There are signs of renewed activity in the Prime London residential market, as pent-up demand, the effects of sterling’s fall, and more realistic asking prices combine to trigger a rise in transaction numbers.
According to figures from data firm LonRes, the number of homes under offer in Prime Central London is at its highest level since the EU referendum last summer. In January, the number was just 4.5% below the level of 12 months ago – when buyers were scrambling to beat the April change to Stamp Duty rates – after slumping to less than half of 2015 levels during 2016 as a whole.
Taken together, falls in asking prices for the most affected prime areas, such as Mayfair and Kensington & Chelsea, and the drop in sterling have led to discounts of around 30-40% compared with the peak of the market, in late 2014.
The fall in average property values in Prime Central London appear to be leveling off, Knight Frank notes. They slid just 0.3% in January, the smallest decline since last July, while the estate agent is seeing activity picking up – it reported more transactions in the last quarter of 2016 than in the same period in either 2015 or 2014.
Meanwhile, broader sentiment is improving. February’s House Price Sentiment Index – conducted by Knight Frank and IHS Markit – was at its highest level since the referendum. It tracks the proportion of households who perceive that the value of their home has risen over the last month, and was highest in London (at 63.5) and the east of England (62.0). Any score over 50 indicates prices are rising.
“This very much chimes with our experience,” says Camilla Dell, Black Brick Managing Partner. “We’ve seen activity picking up massively, particularly in the higher end of the market, which has been subdued for some time.”
“We’re seeing a return to competitive bids, and not just at the lower end of the market, which has been the case for some time. For those houses that are priced correctly, and in line with where the market is now, competition can be fierce – there’s still not a huge volume of supply on the market,” she adds.
“However, it can be very difficult to know where the value is,” adds Black Brick Partner Caspar Harvard-Walls , “especially with developments, where there can be enormously wide range in asking prices. Buyers need to know where things have sold in the last six months, and that information isn’t easily available.”
The challenge is particularly acute in off-plan transactions, adds Dell. “Contracts might have been exchanged, but until completion, the data won’t go on the Land Registry database. Buyers need to be very cautious, or take advice about where such properties should be priced.”
Property owners have had good reason to dread the government’s bi-annual Budgets in recent years. The previous Chancellor of the Exchequer, George Osborne, rarely missed an opportunity to hike property taxes – and his increases in Stamp Duty for more expensive properties have done much to dampen activity in prime markets.
His successor, Philip Hammond, has resisted the temptation to further raid the property market: his Spring Budget – which he has announced will be the last – was absent of property-related surprises, either on the upside or downside.
The good news was in an upward revision in growth for this year, with the Office for Budget Responsibility now forecasting a 2% increase in GDP in 2017, up from 1.4% previously. That will be balanced by slightly slower growth in 2018-20, before equilibrium is restored in 2021. Public borrowing forecasts have also been revised downwards, which will hopefully reduce the need for unpleasant budgetary surprises in the years to come.
The UK is forecast to be home to 30% more ultra-high-net-worth individuals (UHNWIs) by 2026 than at present, according to research for Knight Frank by New World Wealth. This growth rate is set to exceed that of the European mainland, which is expected to see a 12% increase in the number of UHNWIs, defined as those with $30 million or more in assets.
Globally, the number of UHNWIs rose by 6,340 in 2016, taking the total to 193,490, according to data prepared for Knight Frank’s 2017 Wealth Report. By 2026, that figure is forecast to rise 43%, to above 275,000.
Vietnam is expected to see the fastest growth, where the number of UHNWIs is set to jump 170%, albeit from a low base. The UHNWI population in Asia as a whole will grow 91% over the period, compared with around 30% in the US.
The fortunes of UK high-net-worths are expected to be brighter than those of their European peers despite the political and economic uncertainty brought by Brexit. The mainland will be constrained by growing religious tensions, rising taxes and higher welfare state costs, and the loss of high-skilled jobs to Asia, while outmigration of UHNWIs will also weigh on numbers, New World Wealth predicts.
Meanwhile, London and the UK continued to lead the pack across a number of metrics tracked by the Wealth Report. The UK has topped the report’s City Wealth Index, which is based on a combination of the current population of UHNWIs, investment in property, connectivity and a forecast of a city’s future UHNWI population. In second place came New York, followed by Hong Kong and Shanghai.
The report also noted that the UK ranked number one in terms of the countries in which private property investors are likely to invest, followed by the USA, Germany and France.
Managing Partner Camilla Dell is traveling to the Gulf this month, spending four days in Dubai to meet with clients and prospective clients, as well as banks, lawyers and accountancy firms. Black Brick has a growing client base in the Middle East, for whom the UK has become a particularly attractive investment opportunity given the fall in sterling against the dollar.
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This month’s featured acquisition is unusual, in that the vendor has requested anonymity, but we thought it was worth highlighting what we could to demonstrate the importance of off-market transactions in the prime space. We secured our clients an exceptional 10,000 sq ft detached freehold property, in a prime Kensington address, for £37 million.
Prior to the purchase, we had found a rental property for our clients, who had recently relocated to the UK. Renting for a period gave them the chance to get to know various areas of London, allowing them to take their time with such a significant purchase. We spent a considerable amount of time orientating our clients, who considered Holland Park, Hampstead and St. John’s Wood before opting for Kensington.
As is often the case at the top of the market, the Kensington property was offered off-market, with no advertising or brochure. This level of discretion extends to viewings: selling agents will carefully screen private individuals, who are often subject to high levels of vetting. Clients of buying agencies such as Black Brick, however, are correctly assumed to be serious potential buyers providing, as with this case, the opportunity to purchase exceptional and exclusive properties.