September 2015

Prime London: a haven for battered equity investors?

For investors in China’s stock markets, it’s been a grim summer – and now worries about the growth prospects for the world’s second biggest economy are beginning to roil equity markets from Tokyo to New York. Clients and advisors are increasingly asking us whether these tremors in global markets could begin to shake the foundations of prime residential real estate in London. The honest answer is, it’s too early to say. Certainly, for investors nursing big losses on their stock market portfolios, finding the cash to make a property investment will have got harder. At the margins, there may be some forced disposals to compensate for losses elsewhere. But there is reason to believe that the volatility we’re seeing in financial markets could increase demand for bricks-and-mortar assets.

Our experience in the last crash, in 2007-08, may prove instructive. Then, we saw enquiries evaporate for more expensive prime property, above the £10 million mark. However, at the same time we witnessed growing demand at the less expensive end of the market, for properties around £2 million and below, as investors sought assets that are weakly correlated with stock markets.

“For Chinese investors, particularly, the roller coaster ride in the local market may well increase the appetite for the more predictable performance of overseas investments, including London property,” says Black Brick Managing Director Camilla Dell.

There is also some speculation that the proposed launch of a new scheme, the Qualified Domestic Individual Investor programme, will see more Chinese investors seek foreign real estate investments. The pilot programme will allow individuals from six cities, including Shanghai, to invest directly in overseas assets.

The falls in China’s stock market appear dramatic. But it is worth bearing in mind that the country’s equity market is less closely linked to the underlying economy than is the case in most developed economy. Recent years have seen enormous wealth built up in China’s ‘real’ economy, and that wealth will become an increasingly important factor in markets around the world in coming decades – including London’s property market.

“This is a trend that has been underway for some time,” says Dell, “which is why we’ve been targeting China as a key overseas market for Black Brick. Stocks and shares will go up and down but, long-term, demand from China is only going in one direction.”

Tight supply helps drive prices higher

So much for the future. As for the recent past, there has been a drop in the number of residential property transactions in the UK, especially for more expensive homes. The latest figures from the UK Land Registry show a 38% fall in the number of properties in London sold for more than £2 million in May, compared with the same month last year. At the same time, prices are continuing to rise. Across the whole of the London market, prices were 8.3% higher in July than 12 months ago, with the capital outpacing the 4.6% rise in prices across England and Wales as a whole. These two factors are, of course, connected. We are seeing far fewer properties coming on to the market, and a much higher number of potential buyers chasing whatever stock becomes available.

While demand at the higher end of the prime market remains weak, we are seeing particular competition for properties below the £2 million level, in part as a result of changes to the Stamp Duty threshold announced last year. It is not uncommon for buyers to find themselves racing against literally dozens of rivals to secure properties, which are often going to sealed bids.

A growing number of UK-based clients are coming to us for help buying in this part of the market, due to their difficulty in both finding, and then successfully securing, suitable properties in the face of stiff competition.

Market intelligence and our connections mean that we can often secure early access when properties come onto the market. But we are also able to provide crucial advice on the bidding process, ensuring clients neither over- nor under-bid, based on our understanding of market conditions and appropriate comparables.  

Property acquisition of the month: Childs Street, SW5

We recently acted successfully for just such a client, a first-time buyer from the UK who was struggling to find a suitable home in London. She was looking for a period property, with an easy commute to St. James, and with outside space. We found the perfect solution – a charming cottage townhouse on a quiet street in Earls Court. We were able to secure the property for £1.485 million despite strong competition from two other buyers, through how we presented our client to the agent. Our representation ensured that her offer was taken more seriously than those of rival potential purchasers, despite competitive bids.

Black Brick on the road

Senior Black Brick representatives are taking to the skies over the coming months, meeting clients, private banks, wealth managers and law firms in Asia, Europe and the Middle East. Partner Caspar Harvard-Walls will be in Hong Kong from the 21^st to the 24^th of September, and in Singapore over the 28^th and 29^th. Managing Partner Camilla Dell be be visiting Geneva 12th and 13th October then Zurich on the 14th October and Dubai 1^st to the 5^th of November. Please don’t hesitate to email if you are interested in arranging meetings in any of those five cities or, indeed, closer to home.