31st October 2019
A tale of three cities
Last month saw Black Brick Partner Caspar Harvard-Walls travel to Asia for client meetings – a trip that offered insights into international demand for London property, and which served as an important reminder of how the UK is considered by overseas buyers.
The journey took in Singapore, which remains a paragon of stability and order, and Hong Kong, which, currently, does not. While the anti-government protests in Hong Kong are proceeding in a relatively civilised manner – with almost all of the disruption occurring at weekends – their steady escalation has raised profound questions around the future of the former British colony, and especially regarding how the government in Beijing is likely to respond.
“In both cities, there is real interest in investing in prime London property, for a variety of reasons and with a range of motivations,” says Harvard-Walls. “But the trip underscores that, for all the political and economic uncertainty we face because of Brexit, the further you get away from the UK, the less significant it becomes.”
Given Hong Kong’s former status as a Crown Colony, wealthy Hong Kong Chinese have long maintained links with the UK, sending their children to be educated here and investing in the country. The recent and ongoing political instability are reinforcing those links, says Harvard-Walls.
“Understandably, some Hong Kong Chinese are beginning to think about contingency plans, or are simply looking to diversify their assets,” he says. Many are heavily invested in property in Hong Kong, which has performed strongly, and are looking at prime London property as a means of spreading their exposures.
In addition, some potential clients raised concerns about their children becoming caught up in the protests and see the appeal of sending them overseas for their secondary or higher education, and are looking for accompanying accommodation, he adds.
For Singaporean clients, the drivers are different. “It’s much more about investment,” Harvard-Walls says: “They see the pound at historically low levels, and their view is that we’re coming to the end of the Brexit uncertainty. The expectation in Singapore is both that the pound is likely to rally, and the property market will pick up – if either one happens, investors will do well, if both do, it’s a double win.”
Whatever the motivation, interest from the region is up considerably: in the year to mid-October, we’ve seen 50% more enquiries from Asia than for the whole of 2018. Last year, less than a quarter of our deals were with Asian clients – this year, it’s more than a third.
“While we’re obsessed about Brexit, for most of the rest of the world, it’s barely relevant,” says Managing Partner Camilla Dell. “It’s largely factored into residential property prices and, over the medium term, it’s unlikely to diminish the appeal of London as a stable, safe and prosperous place to invest and live.”
She adds that even the appeal of the US is dimming for some – with next year likely to bring either the re-election of Donald Trump, with the division that will cause, or the election of a left-wing Democrat such as Elizabeth Warren, who is pledging to introduce a wealth tax. “Governments often forget that wealthy people are mobile – they vote with their feet,” says Dell.
Investors are on the prowl
Interest in prime central London property from institutional investors is building, in another signal that the market is on the turn. Recent weeks have seen a flurry of announcements of new investment vehicles targeting PCL, while a major developer buy-out could be on the cards.
Boutique investment firm Fairway Capital is raising a £120 million PCL fund aimed at acquiring residential property in Belgravia, Knightsbridge and Mayfair. It is working with developer Leconfield Property Group and is aiming to deliver an internal rate of return of 12-15% per annum.
George Brooksbank, its founder and CEO, describes the current market as a “a once-in-a-decade opportunity to invest in PCL following the longest suppression in the market”. He anticipates a 10-20% price uplift once Brexit is resolved and notes the increasing activity of foreign buyers taking advantage of the devaluation of sterling.
REDD, a Monaco-based property investor and developer has disclosed that it is building up a £100 million development pipeline in PCL, following a £15 million acquisition of a Mayfair block on Balfour Place. The company, which started trading in 2016, was founded by Jacopo Marzocco, whose family company is a major developer in the principality.
Meanwhile, investors have backed high-end rental home firm Blueground to the tune of $50 million in an investment round that will see the New York-based firm expand into London. The company buys and improves prime apartments, before letting them out. In New York, its lettings start at $7,000/month.
The company is aiming to acquire 1,500 apartments in London by 2023. “London is an excellent addition to our existing locations and we are really confident that it will become our largest European market soon,” Alex Chatzieleftheriou, its co-founder and CEO.
And in the biggest potential bet on PCL, Candy Ventures, the investment firm owned by property developer Nicholas Candy, is reportedly in talks to buy London-focused real estate company Capital & Counties (Capco). The company is struggling following the collapse in value of its Earl’s Court development project, which was worth £803 million in 2015 but was valued at just £389 million this June.
Publicly listed Capco was worth more than £2.3 billion as of late October, following a regulatory announcement that it is considering a cash offer to acquire the company.
“It’s no great surprise to see institutions circling the market and finding it interesting,” says Dell. “Finding the opportunities is going to be challenging for them, however.”
An election, and Christmas: opportunities from a December slowdown
The UK is to hold a General Election on December 12, raising the prospect of resolution of the current Brexit impasse – but also likely temporarily putting the brakes on a nascent recovery in transactions in PCL.
“From the point of view of the London property market, the hope has to be that a General Election brings to end the current uncertainty around our departure from the EU, and that would be most likely with a convincing Conservative victory,” says Dell.
“The worst possible outcome – although a highly unlikely one – would be a Labour win, given the likelihood of significant tax rises, including the likely introduction of a wealth tax.”
“Of course, the near-term uncertainty created by an election campaign is likely to depress activity levels which, while low, had shown some signs of recovery,” she adds. “However, this can create opportunities for buyers who can identify highly motivated sellers: there is likely to be less competition and the chance of real bargains.”
This near-term uncertainty will exacerbate the traditional lull in activity in the run-up to Christmas. However, this lull can present an ideal opportunity for buyers to strike.
“With only seven weeks to go before Christmas, vendors can become desperate to close a deal, and other buyers may be distracted with their festive preparations,” says Harvard-Walls. “Our view that this can be the best moment to strike. It’s no coincidence that both Camilla and I bought our respective family homes in December.”
“There are also year-end targets to be met,” he adds. “Developers and agents are under pressure to get deals closed before their Christmas parties.”
Last year, we achieved one of our deepest discounts for a client – 18% below the asking price – by striking just before Christmas.
Not only does December 25th create a deadline for some sellers, the less-than-optimal viewing conditions can work in a committed buyer’s favour. “If you like a property during the dark winter months, you’re going to love it over the rest of the year,” says Dell.
Acquisition of the month: Trafalgar Gardens, Kensington, W8 – £2,150,000
Our Italian client was looking for a secure pied-a-terre in Kensington, and had found a property, but needed specialist advice on value and negotiation. Being based overseas, they also wanted someone on the ground who could communicate more efficiently with the sellers, and who could provide management of works once the purchase had completed.
We successfully negotiated a £150,000 discount to the asking price, oversaw the legal process and introduced best-in-class surveyors and building contractors to advise on future works. By managing and co-ordinating the process, we reduced the risk of delays and escalating costs.
Managed sale of the month: Hereford Road, Acton, W3 – £1,665,000
We are acting for the seller of an entire freehold house that has been recently divided into four apartments. The newly-refurbished property is close to where the Acton Mainline – a new Crossrail station – is due to open, giving access to Bond Street in nine minutes and Liverpool Street in just 16. The four apartments would make an excellent rental investment, with an estimated gross rental yield in excess of 4%.
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