In recent weeks we have seen the first clear evidence of a broader cooling in the prime Central London property market for some years, with price reductions for homes above £2m across prime Central London. In the main, this is a result of overly ambitious vendors forced to retreat on price. And while the imbalance between constrained supply and strong demand that has been a feature of the PCL market for so long remains in place, it is clearly tempering in more central areas. According to one leading London estate agent, the number of registered buyers per property has fallen by a third since the start of the year from 18 to 12.
Meanwhile, where sealed bids were still the norm as recently as late April, the balance of power has definitely shifted to buyers in recent weeks. The price reductions have not been dramatic, mostly single digit in percentage terms, but some as high as 10%. In the main, this has simply reflected a realignment with reality on behalf of initially over-optimistic vendors, but overall these gradually shifting dynamics are giving buyers the confidence to dig their heels in on price where a few months ago they had been willing to pay up.
With the price gap between property values inside and outside the M25 London Orbital motorway the biggest it has ever been, Londoners are exiting the capital to exploit the relative value in the commutable Home Counties in increasing numbers. According to Hamptons International, there was a 75% increase in Londoners buying homes outside the capital in the first four months of 2014 compared to the same period in 2013.
We welcome these developments at Black Brick. They present us with greater opportunities to negotiate more favourable deals for our clients. Amidst much media comment about a property bubble in the UK in general and London in particular, we believe that this cooling reflects a properly functioning market that needs little in the way of extraneous measures to further temper prices. PCL property is not immune to basic market forces; buyers clearly feel that in some areas prices have reached a point beyond which they are not currently prepared to venture. After such a prolonged and uninterrupted spell of rising prices, this small but irrefutable change in market conditions should not really be a major surprise to anyone.
Importantly, many of the key long-term supports to prime Central London property remain intact. Against this backdrop, the notion that London property values are a bubble waiting to burst is incongruous to us. Wealth creation in emerging markets is a secular trend; the high proportion of cash buyers since the financial crisis suggests a relatively low sensitivity to rising interest rates, if and when that occurs; geopolitical risks also remain prevalent worldwide and property in general has a role to play in any diversified portfolio. Certainly, London’s position as a pre-eminent international financial, business and cultural centre is undiminished. Indeed, recent figures show London overtook Paris as the most popular city for foreign tourists in 2013, while a survey conducted by CBRE published in late May reveals that London is now home to more international retail brands than any other City in the world.
Meanwhile, in the sixth annual review of 30 large cities worldwide conducted by PwC covering factors including economic clout, ease of doing business, safety and security, technology readiness and intellectual capital, London came out a clear winner. According to Cities of Opportunity 6, London ranked first in a number of individual categories, “all measures of its stature as a thriving centre of the world economy”, and posted “the highest score by a good margin”.
At Black Brick the proportion of our clients already domiciled in the UK continues to rise. Currently 40% of our client base is British, up from a mere 5% back in 2007. While this partly reflects a recovering UK economy in general and financial services sector in particular, we believe that there are other forces at work.
The misconception that Buying Agents are solely the preserve of ultra high net worth individuals is rapidly being broken down. Many busy, working UK professionals and families find themselves frustrated by the time commitment involved in searching for and securing the property they want. Many are swiftly realising that simply registering with lots of estate agents takes them no nearer to buying the ideal home or investment property. Over the past six months we have seen a steady increase in UK families who have concluded that having a well-connected buying agent with honed negotiating skills on your side is, potentially, money extremely well spent. We expect this trend to continue.
Our Property of the Month is a perfect example of the relative value still to be found within London’s homes. Our international client had previously used Black Brick to assist in the purchase of his existing home, but after a number of years he was looking to upgrade to a home with more entertainment space. We identified a property for him on Chester Street SW1, a prestigious and much sought-after street in Belgravia.
The house needed work, but with three parties all competing to buy the property, we were able to secure the property for our client at £10.75m, despite higher offers from other buyers. Our reputation for representing serious buyers and being able to execute deals often means we win competitive bids, even when we are not the highest bid. Contracts were exchanged within 15 working days. The price represents a 40% discount to a structurally identical home on the same street, sold a year ago. In addition we have advised our client on recommended builders and decorators and we will be managing the sale of his existing property. Please click here to read more.