The difference now is we know whoever wins, they’ll be after us for tax rises and spending cuts,” David Adams says.

“What that may do to the property market is an unknown quantity — and rather worrying.”

WHAT THE EXPERTS SAY ABOUT THE MARKET AFTER THE ELECTION:

Lucian Cook, Savills “Without doubt, and probably regardless of which party wins, an outright majority would be the best outcome for the housing market. Sellers expecting to cash in on a perceived demand-supply imbalance could be disappointed. Buyers may have an opportunity to bid in a less fiercely competitive market, but should not expect a rush of stock to the market.”

Robert Bailey, buying agent “Foreign buyers are capitalising on sterling’s weakness and we predict this will continue, especially if a hung parliament contributes to the pound’s woes. Long term, the central London housing market will continue to do well. Recent months have shown that people will tolerate higher taxation rates in exchange for the quality of life available in London.”

Mark McAndrew, Strutt & Parker “We reckon the market is going to kick off with a vengeance after the election. Over the past few months it’s been an excuse to sit tight and not do anything.”

Drew Wotherspoon, John Charcol “With the result of the general election not quite the forgone conclusion it was a few months ago, we are likely to see a negative effect on mortgage pricing, particularly fixed rates. The markets simply cannot abide uncertainty. So, while all logic dictates that variable-rate mortgages are still the product of choice for most, with pricing around 2.5 per cent better than fixed-rates, there is an argument for battening down the hatches now and locking into a fixed rate for at least five years.”

Tom Hudson, country buying agent, Middleton Advisers “Historically, the general election has had very little effect on the country house market. It generates more hype rather than having any real impact. If anything it is the pre-budget period which tends to be more intrusive on the market, as any stamp duty increase will always have a major impact on decision-making.”

Camilla Dell, buying agent, Black Brick “If Labour wins, it’s possible that prices will go down. Some high net worth individuals may relocate and move out of the UK as a result of tax rises. But if it’s the Tories, prices may also fall. They are likely to cut public spending more aggressively than Labour. If there’s a hung parliament and the pound plummets, then international investors will pile into the London property market.”

Penny Court, Beauchamp Estates “The best thing that will happen if the Tories win is that HIPs will be abolished and, once a deal is agreed, the need to get an energy performance certificate will be held off until a later stage in the sale. This will certainly increase the flow of properties coming to the market from timorous vendors, which in turn will open up the market in terms of choice for purchasers. A Labour win would mean no chance of abolishing HIPs, though the election of a Labour government has brought about a more active market in the past. But this time around, with the continued reluctance or refusal of the banks to release funds at the low end of the market, any government is going to face a real challenge in terms of being able to influence the market and increase the volume of sales.”

Money can’t buy it

By Belinda Archer

Supremely wealthy, an Arab businessman is being shown round a mansion on The Bishops Avenue, the famous billionaire’s row in north London. It is an eye-watering property: it offers the ultimate in bespoke, knee-deep luxury, from the latest in security to lavish leisure facilities, intelligent domestic systems and, of course, a trophy location. But the businessman is not happy. The pool is not big enough and there is simply not enough space for his six staff. The sale does not go through.

This experience is being repeated around the world – even in the current economic climate – as ultra-wealthy individuals with eight-figure sums burning a hole in their designer slacks fail to find properties to suit their increasingly extravagant demands.

The trend is the result of a combination of factors, from the growth in the number of billionaires globally to the ever more extravagant demands of Russian oligarchs and Arab princes. And it is causing something of a crisis at the top end of the international real estate market; homes that might suit this demanding clientele are becoming almost impossible to find.

“With the economic downturn, the houses at the very top of the market seem to have vanished – a year ago, a £150m property in the south of France would have been easy to source but today there is very little available,” says Lucy Russell, managing director of international property search agency Quintessentially Estates. And Camilla Dell, managing partner of London buying agency Black Brick Property Solutions, adds: “There has been a phenomenal rise in the number of global millionaires and billionaires in the last decade. Russians were a big force in the London, then the south of France property market, but as a business we are now focused on India – the number of billionaires there is set to triple over the next few years and Indians have a huge affinity with the UK and want to buy property here.”

The sort of home the money-no-object purchaser is looking for can be extraordinary. One recent prospective buyer wanted a property that could display his 48ft yacht indoors. Another was intent on finding adjoining homes on the same plot: one for the parents, one for the children. A third was looking for a private tropical island where mosquitoes did not breed.

Top locations include London, which has a huge following with the super wealthy – particularly specific addresses such as Kensington Palace Gardens, the UK countryside and the south of France. All bring their own problems, however, with limited supply being the biggest drawback for London. “A consistent request is that they all want to look over Hyde Park – but there are simply not enough streets for every super-rich Arab businessman to fulfil this dream,” says Tracy Kellett, owner of BDI Home Finders, a partner organisation to the Arab British Chamber of Commerce. Roarie Scarisbrick, of upmarket buyers’ adviser Property Vision, adds: “Property Vision’s Russian, Indian and Middle Eastern departments are all busier than ever, with clients wielding anything up to £100m wanting to take advantage of the best buying conditions in a decade to buy their dream London home.”

Many country properties in the UK are also restricted by their listed status, with structural changes such as swimming pools or the rearrangement of walls not allowed, while privacy is often compromised by public rights of way and bridle paths. They are often located in areas of outstanding natural beauty or conservation areas too, further restricting the large extensions so popular with the super rich.

There is another problem with this hard-to-please sector, too. “Due to the mindset of the wealthiest, the measure of what makes the finest home looks set to keep shifting upwards,” says Jonathan Hopper, managing director of Garrington, the UK property search company.

Indeed, recent demands have included a high-vaulted panic room for a particularly security-conscious Russian client, a glass shaft lift to the garage to allow one client to admire his Ferrari more easily, and bathrooms with baths that fill at a certain time to a certain temperature, controllable by text message. Non-negotiable must-haves seem to include anything from cinemas to spas, dog washing rooms and whole plot security.

“At this level, certain features are absolutely de rigueur,” says Noel De Keyzer, head of the Savills’ Sloane Street office. “These would include full air conditioning, a full audiovisual system, a cinema, an indoor pool and a gym. An at-home hair salon is also becoming a new standard.”

A key element contributing to the fundamental imbalance between demand and supply of the finest homes is that much of what might qualify for the international super-rich purchaser never comes to the open market. Jonathan Bramwell, head of the country team at search agency Prime Purchase, says: “So much of the top end is only privately available and comes with confidentiality clauses. Billionaires have to use property search agents like us who have access to that information.” Dell adds: “Most buyers at this end of the market will shy away from over-exposed, highly marketed developments. Anything marketed simply will not be considered. Discretion and confidentiality is just as important as finding the right property.”

One solution for the mega-wealthy property hunter is to customise and refurbish lower-grade properties, or knock down and rebuild them, but these often don’t have the required trophy settings or the necessary land for a full equestrian centre or an ornamental lake. Another is for them to buy a plot of land and build homes from scratch. One Russian billionaire has spent seven years developing a 1.2m sq ft property in Menorca, Spain, complete with two private beaches, stables, a five-a-side football pitch and a chapel, but many billionaires want instant gratification and do not like to wait for builders to complete their tasks.

Ultra-luxury new builds are another solution and ambitious developers including Finchatton, Candy & Candy, Harrison Varma and the Bolt Property Group are doing their utmost to cater for this specialist clique. The downside with these is that the developments are often highly marketed, putting off many potential customers, and they also tend not to come with as much land, particularly in the UK.

“The new properties at Wentworth or St George’s Hill [both in Surrey, south-east England], for instance, just don’t have the land that the old big country homes have.” Bramwell says. So pity the poor Russian oil magnate or Indian business mogul. Who would have thought they would have property traumas like the rest of us?

Copyright The Financial Times Limited 2010.

Buyers need to seek professional advice when planning to buy in London

By Camilla Dell

As a professional consultancy, our role is to guide our clients and managing expectations is an important part of this process. Some of our investment clients have a clear focus and vision of what they are trying to achieve; others are happy to be led and guided by us.

During the boom years of Dubai’s real estate market, clients would regularly ask us why they should be investing in London, with a 4 to 5 per cent yield and a 5 to 10-year hold period, when returns from Dubai property were so much greater. We would, from time to time, lose potential clients to the Dubai property market, and there were times when I wished we could offer our services in Dubai as well.

But something told me not to enter into a market I didn’t understand. When clients would tell me about the wonderful returns they were seeing and the flipping of properties, I would shudder. I didn’t understand the dynamics of the market.

Who was going to live in the tens of thousands of apartments that were being built and kept on being built? Where was the demand coming from? What was supporting the huge rise in prices? I decided that I simply couldn’t advise on a market I didn’t understand, but more importantly, was not an expert in.

Post the credit crunch and debt situation, the stories are still flowing out—investors who risked everything, even the roof over their heads, on betting the market would continue to go up and up. This isn’t to say that some investors haven’t done extremely well out of Dubai. There have been many success stories by those who got in and out at the right time.

Timing is everything. Even now, there are developers re-entering the Dubai property market, confident that the market will turn around. One developer recently unveiled a three-year plan to build The Heart of Europe Resort, a sixisland development on The World cluster of islands. He is betting on both a market recovery and also that interest from overseas buyers will be strong.

And Dubai should be congratulated. Recognising that one day the oil will run out, they have created a financial centre and a huge tourist destination from scratch, a feat I doubt we will ever see repeated anywhere else in the world. And while we don’t see Dubai as the place to make a quick return in a short space of time, over the long term, investors should do well.

At Black Brick, we firmly believe that diversity is the key to success when it comes to investing in property. Our investment approach with clients is very conservative on the whole. For investors looking to buy just one property, we keep it simple and stick to only the very prime areas of London. Here we know property will rent easily and stand the best chance of capital appreciation.

For clients looking to buy multiple properties, we expand the search areas, we may acquire one or two properties in secondary areas where the yields will be higher, but make sure we balance this with acquisitions in prime areas.

London is an attractive investment opportunity for non-residents of the UK seeking capital appreciation. The combination of a drop in London market values and the weak sterling, effectively provide dollar and euro buyers as much as a 50 per cent discount on previous levels in this assets class. In addition there is no UK capital gains tax for foreign investors.

We believe that it is important to take professional advice in the search and acquisition of London real estate as there is fierce competition for the best properties in the range of £500,000 to £3million. We were recently asked to source a prime property with a tenant in situ.

We sourced a suitable investment property in a prime location with a tenant already paying £721.61 per week. We negotiated aggressively and saved our client £75,000 off the asking price securing a gross yield of 5.7 per cent, above the market average of four per cent.

London, unlike Dubai, has limited space and very tight planning restrictions. We can’t just build and build, and if you believe in London and that it will recover and come out of recession, then it is a good place to own property.

In addition, London also attracts the globally wealthy, and people choose to own property here as a second home, as a base for children going to school in the UK and as an investment.

One thing, 2009 showed London’s resilience to the economic downturn. While property prices tumbled more than 50 per cent in Dubai, prices fell more moderately in London and actually rose 9 per cent during 2009. Prices in prime central London stand at just 13 per cent below the peak of the market today.

To conclude, it is important to take advice when investing property in any market, not just London. Markets differ greatly from one another and it’s never a good idea to pile everything into one location, no matter how tempting the returns may look. Diversity, timing and specialist knowledge is the key to success.

Struggling Pound Livens Up the London Housing Market

By Shelley Emling

LONDON — A three-bedroom, 2,300-square-foot apartment recently went on the market in London’s fashionable Eaton Square and an Italian buyer immediately snapped it up for £5.65 million — a surprisingly quick sale in what has been a flat market.

But real estate agents say the lightning-fast $9 million purchase is representative of what has been happening in the top-end property market in London, which has long laid claim to the most expensive residences in the world: The euro’s strength against the pound is bolstering interest among buyers from Europe, perhaps the only bright spot in an otherwise unspectacular British housing market.

“Unless there is a drastic shift in currency values, foreign buyers will continue buying prime London property,” said Charles McDowell, a London property consultant who specializes in properties priced at £5 million or more.

Even so, the London market remains as perilous as ever, with many agents saying that they do not expect a full recovery until 2011— and that the 5 percent to 6 percent rise in prices in 2009 was the result of a lack of stock rather than proof the market was getting better.

The inventory of property for sale is 20 percent smaller than it was a year ago, while a weak pound has spurred a 45 percent jump in prospective buyers from overseas, according to Knight Frank in London.

“In terms of future growth, we see 2011 as being the year of big growth for London and Southern England — and 2012 for the rest of the U.K.,” said Liam Bailey, head of residential research at the Knight Frank agency.

In addition to unemployment, Mr. Bailey said that the twin issues of inflation and future finance costs — coupled with a nasty combination of spiraling government debt and the resulting tax rises and spending cuts — are the greatest causes for concern.

But from 2012, a broader economic revival, fueled by growing employment and the hype surrounding the London Olympics that are to be held that summer, should help to underpin a real recovery in household income and house prices. But, Mr. Bailey added, the residential market is expected to continue to be uncertain in many parts of the country and negative equity would continue to provide a drag on activity levels through 2011.

For 2010, Mr. Bailey predicted that prices overall would not fall more than around 3 percent.

Camilla Dell, manager/partner at Black Brick Property Solutions in London, said that property price fluctuations in the next few years would depend on unemployment, interest rates and mortgage availability.

“Once interest rates start to go back up, it is likely we may see a large number of properties come onto the market in London, and this could put a stop to the recent price rises we have seen over the last few months,” she said.

For years London was home to an overheated property market, a city where high-end properties could command as much as $5,860 a square foot.

But the global recession battered the property market early in 2009 and it has only rebounded somewhat in recent months — prices in some parts of London are up by as much as 6 percent — mostly because of the weak pound and interest among foreign buyers.

“Up to 80 percent of the purchasers we have been dealing with throughout 2009 do not come from the usual home marketplace — people upgrading or downgrading their main residence,” said Gary Hersham, director at Beauchamp Estates in London. “Most of the British purchasers tend to be investing rather than moving home, and probably more than 50 percent of our purchasers are foreign, particularly those from the euro zone wishing to cash in on the extremely favorable exchange rates.”

James Bailey, head of sales at Henry & James estate agents in London, said that European buyers are enjoying a 35 percent discount on 2007 prices. “We are seeing Europeans buying in the £1 million to £2 million range, mainly as a pied-à-terre for themselves or as a rental investment,” Mr. Bailey said. “With interest rates so low, investors are opting to put money into bricks and mortar rather than into savings and London has always represented a sound investment.”

Martin Bikhit, managing director at the real estate agency Kay & Co. in London, said that he, too, has witnessed a spike in interest from overseas investors who want to take advantage of the weak pound and lower capital values.

“In some cases savings of up to 50 percent were made when compared to what an identical property would have coast 12 months ago,” he said.

But Louise Hewlett, managing director at Aylesford International real estate in London, said the higher house prices in recent months have given the false impression that the market is healthy.

“Mortgages have remained at their lowest level for over two decades, which has resulted in fewer properties coming to the market, and it is the shortage of supply that has given the rather false impression of a buoyant market,” she said.

Mr. McDowell, the London property consultant, said that tax increases for Britons and expatriate residents could prompt more wealthy property owners to decamp to Switzerland or elsewhere, putting more properties on the market for sale.

But, he added, fleeing Britain seems a rather drastic move with an election on the horizon.

Still clawing out of a recession, the government has increased its top income tax rate to 50 percent, a higher-than-anticipated levy on annual income earned in Britain of £150,000 or more.

But if the Conservatives win the election, which Prime Minister Gordon Brown must call no later than June 2010, those tax increases may be short-lived.

Amid a troubled real estate market, Mr. McDowell has spotted one trend: More buyers are financing — or refinancing — their major property purchases.

“In the last six months,” he said, “two thirds of our transactions over £5 million have been financed, a far higher percentage than would have been purchased with mortgage financing in previous years. There used to be an image issue and it was thought that people who borrowed to buy didn’t have deep enough pockets.

He continued: “Now clients are very keen to hang onto their money and borrow to buy. They want to stay liquid.”

Now is the time to opt for short leases

A large proportion of the client base of Black Brick Property Solutions, one of London’s leading independent buying agents, comes from the Middle East, and one issue the company regularly comes across is the fact that these buyers tend to have a total aversion to buying property with a short-lease, and will usually only consider properties that are freehold or a share of freehold.

The reason for this is mainly due to the fact that most property in the Middle East is owned freehold, and therefore leasehold is an alien concept, as it is to many foreign buyers. But ruling out properties with a short lease cuts off a huge section of the market, particularly in sought-after London areas such as Knightsbridge and Mayfair.

With the current market in prime central London so short on supply, ruling out these properties makes trying to secure the ‘ideal’ property even harder. The company naturally advises its clients on both the benefits and potential pitfalls of buying a property with a short lease, but in a market that is short on supply as the current one, it can be a sensible option.

As one would expect, a property on a short-lease is cheaper to buy than it would be with a long-lease, or held freehold. This may enable a buyer to acquire an asset that would normally be above their price range. There is then the opportunity to either extend the lease, or hold the property for a time before reselling. In most cases it is advisable to apply for the lease extension – or enfranchise – in order to retain the value of the asset and remove any ground rent that may be payable. Depending on the circumstances, there can also be a valuation advantage to purchasing a short-lease property with the view to immediately pursuing either of these options, rather than buying a property that already has the freehold or a long-lease.

The common misconception that foreign buyers have is that they will be refused the right to a lease extension. The Leasehold Reform Housing and Urban Development Act 1993 is legislation which entitles the tenant of a flat to an additional term of 90 years, at a peppercorn rent. The additional 90 years is added to the present unexpired term. For a house, it might be possible to enfranchise and purchase the freehold interest. In both cases, any ground rent payable under the existing lease is removed.

Within Prime Central London, where short-leases are commonplace and mortgage finance is not normally required, buyers are more familiar with the concept of leasehold, and sales of leases with fewer than five years unexpired are not unusual.

Elsewhere in the UK, particularly where mortgages are required, the perception is different. There are also fewer funding products available for shorter leaseholds. The legislation makes an important distinction between leases that either have more or fewer than 80 years unexpired. Once a lease falls below this marker, the calculations become more complex and the costs can increase considerably.

Black Brick Property always suggests that its clients obtain independent advice from a firm of chartered surveyors who specialise in leasehold reform and who can advise and guide its clients through the process.

To conclude, buyers shouldn’t be put off buying a property with a short-lease. There can be advantages, particularly in a falling market, where the cost of obtaining the extension will be less than in a rising market, and also in a highly competitive market, such is the current situation in London, where competition for the best properties is fierce. Considering properties with short-leases may mean you get a better deal as there will be fewer buyers competing for the same property. As with any complex transaction, seeking good advice is crucial.