The European summer holiday season may be in full swing but far from heralding a lull in property buying activity in London, August has traditionally been our busiest month of the year at Black Brick. With Ramadan over, the summer months bring many potential buyers of prime Central London (PCL) property to the UK capital. At Black Brick we signed new clients from the US, Egypt, Bahrain, Nigeria and Kenya in the first week of August alone.
And what greets these new potential buyers of PCL property are market dynamics that continue to shift in their favour. While there remain large differences in market dynamics by area and price segment within London, overall the pace of house price growth has continued to moderate in recent weeks as supply has increased. Indeed, one major agency estimates that available stock in London is now at its highest level in more than five years as domestic vendors in particular are exploiting the value gap between London house prices and those in the commutable sub-urban areas.
In some market segments this has meant prices have plateaued or even fallen. According to Savills, prices in the most established core and most expensive prime central locations such as Mayfair, Knightsbridge, Belgravia and Chelsea rose just 0.4% in the calendar second quarter, while the value of homes above £10m fell 1.5% over the same three month period.
The greater choice now available to buyers became very clear in our own recent search for a property for a client in Mayfair or Belgravia with a budget of £20 million to £100 million. Even in this relatively small target area there were over 20 houses for sale in this price range. If sanctions against Russian oligarchs are extended, there is the potential for even more supply at the very top end of PCL property – good news for potential buyers.
Apart from this supply increase, the prospect of rising interest rates in tandem with tougher mortgage lending rules have also played their part in cooling property prices in both London and the broader UK.
According to Nationwide, one of the UK’s largest mortgage lenders, house prices across the UK rose by just 0.1% in July, the slowest pace of growth in over a year. However, with a strengthening labour market, low lending rates and rising consumer confidence, Nationwide said it expects house price growth to reaccelerate in the months ahead.
Far from being concerned, our view is that any price weakness in PCL property is likely to be short-lived, and that the moderation in price growth is a healthy development in an orderly market, clear evidence that London needs little in the way of additional special measures to supplement market forces.
Even if supply is increasing, demand for PCL property remains strong. Recent figures highlight the 83% surge in investment from China into London property in the last twelve months despite the continued strengthening of the pound against the renminbi. However, our own data at Black Brick’s points to international demand that continues to broaden geographically and domestic demand that is quickening as the UK economy strengthens.
In volume terms we have completed on 53% more properties in the first half of 2014 than we did in the corresponding period last year. The number of new clients registering with Black Brick so far in 2014, a strong lead indicator of future sales, has been double that recorded over the same period last year.
Of particular note is the increasing geographic breadth of our international client base. In the first six months of 2013, potential buyers from some 21 countries registered with us. In the first half of 2014, this rose to 34 different nationalities– a 67% rise. We have had clients from Argentina, Brazil, Ghana, New Zealand, Australia, Germany, Poland, Switzerland, the Netherlands and Tanzania for the first time in 2014, and a much greater spread across the Middle East and Gulf state countries than has been the case historically. These figures prove that London property is still appealing to an ever wider group of both owner/occupiers and investment buyers from across the globe.
The motivations for individual purchases are diverse, but the spike in interest from Brazil is, we believe, a direct result of the material tax changes made law in May and effective from January 1st next year. We saw a big increase in French buyers when President Hollande raised taxes in France, and expect to see a similar increase of Brazilian buyers in the coming months.
The other clear trend in 2014 has been the large increase in domestic UK buyers of PCL property. The 71% leap in UK registered clients in the first half of 2014 reflects, we believe, renewed confidence in the London property market and a resurgent domestic economy.
It also reflects the growing use of search agents by domestic buyers in a market where supply is tight and specific market knowledge can make all the difference – an explicit acknowledgement that services like Black Brick’s are not the preserve of ultra high net worth overseas investors but can save both time and money for all clients at all price points. Many domestic buyers come to us severely frustrated with the entire buying process. We looked after a British client earlier this year who had been searching for over six months, bid on properties and been gazumped by the same estate agent he was using to sell his existing property.
We are also proud of the fact that 30% of our clients in 2014 have previously bought through us.
Elsewhere, an in-depth report into Westminster’s prime residential market has concluded that foreign owners are not preventing ordinary Londoners from affording their own homes and that high-end homeowners in Westminster are, in fact, injecting millions of pounds into the capital’s economy.
The report, commissioned by Westminster council, estimates that owners of trophy mansions spend some £2.3 billion a year on improvements to their homes, in shops and restaurants and on employing staff. Far from providing no benefit to the UK economy the report suggests that owners of homes worth more than £15 million spend an average of £4.5 million a year in London while those in the £5 million to £15 million bracket spend £2.75 million annually.
August’s Property of the Month is a two-bed investment property bought for a British client. Our remit was to find an apartment in a prime location which would provide long-term capital growth as well as being easy to rent out. The property also needed to be in good condition and ready to let.
The property we found for our client could hardly be more central. Ideally located in W1 within a five minute walk of Oxford Street and the new Crossrail station at Hanover Square, we managed to secure the property for £1.9m, successfully negotiating £350,000 off the asking price in the process. We expect both capital and rental values in the area to benefit from a significant uplift in the coming years due to improved transport links.
Please click here to view this case study on our website.