London becoming a global hub for the rich

13 September 2010, Al Nisr Media – Property Monthly (Dubai)

By Camilla Dell

The London property market has long attracted buyers from around the world. If we take a look back to when the market last crashed in the 1990’s, the crash was much more drawn out than the price falls we have witnessed this time around. UK house prices started falling in 1989 and the market finally bottomed out in 1995, resulting in a 13.2% fall in UK house prices over six years. Back then, the fall in the market attracted foreign buyers, particularly from the Middle East, who saw the drop in prices as an opportunity and hence began to buy a large volume of property in London.

Fast-forward 13 years and the crash of 2008 has been much more acute. Prices fell sharply between September 2008 and February 2009, as much as 20 – 25% in central London, but from February 2009 onwards the market suddenly started creeping back up, and hasn’t stopped since. Prices today are almost back to where they were at the peak of the market, and in some parts of London, we have even begun to see evidence of transactions taking place back at record levels. Motivated in part by a 30% devaluation in Sterling, foreign buyers have started pouring back into the London market. According to a recent report by Knight Frank, between December 2008 and March 2009 the international buyers’ share of the £5m+ market soared from 39% to 48%. By June of this year it had hit 68%. So what is it about London? Why does it attract buyers from around the world?

For many investors, the recent turbulent financial times have resulted in a fear of investing in the stock markets or funds. With interest rates so low, keeping money on deposit in the bank also makes little sense. At Black Brick, many of our clients make their wealth in high-risk regions and so seek to diversify and look to acquire assets outside of their own countries. The London property market has long been viewed as a safe haven by many investors. In addition, the enduring attractions of London’s excellent schools are a real pull to the international elite. The relatively light regulatory burden on companies wishing to gain a public listing in London, in comparison to New York, means that London is the stock market of choice for many international corporates seeking capital. Meanwhile London’s geographic position enables access to Asian markets in the morning UK-time and American markets in the afternoon and evening – an important factor for many companies.

The combination of these factors has resulted in demand for London property becoming truly global. If we look at our own client base at Black Brick, we now look after clients from Nigeria, Ghana, Uganda, Kenya, South Africa, Zambia, Russia, India, Pakistan, Malaysia, Singapore, Hong Kong, Greece, Cyprus, Italy, Saudi Arabia, Dubai, Egypt, Lebanon, US and Australia. India and the rest of Asia are particular hotspots at the moment in terms of expressions of interest – reflecting the area’s fast-growing high net worth contingent and strong historical links with the UK.

So where are people buying and are there any trends? It’s difficult to generalise, but we have begun to identify certain trends amongst different nationalities of buyers. Buyers from the Middle East and India tend to favour Knightsbridge, Mayfair and Belgravia as their preferred locations. They prefer to buy lateral apartments and like buildings that have a porter, good communal parts and an impressive entrance. Buyers from Asia tend to prefer the modern, new build, purpose built blocks in prime locations such as Kensington. African buyers like to buy in areas such as St John’s Wood, Hampstead and Regents Park and like gated developments with high security.

One of the biggest challenges in the London property market today is finding a good deal, and this is something that all our international clients ask for. London is currently experiencing a huge imbalance in the supply/demand ratio, a direct result of the globalisation of the London market. As many existing owners are not British, domestic changes such as the recent rise in income tax have little effect, and most property purchases by the overseas contingent are viewed as long-term commitments that will pass down through the generations. If there is no pressure to sell, then foreign buyers tend to keep hold of their property indefinitely.

The supply and demand imbalance is most acute in prime areas such as Kensington and Chelsea, Knightsbridge, Mayfair, Belgravia, Regents Park and St Johns Wood. With choice so limited, finding the right property has become increasingly difficult. This has led to the rise in popularity of buying agents, the most reputed of which will have prior access to properties before they hit the open market, and are even able to source properties entirely off-market, through direct liaison with vendors. For instance, at Black Brick, we currently have over 50 properties on our own internal database where we are in direct contact with the vendor. In such a competitive market, choosing the right buying agent to represent you in your search can really make all the difference.

The big question on everyone’s mind is “is the London market sustainable”? Surely prices cannot rise any higher, and with the global outlook still looking shaky, surely London cannot be immune? Looking forward we would not expect prime central London property to remain completely untouched by the potential storm clouds gathering over the broader domestic housing market, and more generally fears of a fresh downturn in the global economy. But we believe that there are separate and stronger long-term supports to the London and South East housing market that will allow it to weather a so-called ‘double-dip’ better than the wider UK housing market and the majority of other asset classes. Indeed, there is an argument that heightened risk-aversion among high net worth investors only increases the attractions of prime central London as a relative safe-haven.

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