August 2012

With the 30th Olympiad in full swing it is hard to think of a city that better embodies the celebration of cultural diversity that is the games’ defining ethos. With over 50 ethnic communities of 10,000 people or more and over 300 languages spoken within its boundaries – London ranks as one of the most diverse cities in the world. In this sense, London truly is “the world’s capital city”.

And as London basks in the media spotlight, the gathering of some of the world’s largest superyachts in an East London dockyard suggests that even the wealthy are not immune to the pull of the Games and the unique opportunity to mix business with pleasure and sporting excellence.

But while the Games may well support investment of all kinds in London over the long-term, we’re expecting a short-term hiatus in prime Central London property viewings as they disrupt the capital’s roads and railways. While a few visitors to our shores may well try to combine a property viewing with the Olympics, many will also be deterred by the prospect of over a million extra daily visitors. With many of our Middle-Eastern clients also observing the holy month of Ramadan, the next few weeks are likely to be quieter than usual for this time of year. However this also presents a great buying opportunity, as there is likely to be less competition for desirable properties whilst potential buyers and sellers take their summer holidays.

Key supports in place

The key supports to prime Central London property prices of emerging market wealth creation and safe-haven asset status remain very much in place. With the European debt crisis rumbling on and growing concerns about the global economy, demand driven in part or in whole by a desire to protect wealth remains a major force. Unsurprisingly, the more prestigious the location, the greater the safe-haven demand. And with yields on more traditional safe-haven assets such as ten-year UK, German and US government bonds all under 1.5% at the time of writing – the attractions of a physical asset where supply cannot be instantaneously increased are powerful. Industry data shows PCL prices continuing to climb. The Knight Frank Prime Central London index rose 0.8% in June, leaving prices 10.5% higher than a year ago and 5.5% higher since the start of the year. Since the post-credit-crunch low of March 2009 prices have now risen an astonishing 48.4% in sterling terms. This gain is further amplified when translated into US dollars and euros due to sterling’s strength against these currencies over the same period.

As truly impressive as these gains are, we believe that the headline figure masks some significant divergence within ‘prime’ Central London by location and by price segment. In the past few months, both the lower and top end of PCL properties have been particularly strong. Properties changing hands below £2m have benefited in relative terms from a lower stamp duty charge compared to higher valued London homes. While at the very top end of PCL property the recent stamp duty hike appears to be of little consequence to ultra high net worth buyers. Indeed, recent data show over a hundred £5m+ properties changed hands in central London in the three month period to end-June for a total value in excess of £1bn.

Prices still well supported

As we look forward to the second half of the year, much of the latest market commentary about PCL prices for the remainder of 2012 has appeared to err on the side of caution. In a recent note, one of the major agencies talked about expecting “the market to plateau for a period”. Camilla Dell, Black Brick Managing Partner, disagrees. “We believe that the sheer breadth of support for prime Central London property will mean prices will continue to tick higher in the coming months, albeit at a slower pace than averaged over the past three years. The key market dynamics are clear: resale stock is in short supply, particularly in the most sought after post codes; new build development, though occurring, is also muted due to a shortage of available finance. With safe-haven and wealth diversification demand ever stronger forces, we believe the overall backdrop remains consistent with continued small price rises.”

As ever, the backdrop for the broader UK housing market could hardly be more different. Recent data showed the overall UK economy contracting at a faster-than-expected rate in the three months to end-June as the UK remains mired in recession. According to leading mortgage lender Nationwide, house prices across the UK fell 0.6% in June, leaving overall values down 1.5% over the past twelve months. Elsewhere the headline price balance of the monthly price survey compiled by the Royal Institute of Chartered Surveyors fell to an eight-month low in June. A net balance of 22% of survey respondents reported falling prices in the last three months (down from 17% in May), though the vast majority continue to report small falls between 0% and 2%.

Black Brick activity levels remain brisk

At Black Brick new client sign-up and existing client activity remains strong. We have completed on a number of properties in recent weeks, reinforcing the view that overall demand for prime Central London property remains robust despite the recent stamp duty rises. As we highlighted last month, those who would naturally have used off-shore trusts to acquire London property are now doing so in their own name and, where possible, borrowing against the property to reduce their inheritance tax liability. Recent acquisitions we have made for our clients include a rental investment in Cadogan Gardens for £2.5 million, Knightsbridge SW3 for a UK citizen currently living abroad. The apartment is ideally located just a stone’s throw from Sloane Square, the Thames, Hyde Park and the north end of the King’s Road. The flat is highly desirable due to the south facing double reception room and the fact that the building is on a corner making it incredibly bright. Elsewhere we have also completed on a £2.7m pied-a-terre for a wealthy Asian client in Kensington and a buy-to-let property in Evelyn Gardens SW7 in South Kensington for a long-standing client who is building a portfolio of London rental properties. This is the third they have bought using Black Brick. Meanwhile we have also secured a rarely available un-modernised two-bed apartment in a quiet and private cul-de-sac in Notting Hill. Properties in this sought-after enclave don’t come up very often but due to an early viewing and a swift exchange the property was secured for our client before the competition swooped.

Until next month, enjoy the greatest show on earth – in the world’s capital city.

Cadogan Gardens: acquired in July £2.5m

Phillimore court: acquired in July £2.7m