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Red-Hot Property Markets Cool as Rich Investors Retrench

Demand for high-end homes in London, New York slows as market turmoil hits global investors

LONDON—In August 2014, when the housing market here was on a tear, a two-bedroom condominium in one of the most expensive neighborhoods went up for sale at £3.25 million ($4.64 million), a 67% premium to its purchase price six months earlier.

The redbrick home on Cadogan Gardens in Knightsbridge is still unsold, and expectations have been revised. The price has been cut three times, the latest at the start of this year, to £2.5 million.

“It’s a great property,” said Sam Spring, a sales broker at the Chelsea office of estate agency Faron Sutaria, of the 1,250-square-foot home with dark walnut floors and high-end appliances. “It’s just a very price-sensitive market these days.”

In London’s priciest neighborhoods, the housing boom is over.

Wealthy investors, most prominently from Russia, China and the Mideast, swooped in on cities like London, New York and Vancouver to buy high-end homes in the years following the 2008 financial crisis. Real estate appeared to be a safe investment. Returns looked robust against ultralow interest rates.

Now, demand is slowing not just in London, but in prime housing markets around the world.

Average prices of luxury homes in 10 global cities analyzed by real-estate broker Knight Frank LLP are expected to rise 1.7% this year, down from 3% growth in 2015.

Foreign investors that helped drive the boom have had to contend with weakened currencies, stock-market shocks and the collapse in oil prices. Meanwhile, a major overhaul of a U.K. transaction tax known as stamp duty increased the charge on high-price sales, and new taxes on second homes and rental properties will take effect this spring.

In New York, demand for high-end homes cooled last year, brokers said. In Miami, South American and European buyers could pull back this year due to a stronger dollar, and prices are expected to fall in Hong Kong, Singapore and Paris, Knight Frank said. Swiss lender UBS Group AG said in October that housing markets in Sydney, Vancouver, San Francisco and Amsterdam appear “significantly overvalued.”

Luxury housing in London became one of the world’s hottest assets. But “the frenzy is gone completely,” said Manish Chande, senior partner at U.K. real-estate firm Clearbell Capital LLC. About 18 months ago “everything was going like hot cakes. Today it’s the total opposite,” Mr. Chande said.

Prices in prime central London, which includes high-end properties in posh districts like Mayfair and Chelsea, fell 1.4% during 2015, according to data-provider Lonres. Some neighborhoods fared worse. In Knightsbridge, prices dropped 5.6% in November compared with the year earlier, according to broker Knight Frank.

Those slides may understate what is going on: Data on high-end homes are hard to compare, because there are few of them and sellers may have the wherewithal to simply hold off rather than accept a lowered price. Transaction volumes at the top end of the London market were as much as 40% lower in December from a year earlier, according to U.K. buying agent Property Vision, and inventories of prime properties are mounting.

The standoff between buyers and sellers resulted in 2,712 homes over £1 million for sale in prime central London at the end of November, 81% more than in January 2014, according to buying adviser Huntly Hooper Ltd.

Even so, in a sign of the liquidity crunch, the gap between asking prices and sales prices is widening.

The difference between initial asking prices and average sales prices in prime central London was at a record 19% in the three months to November, Huntly Hooper data show. The disparity was 9% in the same period last year.Cadogan Gardens—four streets ringing a shared garden—sits on the Cadogan Estate, a 93-acre central London plot that has been in the same family for nearly 300 years.

The estate is on the border of Chelsea and Knightsbridge, parts of London now synonymous with fancy cars, luxury shopping and high-price penthouses.Its origins are noble. The English aristocracy once had summer palaces around the fields and marshes of Chelsea. In the 1770s, the first large-scale housing development started when Charles Sloan, the Earl Cadogan, granted a lease to architect Henry Holland to build terraced homes for moderately affluent people.In the 1800s, the area started to be swallowed by expanding London. Sloane Square tube station opened in 1868. Much of the Cadogan Estate was redeveloped in the late 1800s after falling into decline.Last year, just a quarter of the 34 homes put up for sale on Cadogan Gardens sold, and almost half were taken off the market, according to Nathaniel Wilde,head of the Sloane Square office for estate agent Hamptons International. On Eaton Place in neighboring Belgravia, home to billionaires and diplomats, only a quarter of the around 50 homes offered were sold, he said.It was a “tough year on that patch,” Mr. Wilde said. “Lots of homes are still sitting there.”The Cadogan Gardens condo for sale at £2.5 million was last sold in February 2014 for £1.95 million, according to Land Registry records. The property developer selling the condo has been renting it out, Mr. Spring said.

Superrich buyers from countries in the Mideast and Asia helped drive prices higher. But financial circumstances in those countries have changed drastically in the past year.

Oil prices, slipping under $30 a barrel, are about half the price they were in May. Demand from some investors in oil-producing countries around the Middle East and Africa has waned, property agents said.

Mideast investors made up 4% of prime central London buyers last year, compared with 15% in 2014, according to data from broker Savills PLC.

Weaker currencies have kept investors in Asia and other emerging markets at bay. The portion of buyers from the Pacific-Asia region fell to 2% in 2015 from 4%, Savills data show. In China, stock market routs amid concerns about economic growth have had an impact on buyers. Most investors from China have focused on new-build properties away from London’s historic center, agents said.

In New York’s high-end property market, the Federal Reserve noted “softer demand and a supply glut” in its December regional survey of economic conditions known as the beige book.

“There has been a dramatic slowdown at the superluxury end of the market,” said Andrew Gerringer, managing director of the Marketing Directors, new-development consultants. “When you see what’s happened in the financial markets it just puts a bit more of a chill.”

In the 90-story One57, just a couple of blocks from Central Park, a four-bedroom condo purchased by a European investor for $20.3 million in April recently sold for $17.75 million, according to the broker, James Cox of real-estate firm Compass.

While overall the New York real-estate market remains strong, Mr. Gerringer said that demand for trophy properties over $20 million has cooled substantially over the past year, and there has been some impact on the $5 million-$10 million market.

 

At 50 United Nations Plaza, which has views of the Empire State Building, the developers, Zeckendorf Development LLC and Global Holdings Inc., said they cut prices by 5% on some units, although they said less expensive units on the lower floors have sold for close to the asking price.

In Sydney, upscale home prices raced 15% higher in 2015, according to Knight Frank. But growth is expected to slow to 10% this year.

Rich Simeon, director of real-estate firm Simeon Manners, is waiting to see if the recent China stock market shakeout chokes off demand from Asian buyers. “It is too early to tell what is going to happen right now,” Mr. Simeon said.

Jo Eccles at London buying agent Sourcing Property said foreign buyers made up half of her business over a year ago. But now the vast majority of her clients live in London, with many working at investment banks. “The demographic has changed massively,” Ms. Eccles said.

Access to capital has also become increasingly difficult for foreign buyers exposed to falling oil prices, said Camilla Dell, managing partner at buying agency Black Brick. She said wealthy buyers from oil-rich African countries like Nigeria have struggled with liquidity in the past six to 12 months.

In the U.K., the change in stamp duty in December 2014 made homes valued over £937,000 more expensive for buyers. Stamp duty charges rise in steps to a maximum of 12% on the portion of sales over £1.5 million. The previous regime charged a flat rate based on the value of the home, with the duty rising to 7% on homes over £2 million. Last year, to compensate for the change, some sellers adjusted their prices lower, agents said.

Wealthy buyers can generally afford the outlay, said Alex Newall, managing director at Hanover Private Office. But the new tax has made people wanting to trade up to a bigger home hold off on transactions, “instead opting to do renovations or additions to their existing properties,” he said.

While the prime central London market is stuttering, prices are still pushing higher in the rest of London amid a housing shortage. The average dwelling in November sold for £506,724, up 11.2% from the year before, according to Land Registry data.

Adding to demand are buyers that a few years ago would have focused exclusively on prime central neighborhoods. For instance, some wealthy Middle Eastern buyers have started to see better value in new-build projects away from the center.

“These clients are now willing to look 10 miles out,” said Jo Leverett, head of international residential markets at estate agent Cluttons LLP. “That’s new.”

Overall, London has become drastically less affordable. When UBS warned in October that the city was at risk of a housing bubble, it noted that real earnings have fallen 7% since 2007.

“We’re due a price correction,” said Robert Nichols, managing director at London estate agent Portico. “When you can’t think of anyone who can afford to live on your street, you know there is something wrong.”

For now, areas dependent on the superrich are the ones suffering.

St. George’s Hill, a gated community in the suburbs of Surrey, became popular with wealthy Russians during the boom.

Now, around a quarter of the over 400 homes in the area are for sale or set to come onto the market, according to Hanover Private Office. Just 13 homes were sold there last year.

Wealthy Russians have pulled back from the London market amid international sanctions, the depreciation of the ruble and political pressure to rein in foreign spending, buying agents representing Russians said.

Saddle Stones, a six-bedroom mansion in St. George’s Hill, was listed in August 2014 at £9.5 million. The asking price is now £7.5 million. The home, complete with a cinema room, elevator and swimming pool, was designed with a Russian buyer in mind, said Natalia Rotenberg, founder of design firm NR Group.

Ms. Rotenberg said homes in the area remain for sale despite lavish parties thrown for potential buyers. “We’ve won awards for our interiors. But they still don’t sell,” Ms. Rotenberg said in a September interview.

Stamp duty changes: buy-to-let investors competing with first-time buyers creates a ‘mini-bubble’ in the London property market

London’s beleaguered first-time buyers are facing a fresh challenge: an onslaught of investors swooping on property in a rush to beat an increase in stamp duty for buy-to-let homes scheduled for April 1. Sealed bids are back and cash is king if you want to close the deal.

According to Connells estate agents, the number of buy-to-let valuations carried out in December leapt 86 per cent year-on-year after Chancellor George Osborne announced the tax hike in his Autumn Statement.

Buying agent Garrington reports registering 38 per cent more buy-to-let clients so far this month compared with January last year.

The unforeseen impact has been what buying agent Sara Ransom, director of Stacks Property Search, described as a “mini bubble” as investors rush to buy property before the deadline, hiking prices and increasing competition for first-time buyers already struggling with tough mortgage conditions and high deposit demands.

“Most popular are flats and small houses priced between £300,000 and £450,000, which appeal to first-time buyers and investors alike,” says Jeremy Leaf, principal at Jeremy Leaf & Co estate agents. “Consequently, prices for this type of property are hardening.”

Some less-reputable estate agents are said to be ignoring best practice. First-time buyers are telling Homes & Property that agents are finding it so easy to sell property, they fail to attend booked viewings and will only accept sealed bids with no negotiation. Even when prospective buyers do make the highest bid, it is claimed they are often thwarted by investors making last-minute cash offers.

One first-timer told us she put in a “final offer” having been advised by the agent how much to bid to be successful, only to discover the agent had organised more viewings for the next day. She was outbid by someone in the second wave of viewings.

In Surbiton, Amy Claydon, branch manager of Leaders estate agents, said investors are on the hunt for one- and two-bedroom flats priced between £250,000 and £450,000. One recent contest over a flat was won by an investor because, said Claydon, her vendor was impressed by their “urgency to purchase in the next eight weeks, compared to a first-time buyer having no deadline to work to”.

Buying agent Caspar Harvard-Walls, partner at Black Brick, agrees investors’ ability to move quickly is putting them in the driving seat when it comes to sealing a sale — particularly if they can pay cash. “The other issue from the first-time buyer’s perspective is that the agent might prefer to sell to a buy-to-let investor as they could benefit from letting and managing the property on an ongoing basis,” he added.

Another issue is the “greenness” of first-time buyers. Barclay Macfarlane, head of Strutt & Parker’s Fulham branch, said nervy novice buyers sometimes let sales slip through their fingers. “I handled a sale where a cautious first-time buyer was put off a purchase because of some damp that was picked up in a structural survey — an experienced investor was offered the contract and completed the purchase in just 10 days,” he said.

The good news for first-timers is that experts agree the current situation is a temporary one. “The balance of power should shift toward first-time buyers after April, as demand from buy-to-let investors recedes,” said Paul Smith, chief executive of Haart estate agents.

Jonathan Hopper, managing director of Garrington property finders, agrees that buy-to-let demand will “fall away”. “With many existing landlords likely to start selling up in the run-up to next year’s reduction in mortgage tax relief, much more stock will come on to the market,” he added.

And Sam McArdle, investment property buyer at The Buying Solution, believes there might be particular bargains to be had in the new-build sector, where about 60 per cent of homes have historically gone to investors.

“It is most likely that this market will be hit hardest,” he said.

But while this could mean widespread discounting on new homes in the short to medium term, he believes period homes — “where first-time buyers and owner-occupiers living and working in the city are and always will be transacting on” — could be a safer investment for buyers.

Fit for a King

If January has been a dry one for you so far, it’s okay, you’re on the home straight; there’s less than a week, or about half a million seconds, to go.

But it seems we aren’t just fair – (or freezing-) weathered friends of a health fad. Fitness is becoming a major focus for London’s luxury developers. It’s no longer acceptable to plonk the pool and gym in a sweaty basement. Now they dangle trophy pools between towers (see Ballymore’s Embassy Gardens) and dedicate prime upper floor space to treadmills with a panoramic view.

Never ones to shy away from a show-stopping swimming pool, Berkeley have gone to town at the Foster + Partners-designed South Quay Plaza, where apartments cost from £599,950. There’s a 9,000 sq ft health club with “dry” and “wet” sections, so you can cover all your spa and cardio needs before taking a dip while overlooking Canary Wharf through vast double-height windows.

There’s also Berkeley St George’s London Dock near Tower Bridge – prices from £869,950 to £3.5m, which provides a touch of bling while you swim with a gold-tiled wall running along the pool’s edge and a spa reception and treatment rooms to out-do any five-star hotel spa.

London Dock also has one of the city’s only “residents only” squash courts – something that 37 per cent of us say we’d like in a new development, according to a recent survey by CBRE, who are marketing London Dock.  Having a gym is the top demand (76 per cent), a pool is as popular as a private garden (69 per cent) and 46 per cent of us would like a spa.

The amenities that developers choose are also a pretty good pointer of who your neighbours might end up being. Winding down for residents at Queen’s Wharf in Hammersmith – where one-bed flats start at £715,000 – means soaking up serene river views from the rooftop yoga terrace on the roof. But at Keybridge in Vauxhall – where one-beds cost from £675,000 – stress relief will come from the boxing gym in the basement. It’s the difference between those who want to “keep fit and switch off” and those who need to “burn off steam”, says Rosie Nesbitt, sales and marketing director at FABRICA, the co-developer of both projects with Mount Anvil.

Developers are also latching on to the fad for al fresco fitness. Barratt London have what must be the city’s most scenic outdoor badminton court, along with an outdoor gym, table tennis and chess tables, at Fulham Riverside, where one-bed flats cost from £796,995.

And in east London, City Road’s target demographic of young techies and City types has lead Berkeley Homes to provide a boot camp terrace at 250 City Road. “It will appeal to buyers who work long hours and it engages with the growing trend of exercising outdoors – away from crowded parks, pavements and cycle paths – after a day spent confined to a desk,” comments Piers Clanford, MD at Berkeley Homes (North East London).

Down the road at No. 145 is The Atlas Building, where the developers Rocket Investments feel buyers will want a swim with a view, with full-height windows along the length of the pool. Flats cost from £628,000 to £5m for the duplex penthouse. “Having high-quality lifestyle facilities is becoming an important differentiator in the luxury residential market. Buyers are increasingly focused on well-being,” says Andrew Hawkins, Rocket Investments’ director.

Meanwhile, Islington Square – Sager Group’s £400m redevelopment of the old North London Royal Mail centre near Upper Street, with flats costing from £715,000 to £1.79m – has gone for trendy branding by signing up Third Space to take over its fitness club.

It won’t just be typical Third Space trendies who sweat their stuff here, but families too as this will be the gym’s first Family Club, with children’s training space among the facilities on offer, plus some of London’s most designer changing rooms. Third Space’s CEO Colin Waggett describes it as “part of our vision to redefine London’s fitness club landscape”.

Just as high-end apartments are starting to look like the swankiest hotels, so must the facilities, thinks Camilla Dell, managing partner at Black Brick buying agency. “Residents at the Corinthia Residences in Whitehall Place have access to one of the largest spas in Europe, spread over four floors with 17 treatment rooms, a vitality pool, amphitheatre sauna, ice fountain, marble heated loungers and private sleep pods,” Dell comments. You can buy one of those Corinthia apartments, incidentally, for £11.425m through Savills or Knight Frank.

Dell also mentions Television Centre, the new development at White City, which will have a 20,000 sq ft gym for residents and paying members, along with a Soho House hotel and members club with a rooftop pool. “Developments are becoming more like ‘destinations’ for outside visitors as well as property owners,” she says.

For some, though, keeping fit is more of a theoretical pursuit. As Jo Eccles, managing director of Sourcing Property, recalls: “We recently searched for a property for one young client who insisted on having a gym in her building but rejected any property that required climbing stairs”. Bet she’s counting down the minutes until the end of Dry January.

Where to buy in 2016

Two words are destined to sum up the prime London market in 2016: stamp duty. Faced with paying 12 per cent stamp duty to upgrade, owners of £1.5m+ properties are voting to stay put and improve.

Sophie Rogerson, co-founder of the private property office RFR – recently described by Tatler as “London’s hottest property consultants” – puts it in terms that will hit home to the super-rich. She calculates that the £213,750 you’d spend on buying a £6m home (that’s the cost of, say, a new three-bed flat at Chelsea Creek or a five-bed townhouse in Connaught Square) is the equivalent of 15 years of family holidays or the price of educating a child privately and through university.

David Adams, managing director of John Taylor estate agency, is seeing wealthy Londoners buy up French pads rather than upgrade in the capital. “The taxes here now make France look competitive. The threat of mansion tax killed interest among French buyers in London, but the tap has been turned on again for British buyers on the Cote d’Azur and ski resorts such as Megève and Courchevel,” he comments. For London’s prime market next year, he thinks: “The very top end will hold, but I expect a price correction of 15 per cent for the £3m-£20m market and the £2m-£3m will stagnate.”

That’s not all on the stamp duty front. In April, the three per cent stamp duty hike on buy-to-let properties and second homes comes into play. Until then, we could see a surge in investment. After that, well, “without appearing overly gloomy, it could be another nail in the coffin,” comments Andrew Langton, chairman at Aylesford International. “The residential market has taken too much of a bruising during this Tory government with SDLT, ATED tax [on company-owned UK property] and the latest penalties on buy-to-let tax relief. We’re also being warned of a possible rise in interest rates in 2016 that could trigger massive price reductions.”

New developments with prized, one-off, often waterfront location – such as One Tower Bridge in 2015 – won’t struggle to sell. Chelsea Waterfront, where two-bed flats start at £1.55m through Savills and Knight Frank, is selling fast without offering any discounts or incentives. Other developments to look out in 2016, thinks Camilla Dell of Black Brick buying agency, are Chelsea Barracks, 20 Grosvenor Square and, outside of traditional prime central London, the huge Television Centre development in White City.

“We may also see some ‘fire’ sales at developments such as Battersea Power Station,” says Dell. “Much of Battersea was sold off-plan in Asia to buyers who have been hit hard by weakness in their local currencies, making London unaffordable.”

Meanwhile, Mayfair – thinks Simon Barnes of H Barnes & Co – will be the focus of all attention in prime central London in the coming year. “With Brockton Capitals’ plans for the extensive redevelopment of Curzon Street, Finchatton’s plans for Grosvenor Square and British Land’s newly launched Clarges development – which is already achieving premium prices – this postcode will be the magnet for super prime property,” he comments. “Planning has also just been granted for John Caudwell’s scheme in Audley Square, which looks set to become a landmark address in London.”

And with London’s top tier new developments already offering every concierge service and five-star hotel-style facility on tap, where will developers go next in trying to lure wealthy buyers? “Tech spec” are the buzzwords according to Andrew Hawkins, director at Rocket Investments, which is building Shoreditch’s 40-storey Atlas Building. “High-speed broadband is a must in new luxury developments and more online concierge systems will be introduced to complement the personal services,” he thinks.

John Morley, founder of Johns&Co, which specialises in marketing new London developments, predicts our attention will be focused on making our wheels feel more at home. “Developments where you can drive your car into an elevator and park next to your apartment is definitely a trend to watch out for among luxury buyers,” he says.

Luxury overseas

High-end Spain – Mallorca, Ibiza, Barcelona and Marbella – will be prominent in 2016. They are still buyers’ markets, but genuine luxury new developments in prime locations are scarce and buyers are ready and waiting. “I think 2016 is going to be Barcelona’s year. For the first time since the city became a ‘must go’ destination, there is going to be a wide range of good quality residential new development coming on the market,” comments Alexander Vaughan, founder ofLucas Fox estate agency.

The PGA Catalunya Resort, north of Barcelona, also reports rising interest among British investors who would otherwise have bought a London buy to let property but have been deterred by the rise in stamp duty rates.  Athena Advisors predict a similar trend among British investors in Paris, Madrid and Lisbon, where prime property is a third of the price of its London or Paris equivalents and where luxury brands are moving in.

Further afield it’s all about safety. Barbados scores highly on that count, says Jeannie Mahon from Knight Frank Barbados, and the island is seeing growing demand in the $10m market (Mahon has just sold the waterfront Four Winds villa for $35m) and also for $1.5m+ lock up and leave properties on resorts such as Royal Westmoreland.

Mauritius also gets the safety vote. “It’s widely seen as the safest African nation and it’s fast becoming a financial hub that’s a popular destination to invest in for holidays, lifestyle or retirement, with attractive yields and tax benefits,” comments Robert Green, managing director of Sphere Estates, which is marketing plantation-style villas at Villas Valriche from $659,000.

For 2016’s investment hotspots that combine lifestyle appeal, Knight Frank’s Edward de Mallet Morgan suggest St Barts and Ibiza. Sydney is also likely to be a “strong performer”, says Knight Frank’s Kate Everett-Allen, and Paris is a “good hedge” and possibly “the alternative investment destination of choice,” comments Alasdair Pritchard, also from Knight Frank.

So, if you’re among London’s prime buyers and considering your options in 2016, where will your spare cash go? On buying taxes, a basement extension or a bolthole overseas? Check in same time, same place next year to see which way the pendulum swung.

 

Taxed Out of Mansions, London Investors Head Down-Market

London’s swankiest neighborhoods of Knightsbridge and Belgravia are becoming no-go areas for even the wealthiest property investors.

They are being driven out by higher sales taxes introduced by Chancellor of the Exchequer George Osborne in December, which rise to as much as 12 percent of the cost of the most expensive homes.

Buying agent Camilla Dell says that her clients are spending an average of 2 million pounds ($3.1 million) less on each transaction this year and they’re more interested in cheaper areas such as Hackney and Shoreditch. That’s because an investor buying a 5 million-pound home pays almost 364,000 pounds more in tax than if they spent the same amount of money on 10 apartments costing 500,000 pounds each.

Osborne has “really depressed” the luxury market, said Dell, managing partner at broker Black Brick Property Solutions. Investors “are still spending the same amount, but they’ll split it up between several properties in the sub-1 million-pound market,” she said.

Through July 23, Dell’s Black Brick broker advised clients on 25 home purchases with an average value of 1.5 million pounds compared with 12 deals averaging of 3.54 million pounds in the same period last year. Sales of London homes for 2 million pounds or more fell by a third in the second quarter from a year earlier, according to property data provider Lonres.

With investors now buying more homes in less expensive districts, prices below Osborne’s threshold are climbing and owner-occupiers, who should have benefited from his tax cuts, are being penalized, Dell said. The tax increases kick in at 937,000 pounds.

“The very buyers Osborne was setting out to help, he’s put at a disadvantage,” she said. “At the same time, sales at the higher end have frozen. It was a very, very bad move.”

The number of investors registering an interest to buy a home in prime central London with Hamptons International dropped 10 percent in the first half compared with the same period last year, said Johnny Morris, head of research at the broker.

Investors who buy multiple apartments for about 500,000 pounds in London typically receive a rental yield of 4 percent to 5 percent, compared with about 2 percent for a luxury home in London’s best districts, Morris said.

In Kensington & Chelsea, the U.K.’s most expensive property borough, 137 homes were sold in April, the lowest monthly total since March 2009, according to the Land Registry.

Values in some of London’s best districts have been falling since the stamp-duty changes, according to broker Knight Frank LLP. Prices in the seven months through July dropped 2.3 percent in Chelsea, 2.1 percent in Knightsbridge and 0.6 percent in Notting Hill, according to data compiled by the broker.

The decline in values in prime central London “is a temporary correction, but I think PCL will eventually continue to grow,” said Giles Hannah, senior vice president at Christies International Real Estate. “That’s because there has been historical shocks before and the market has recovered.”

About 5,000 U.K. homebuyers paid the higher stamp duty levies in the first half, two-thirds of them in London, according to Nationwide Building Society. If the levies had been raised a year earlier, 6,900 purchasers would have been affected, Nationwide estimates.

The average value of a London home sold by broker Savills Plc fell by 200,000 pounds to 3 million pounds in the first half of the year, compared with the same period in 2014, while transactions fell 15 percent in the period, the broker said on Thursday.

“The buyers’ market has returned,” William Carrington, chairman of data researcher Lonres, wrote in a report on London’s best districts on Monday. “I do not see an improvement in market conditions before September.”

Highflying Prime Central London Comes Down to Earth

Sellers of some of London’s top luxury properties are suddenly doing the unthinkable: They’re cutting their prices.

A six-bedroom Georgian townhouse on coveted Kensington Square? Recently reduced to £7 million—about $10.9 million—from an original asking price of £8.5 million. A historic townhouse in the heart of Mayfair? Listed for £16.5 million in February, it can now be had for £14.95 million.

Not so long ago, central London’s property market was the envy of the world, with prices in golden neighborhoods like Kensington and Belgravia reaching new heights every year. Now, this highflying market is coming down to earth.

In the year ending in June 2015, prices in “prime central London” or “PCL”—the upper end of the market in coveted neighborhoods such as Chelsea, Knightbridge and Mayfair—fell 4.3%, according to real-estate firm Savills.

That slide followed years of precipitous growth. Prime central London prices climbed 25% in the year ending June 2010 alone, according to Savills, as the market rebounded from the global housing slump. By June 2014, the median price for prime central London was £3.657 million, according to Savills. Then, for the first time in years, the numbers started slipping. Today, the median price for the prime central market is £3.5 million.

According to William Hughes-Ward, a director at central London real-estate firm Marsh & Parsons, the trouble set in last year, when a shortage of stock on the market pushed prices up too quickly.

As the market continued to stall this year—at the same time that the May national election was approaching—real-estate agents widely said that buyers were spooked by the prospect of a Mansion Tax on homes valued at £2 million or more, proposed by the Labour Party. But even though David Cameron’s Conservative Party won a convincing majority, prices have failed to rebound as many agents predicted.

Buyers do have to contend with a new stamp-duty system, a government tax levied on house sales. Until December of last year, the top tax rate was a flat 7%, levied on all homes worth £2 million or more. The new, incremental system means buyers must pay 12% on the portion of a property’s price above £1.5 million (with a sliding scale of fees levied on the first £1.5 million). It is calculated that the change has raised the tax bill on all homes worth £937,000 or more.

Meanwhile the Bank of England has been threatening interest rate rises for the last two years.

International currency fluctuations have also played a part. The strength of the British pound against the euro has made London purchases more expensive for European buyers, while the devaluing of the ruble has deterred buyers from Eastern Europe.

“We have seen some of the big players such as Russians fall out of the market, mainly due to political sanctions in Russia and difficulty in getting their money out,” said Camilla Dell, managing partner at Black Brick buying agency. 

The biggest problem, according to many analysts, is that prices have simply climbed too high.

“The affordability of London property, even for wealthy foreigners is now too compromised,” said buying agent Alex Newall, managing director of Hanover Private Office, a prime real-estate firm. “Some properties are 20% to 30% overpriced. Sellers need to get realistic if they want to transact in 2015.”

Overseas buyers are still active in London, agents say—just not in prime central London. Many investment buyers are now buying several small properties, rather than one trophy house, to limit Stamp Duty exposure, says Nicholas Finn, executive director of Garrington Property Finders.

The result is that markets outside of the typical “prime” areas are seeing more activity, as buyers seek out more affordable properties. Cheaper boroughs like Newham in East London saw a 17.5% hike in the 12 months ending in May, according to the Land Registry, the government’s official home price monitor. Annual prices for London overall rose 9.1%, to a median price of £475,961.

Despite PCL’s recent fall from grace, agents say there are reasons for optimism. Richard Barber, a director at W.A. Ellis estate agents, points to a strong market for central London homes priced under £2 million. He adds that continued turmoil in the Middle East may encourage more buyers from the region into the safe haven that is London.

Lucian Cook, head of residential research at Savills, forecasts that PCL prices will increase by 22.7% over the coming five years—not the heady growth of the market’s frothiest period, but still a respectable climb.

Mr. Hughes-Ward of Marsh & Parsons points out that London’s high prices are, in many ways, only relative. “For the domestic market prices are way too high,” he said. “However PCL is not a domestic market, it’s a global market. PCL should be compared to Manhattan, Paris, Singapore, Hong Kong or even Mumbai where our prices are actually looking like good value.”

Beware Greeks bearing money to buy in London?

Within 12 hours of Greece defaulting on repayment of part of a loan to the International Monetary Fund, a prime central London buying agency issued a press release claiming it was seeing a rise in Greek clients.

“As we have seen time and again, economic and political instability brings buyers to London’s prime property market. In recent weeks, we have been advising a number of Greek clients on potential investments in the UK, as the risk of Greece crashing out of the Eurozone looms over the continent and, especially, over Greek savers, who could see their wealth slashed by the effect of any devaluation on domestically held assets” says Camilla Dell of buying agency Black Brick.

She says Greece’s super-rich have long been a feature of the top end of London’s property market but the country’s current crisis has seen clients further down the social scale.

“Middle-class Greeks are looking to acquire London property as a hedge against the effects that a return to the drachma would have on pensions and similar investments held in Greece. They are typically looking for investment properties up to the £1m mark that can provide stable income and hold their value” says Dell.

She also says that on the other hand demand from Singapore has fallen in the last six months because the authorities in the Far East were imposing restrictions on mortgage borrowing to prevent a domestic property bubble, with knock-on effects on Singaporeans’ ability to fund international real estate purchases.

“The (likely temporary) departure of Singaporean buyers is being offset by growing interest from elsewhere. As well as increased inquiry from Greece, we continue to see growth in demand from China and, to a lesser extent, from Thailand” claims Dell.

How Greece’s troubles affect British firms – not all badly

“I don’t think anyone should underestimate the impact that a Greek exit from the euro would have on the European economy – and the knock-on effects on us.”

So said the Chancellor, George Osborne, who called the Greek crisis “one of the biggest external economic risks to the British economy”.

So which companies are feeling the worst of this knock-on effect?

The travel sector is the most obvious example, with Greece a top destination for sun-seekers. Credit Suisse analysts reckon the sun-soaked Mediterranean nation accounts for about 10 per cent – and 15 per cent in the summer – of bookings for the main two tour operators, FTSE 100 operator Tui, the group behind the Thomson and First Choice brands, and Thomas Cook.

They predict recent events in Greece, as well as the shootings in Tunisia, will hit the tour operators over the summer.

They have cut their earnings forecasts for this year by 8 per cent for Thomas Cook and by 3 per cent for Tui on the basis the pair will have to drop prices to attract customers back to Greece. Shares in both firms crashed this week.

Tui’s 40 to 50 Greek hotels make up around 17 per cent of its hotels business. The company’s own guidance says that every 1 per cent change in occupancy in Greece adds €6m (£4.25m) to underlying earnings.

On that basis, a 5 per cent fall in hotel bookings in Greece could cost it €5m.

However, Gert Zonneveld, a top leisure analyst at Panmure Gordon, said that while the travel companies will be hit in the short-term, a “Grexit” could even benefit them further down the line.

“If Greece ends up leaving the euro and reinstates the drachma, it might actually increase demand for trips to Greece, depending on how much the drachma would devalue relative to the euro or sterling,” Mr Zonneveld told The Independent.

“I can’t see how routes to and from Greece would be significantly negatively affected over the medium and longer-term,” he added. Shares in the British Airways owner IAG and rival EasyJet have also suffered on the prospect of fewer bookings to Greece, while Ryanair’s stock has just about held firm.

But Mr Zonneveld estimates that the Irish carrier makes 5 per cent of sales from flights to Greece compared with EasyJet’s 3.5 per cent.

June was the FTSE 100’s worst monthly performance in three years as it tumbled 6.6 per cent, thanks largely to fears over Greece.

The exodus from equities, which often happens during times of uncertainty, means lower volumes of trading for fund supermarkets such as Hargreaves Lansdown, whose shares have fallen 8 per cent over the month.

Dixons Carphone, the UK company behind PC World, Currys andCarphone Warehouse, has a Greek electricals business called Kotsovolos. Shares in the retail giant fell 3 per cent on Monday on fears capital controls imposed by Greece, restricting the amount of cash that can be withdrawn from banks, will prevent consumers buying pricey electrical goods at the chain.

The retail analyst Nick Bubb said: “It’s hard to see their stores doing much business this week, with the banking crisis intensifying.” Meanwhile, analysts at Barclays suggested it could reduce store hours or even close down, depending on demand.

Elsewhere, shares in Marks & Spencer, which has 28 stores in Greece, have fallen from 570p to 545p in a week, while investors in Greece-based but London-listed coke bottling company Coca-Cola HBC have also suffered.

Banking giant HSBC has been “monitoring the developments” in Greece. It has $6bn of Greek assets, around 3.7 per cent of its total net asset value, which is the most among European banks.

“Like all banks, HSBC has been working to prepare for such events and to take the necessary steps to meet relevant requirements,” HSBC said on Monday.

Banknote printer De La Rue has also watched its shares fall, along with lesser-known property investors Dolphin Capital, which has two resorts in Greece.

Vodafone also has a Greek arm. It recently admitted sales had suffered due to the crisis. “In Greece, the steady recovery in revenue trends through the year stalled in Q4 as a result of the worsening macroeconomic conditions,” Vodafone said.

Its sales in Greece fell to £576m last year, making up around 1.4 per cent of the group’s overall revenues. So while the numbers sound big, the relative impact on the mobile giant is small.

Imperial Leather soap maker PZ Cussons has a Greek food business called Minerva, behind the low-cholesterol cheeses and spreads line Benecol. But it also only makes up a small percentage of sales and the group’s shares have been impervious to the Greek debacle as a result.

Car dealer Inchcape enjoyed a return to growth last year from Greece, where it is the distributor of Toyota and Lexus vehicles, owns five retail centres and runs another 42 which are independently owned. The FTSE 250 firm said the Greek market continued its recovery, claiming the overall Greek car market grew 22.5 per cent last year.

Inchcape said: “The Greek market is expected to continue its recovery after six years of decline prior to 2013.” The latest figures on the Greek car market showed car sales jumped 47 per cent in April.

Moving money out of banks and spending it on hard assets such as cars is a classic sign of a country in the midst of a financial meltdown.

People would rather own physical assets than lose control of their earnings or lose them altogether through insolvency – much in the same way investors rush to buy gold in economically or politically unstable times.

It was a similar story last year for Russia, where car registrations soared as the rouble crashed. So Inchcape may well be profiting from the Greeks’ financial distress.

The property buying agency Black Brick, which covers London and the Home Counties, reported an increase in Greek clients looking to invest in London as the economic instability takes hold in their homeland.

Managing partner Camilla Dell said: “Greece’s super-rich have long been a feature of the top end of London’s property market, but the country’s recent woes have seen a different type of buyer arrive from Athens.

“Middle-class Greeks are looking to acquire London property as a hedge against the effects that a return to the drachma would have on pensions and similar investments they hold in Greece.”

London property agencies see ‘sales surge’ after UK election result

David Cameron is not the only big winner in the UK election, the overseas property sector is also set to benefit, with surging sales anticipated by some industry figures.

The Conservative leader is back for another five years as UK Prime Minister with a surprising overall majority, after pre-election polls had put the party neck-and-neck with Labour. Ed Miliband, who resigned as Labour leader today (Friday 8 May) after the result, had proposed a Mansion Tax on London homes worth more than £2million and take away Non-Dom tax status for some wealthy UK residents that limits the tax paid on overseas earnings.

Property professionals say the UK election result will end uncertainty and reignite the markets and boost overseas demand, particularly in London – and independent property buying agency, Black Brick, has already closed multi-million prime central London property details today.

Camilla Dell, Managing Partner of Black Brick, says, “A lot of people have been holding off from making decisions but, overnight, an enormous amount of uncertainty has been removed from the market. “We’ve already had deals exchange this morning and we’re now moving forward with a potential £22 million transaction. We expect this trend to continue as buyers look to move quickly to avoid potential price rises now confidence has returned and we expect conditions to return to a much more fluid, normal market, particularly in the £2m plus bracket where both buyers and sellers will return.”

As well as providing reassurance to potential Prime Central London buyers, the election outcome will have been welcomed by top-end developers. “This morning a lot of Prime London property developers will be breathing a sigh of relief, luxury developers had a great deal at stake.” However, colleague, Partner Caspar Harvard-Walls, sounds a note of caution. “A lot of our clients are dollar-based, so any rally in the pound will impact London’s value. In addition, the Conservatives have promised a referendum on Britain’s EU membership, while we would expect the UK will vote to stay in, the run-up to the referendum would, again, introduce a dose of uncertainty to London’s property market.”

Andrew Langton, Chairman, of Prime London agent, Aylesford International , says it anticipates a surge in sales over the next few days and calls the result “a memorial day in the English property calendar.” “Thank goodness common sense has prevailed and David Cameron has been totally vindicated. It would appear the Conservatives will now have a well-deserved majority to run this country without the confines of a coalition government for the next five years – alleluia! “We anticipate Sterling will strengthen and UK Ltd will continue to grow with increased employment resulting in an economic recovery which has been a leviathan effort on behalf of George Osborne to date.

The London residential market, which has been the target of so much taxation, will now revert back to stability and we predict a massive surge in activity with at least twelve transactions proceeding over the next few days that were holding back pending this result.

Our prediction is stability after a year of instability and indecision. “The envy taxes planned by Labour of a Mansion tax, the rent cap and the tearing up of non-domicile benefits are hopefully in the bin, and the residential property sector can at last breathe a massive sigh of relief after all the hike in stamp duty, the envelope tax and capital gains tax that has been introduced over the last five years. “Singaporean investors should take huge comfort in the Conservative win particularly where they may have invested in residential property and specifically in the buy-to-let sector. “Cameron is committed to a referendum on the EU which many feel has to be reformed particularly on immigration.

We are staunch fans of many EU policies but as with an old car, it may now require a complete overhaul and even a new engine, but it will gradually increase in value following its overhaul and inevitably run more efficiently.”

Robert Bartlett, Group Chief Executive Officer of leading London-based international agency, Chestertons , says the result lifts the spectre of political uncertainty. “Labour and Lib-Dems both backed the introduction of a Mansion Tax on homes worth more than £2million, which would have disproportionally penalised Londoners, especially those with outstanding mortgages or those in retirement who had prudently invested in property as a nest egg. As a result, many people were holding their breath and waiting before making a decision to buy or sell.

“Likewise, Labour’s proposed new laws for the private rented sector would have seen compulsory registration schemes, direct rent controls, fixed-term tenancies and added overheads for private landlords shortening the supply of decent rented homes and ultimately pushing up rents.

“With these proposals off the table, and the spectre of political uncertainty finally lifted, we can now all move on. We are already predicting the next few weeks and months will be very busy indeed. “There are still issues to be addressed in the property sector in London, not least the need to boost housing supply, make the rental market more transparent and accessible, and unlocking opportunities for regeneration through a joined-up approach to planning and infrastructure delivery. We hope the new Government will continue to work with the property sector and consult properly on proposed changes so together we ensure that any new policies will work as they are intended and can help deliver the long-term sustainable growth and sensible innovations that our industry requires.”

Robert Haigh, Chestertons’ Director of Professional Services, adds that the result will boost foreign investment. “I think it is an excellent result for the stability of the market. People can now move forward and look to the future with certainty. “From a London point of view I think it means foreign investment and relocation to the city will now continue unabated due to the fact that the proposed abolition of non-dom status is no longer a threat.”

Mark Pollack, Director, of top London agency, Aston Chase , says the result is a great outcome for the property market across the UK and could see property prices rise by up to 10% in the next year. “The Conservative victory would seem to reflect a delayed reaction from the electorate to the former banking crisis and financial meltdown presided over by Labour. “Needless to say, with the immediate threat of Mansion tax removed and non-domiciles no longer ‘targeted’ this is inevitably going to result in a spike in the market at all price levels and particularly for the prime/super prime markets which have suffered over the last twelve months or so while international buyers sat on their hands awaiting the outcome of the General Election. I anticipate a surge in demand resulting in increased transactions and the potential for further 5-10% capital growth over the next 12 months.”

Mark Homer, from Progressive Property, says, “As business people and landlords I think we should be pleased. I think we now have a good foundation upon which we are able to weave our rich tapestry.”

Martin Bikhit, Managing Director at Central London sales and letting agent, Kay & Co , says, whatever happens in elections, London continues to thrive, although he admits the UK government faces tough choices. “The threat of Mansion tax, removal of non-dom status, three year rent freeze were policies that clearly didn’t resonate with the voters. An over regulated banking sector and increases in taxes for higher earners would have been bad for Britain as business and investors looked for a more favourable environment to do business. Since we first opened our doors, Kay & Co have witnessed seven general elections and watched six prime ministers come and go. We also know that London will continue to thrive. It’s our capital, the home of Monarchy, Government, Law and Finance. Global businesses will continue to be based here. London will continue as a centre of fashion, food, culture and commerce, making it a vibrant place for people to live.

“The Conservatives are a known quantity and a further five years, bringing more of the same is clearly seen as a positive. The voters think so and the money markets appear to agree. There are still tough decisions that could have an impact on business, the main one being an in/out referendum on membership of the EU. Not having free trade with our European neighbours is unthinkable and there will still be jitters over the threat this could cause.”

Simon Barnes, of London-based Simon Barnes Property Consultants , says the result has released a bottleneck for buyers and sellers. “Now this bottleneck will be released and for the next few months we are likely to see a growth in sales and increased prices before the market settles down to steady growth, hopefully for several years. “Biting the hand that feeds you has never been a good idea. Over the last nine months, the threat of further taxing rich investors and property owners risked cutting off a huge supply chain in London.

Regeneration projects, new building and associated infrastructure all require the confidence of businesses, investors and developers.

The election outcome will provide that confidence, ensuring that London continues to thrive and grow.” Founder and CEO of eMoov.co.uk, Russell Quirk, says the result will lift prime sales. “Those at the top end of the UK property market will be breathing a sigh of relief having avoided a hefty, Labour lead, Mansion Tax.”

Alex Newall, Managing Director, of London and UK agent, Hanover Private Office adds, “Britain is open for business and this is good news for the property market. The Conservatives are safeguarding the UK economy and the impact on the property market will be significantly positive. “At the higher end of the property market all those house buyers both UK and international, who have held off investing in the UK pending the result of the election will be returning to the market. Uncertainty over taxation has cleared. “International interest in the UK as a safe place to invest, will continue. London has always been a great place to live, and the sign is firmly above our door – Britain is open for business and open for a stable and growing property market.”

Focus on Clerkenwell: Prices soar on the City’s edge.

While the Square Mile is London’s historical home of trade and finance, Clerkenwell on its northern edge is clearly the design equivalent. Since the Industrial Revolution, the area has housed craft workshops, printers, clockmakers and jewellers.

The area is celebrating its rich design heritage this month with the sixth annual Clerkenwell Design Week from 19 to 21 May. Today also sees the end of Made in Clerkenwell, an event which saw 100 artists descend on two Victorian studios to show off their handmade crafts. The brutalist architecture of the Barbican Arts Centre Festivals aside, the area remains a popular place to live for architects, graphic designers and artists, which could be down to the abundance of studio space and industrial warehouses – a trait it shares with its eastern neighbour Shoreditch.

Another similarity is the fact it gentrified around the same time in the mid-90s and has held on to its creative businesses. “Thanks to its wealth of advertising agencies, publicists and recording studios, Clerkenwell still attracts the creative crowd,” says Alex Taniewski-Elliott, manager at estate agent Fyfe McDade. “They now rub shoulders with the new wave of City workers wanting to live and play in a vibrant area with soul, character and the added benefit of being able to walk to work.”

Developers and landlords have also been zoning in on the area in the past five years. This is due to a number of factors; house price value rises around the City fringes; upcoming projects like the rejuvenation of Smithfield Market, Exmouth Market and Barts Square near London Wall; and the arrival of Crossrail at nearby Farringdon, which will be the only station with access to Thameslink, London Underground and the new high-speed east to west train service when it’s completed in 2018.

Property search agency Sourcing Property also pinpoints the area as “especially popular with our buy-to-let investor clients” as it’s constantly in demand with renters, too. “The investment properties we’ve bought have all let extremely well and quickly,” says managing director, Jo Eccles, “typically to finance, tech or media tenants, with an average gross rental yield of around 3.6 per cent.”

Current prices range between £1,000 psq ft to £1,400 psq ft, according to Jamie Burnhope, a buying consultant at Black Brick, but he foresees this number rocketing skywards in the next five to ten years. “With all the new developments in Clerkenwell,” he says, “I see no reason why prices could not catch up with those in Soho.” FIVE REASONS TO MOVE TO THE AREA There’s loads of great architecture. From high-ceilinged loft living to listed Victorian period houses, there are plenty of unique homes

Young professionals eye London’s tough neighbourhoods

The dangerous streets where a serial killer stalked his prey, a neighborhood synonymous with race rioting and an obscure working-class suburb. As potential hot spots for London’s young hipsters, these neighborhoods might seem unlikely choices. But soaring house prices are forcing Generation Y to look to areas their parents would almost certainly have bypassed.

The latest research by real-estate firm Savills, based on U.K. census data from 2011, has pinpointed 20 areas where wealthy professionals under 35 are most likely to live, and where they outnumber baby boomers by a 3-to-1 ratio.

“Even the most affluent under-35s have been priced out of traditional locations,” explained Lucian Cook, director of residential research at Savills and author of the study. “They are having to pioneer new areas.”

The No. 1 spot is Whitechapel, the East London neighborhood where Jack the Ripper killed at least five women in 1888. Bombed heavily during World War II and rebuilt with sprawling concrete high-rise buildings in the 1960s and ’70s, it isn’t immediately recognizable as the kind of neighborhood where hipsters hang out. “It is a bit of a compromise,” acknowledged Jamie Burnhope, a consultant at buying agency Black Brick. “Anyone who is used to pretty streets might have their hearts in their mouths walking around all this rather aggressive architecture.”

But what it lacks in aesthetics, it makes up for in location and value. The average property price in the area is £465,514, or about $690,000, which by Central London standards is an absolute steal. The average price in Kensington and Chelsea, the heartland of prime Central London, is currently more than $1.94 million, according to the Land Registry, the U.K.’s official home-price monitor.

Oliver Knight, an executive in the residential research department of Knight Frank, says value isn’t the only attraction: Although the area is peppered with postwar projects, it also contains some lovely homes. “The area benefits from existing high-quality property stock, including Georgian terraces as well as period commercial buildings—some of which have already lent themselves to conversion into large-scale, open-plan residential buildings not dissimilar to Tribeca in New York,” he said.

One such terraced property, a 1,287-square-foot 119-square-meter three-bedroom townhouse that’s been modernized with an open-plan kitchen and living room, is on the market for £1.1 million, or about $1.6 million.

Beyond East London, which accounts for 12 of the top 20 neighborhoods in the Savills study, the most popular address is Brixton in south London.

Brixton is a classic example of how London neighborhoods are in constant flux. It was a middle class area before World War II, but in the postwar era its fortunes waned. Projects were built and largely populated by Afro-Caribbean immigrants who suffered from high rates of unemployment. In 1981, tensions over police “stop and search” practices erupted into bloody riots. The neighborhood was hit by riots again in 1985 and 1995.

Despite this, by the end of the 1990s, middle-class buyers were starting to discover Brixton’s Victorian townhouses and excellent public-transport links. Jimmy Carr, sales manager at Kinleigh Folkard & Hayward estate agents, estimates that a four-bedroom house would today be priced at over $1.5 million. A recently refurbished three-bedroom row house with a private garden near Brixton Hill is being offered for around $1.3 million.

“It is a trendy place to live,” Mr. Carr said, adding that his buyers tend to be 30-somethings working in media or advertising. “But there are still areas which are slightly intimidating, which gives it a little bit of edginess.”

While most popular hipster locations are gritty, urban neighborhoods with a vibrant night life, Earlsfield is a notable exception. Seven miles southwest of the city center, the neighborhood has more cafes than nightclubs. But its selling points include its green space, good schools and affordable family homes.

“Earlsfield has come on leaps and bounds in the last five years,” said Jonathan Mount, a partner at the Buying Solution who liked the area so much that he moved there himself last year. “People who would once have aspired to middle-class southwest London neighborhoods like Clapham and Wimbledon have been priced out, and there has been a classic ripple effect.”

That ripple has changed the feel of the once working-class area—its thrift stores now replaced by delis and bars—and buyers now pay around $1.3 million for a three- to four-bedroom townhouse. One recently redone 1,417-square-foot period home in the area with a small studio in the back garden is asking around $1.8 million.

While Generation Y’s parents would likely have felt that a home in Earlsfield—or Brixton or Whitechapel—was a comedown, financial constraints have made them attractive. Over the past three or four decades, British home prices have risen at a far stronger rate than wages, and mortgage lending is now dependent on hefty down payments—around 25% is the norm—that few young buyers can afford.

There is, of course, another reason why Generation Y is plowing a new property furrow. “It is not just a financial issue,” said Savills’ Mr. Cook. “They probably don’t even want to live in areas their parents would like.”

An Elegant Townhouse in a Revived Corner of London

London — A gracious five-bedroom Victorian townhouse in a part of southwest London once associated with a faded shabbiness has benefited from the area’s considerable gentrification in recent years.

The four-story home, which has been in the same family for 50 years, is in Earls Court, where its spotless white stucco reflects the neighborhood’s growing prosperity: The 2,443-square-foot home is on the market with Farrar & Co., a London real estate agency, for 3.5 million pounds, or about $5.4 million.

On the lower ground floor, a somewhat dated kitchen looks out on a south-facing garden and opens to a family room, which leads up to a formal dining room at street level. One flight up, the drawing room is elegant and spacious, with a welcoming fireplace. The bedrooms and two bathrooms are on the top two floors.

There is rare, highly prized off-street parking for two cars in front of the house, marked by an original Victorian lamp post.

Located on a side street to the east of Earls Court Road, the house is in one of Earls Court’s many streets and squares that are now “great places to live,” said Roarie Scarisbrick, an agent with Property Vision, an independent agency based in London that works with buyers.

But it wasn’t always like this. As recently as 10 years ago, said Caspar Harvard-Walls, a partner at Black Brick, an agency and consulting firm in London, there was “a real divide between property prices in the Earls Court postcode of SW5 and the South Kensington postcode of SW7,” one of the most well-heeled neighborhoods in the capital.

Back then, Earls Court was still dominated by grungy bedsits, peeling homes and cheap hotels frequented by backpackers. Some areas west of the busy main road are still a bit grubby. However, in the east, where Lady Diana Spencer lived before she married and became Diana, Princess of Wales, the changes are more apparent.

“It’s Earls Court in name and postcode but much more South Kensington in appearance and price,” said Mr. Scarisbrick. “This is where most of the uplift has been seen.”

Mr. Scarisbrick estimates that prices have risen by about 25 percent to 30 percent in the last three years alone, and range from £1,500 to £2,000 per square foot. This kind of increase is spreading west to the former bedsit heartlands.

Local agents are also selling a delightful 715-square-foot studio with a terrace, 14-foot ceilings and a bank of tall French doors in Earls Court Square, west of the main road, for £1.15 million, or £1,608 per square foot. “We are seeing higher asking prices there as a result of the ongoing redevelopment,” Tom Kain, senior consultant with Black Brick, said by email, referring to a long-term project on the site of the former Earls Court Exhibition Center, which has been torn down to make way for new homes and a commercial district.

The first phase in the project is Lillie Square, a five-minute walk from Earls Court Square, where 808 one- to three-bedroom apartments, penthouses and four- and five-bedroom townhouses are being released for purchase in staged payments as the project is being built. Prices start at £1.57 million. Lillie Square, which is to be completed in 2016, will have a concierge service, residents club, spa, gym and swimming pool.

Plans call for 7,500 new homes to be built in the next 15 years, amid 30 acres that will encompass landscaped gardens and a park, as well as a new shopping thoroughfare. A range of cultural and leisure amenities, many of which are now lacking, will also be introduced.

“The new development will provide the retail focus the area desperately needs,” Mr. Harvard-Walls said.

INTERVIEW: Camilla Dell on why buying without an agent is like going to court without a lawyer

Outspoken and consistently outperforming, Camilla Dell is founder and MD of one of London’s most successful acquisition agencies, Black Brick. Here in conversation with PrimeResi, she discusses everything from driving a hard bargain to difficult toy dogs…

You worked at both Foxtons and Knight Frank during the 2000s; how did this prepare you for the world of acquisitions?

For me, working at Foxtons was like the University of Estate Agency and London Property Market. Whilst lots of people like to say negative things about Foxtons, I can honestly say I would not be where I am today had I not started my career there. It taught me discipline, how to be a great sales person, and, most importantly, it sowed the seed for Black Brick. I did not work at Knight Frank for very long and I was based in their buying department. I went there to really test drive my business plan for Black Brick, and, within eight months, I left to set up my firm and have never looked back. Knight Frank are a great firm, but I strongly believe that buying agencies should not be part of estate agents – independence is key. 

What were the biggest challenges you encountered whilst starting up your own business?

It’s tough to be taken seriously when you are a small company, work from home, and there are only two of you. Luckily that did not last for very long, because within six months, my team had doubled in size and within two years, I moved from my home office to an office in Mayfair which really put Black Brick on the map. 

What was your first deal as a buying agent?

My first deal was for a client who has since become a dear friend and has concluded over eight transactions with me in the last 10 years. He was looking for a penthouse flat in St John’s Wood and loves cars – he owns at least five high value sports cars so off street parking was really important. He needed at least five spaces, and I managed to not only find him his dream penthouse, but also one that came with five secure parking spaces – no mean feat! 

What’s the toughest search brief you’ve ever been given?

Every search we take on is unique and has it challenges. If finding a property were easy, people wouldn’t come to us for help. I think the toughest search we had was for a couple who had no children, but they did have a small Chiuahua dog. Therefore, they wanted to buy a flat with secure outside space for the dog (balconies were deemed too dangerous in case the dog fell through the bars!) and in a building with a porter. The combination of these two factors made the search challenging as many buildings with porters don’t allow pets and most forms of outside space were not suitable for small dogs. We eventually identified a stunning apartment with high ceilings and a porter with secure outside space which even led out onto private communal gardens. It took us over 12 months to find it, but our clients were thrilled with the end result. 

Your team now includes five buying consultants; what makes a great buying specialist in your opinion?

The best buying consultants are those that totally understand how to be a good consultant. At the end of the day, our job isn’t to sell a property to a client in the way that an estate agent would do, our job is to guide and advise our clients and make sure they don’t make a mistake. This can often take time. Patience is key, as is the ability to build rapport and trust with clients. Finally, fierce negotiation skills, a relentless approach to finding the right property, and expertise in the market are also crucial skills. 

How important is it for you to remain independent? What advantages does this give your clients?

Independence is hugely important; buying agents that are owned by estate agents are hugely conflicted. I know this first hand as I used to work for one. Clients always found it odd that on the one hand we were saying we were acting for the buyer, but on the other hand we were owned by an estate agency. Not being independent also makes it incredibly difficult to get access to off market properties. Most estate agents are reluctant to freely share sensitive off market instructions to buying agents who are owned by estate agencies for fear that they may lose the instruction. With us, there is no conflict. We don’t sell properties and we never will. 

How do you foresee the demand for acquisition firms developing in the UK over the next five years? Is the market now saturated?

I think the market has become flooded with one/two man band buying agents who often work from home, and do a handful of deals a year. There is nothing wrong with this, but for clients looking to engage a professional buying agent, then there are actually very few companies to choose from. I can count my competitors on one hand in terms of professional firms with a salaried team and proper offices. I think the demand for buying agents will continue over the next five years – the fact is, most buyers find the process time consuming, difficult and frustrating. The market also isn’t very transparent. I often draw the analogy that a buyer without a buying agent is like going to court without a lawyer; the traditional way of buying is actually a very unfair process when you think about it. The seller has their estate agent working for them and it’s in their best interests to sell their property for the highest price, but the buyer has no one. We even up that process and I think it’s a service that more and more buyers are turning to, not just wealthy foreigners. 

In the last eight years, your firm has acquired over £200 million worth of residential property for African buyers; where do you think will be your biggest source of clients over the next few years?

Emerging market countries will continue to be big buyers of UK property – they value everything the UK offers compared to their own high risk countries. Other countries to watch are Angola and Brazil – there are huge amounts of money flowing out of these countries. Political uncertainty also drives buyers to the UK. 

One of the key benefits of employing a buying agent is having a professional negotiate on your behalf; what are your top tips for securing a good deal?

Know your market, understand pricing, and collate relevant comparable sales data to assess whether a property is expensive or not. Finding out who the vendor is and why they are selling also help, there is no point negotiating hard with a vendor who isn’t really motivated to sell in the first place. 

In your experience, what percentage of London’s prime property stock is only available off-market?

This is very difficult to assess because the true meaning of the phrase “off market” often gets misinterpreted. For example, a property may not be openly advertised, but there is an estate agent involved – does this therefore make it off market? On average around 25% of the deals we do for our clients are either totally off market, or there is an estate agent involved but no marketing information on the property. 

How do you maintain such a regular supply of HNW clients? 

Over 30% of our clients come to us through a previous client recommendation. Clients are also recommended to us via other professional intermediaries such as law firms, accountancy firms and banks. 

Which schemes/developers were you most impressed by in 2014? Is there one in particular you are tipping for great things in 2015?

We tend to favour smaller, more boutique developments with fewer than 100 units. We bought two apartments last year in a development on Hanover Street which only had a total of six units. We also really like Native Land and their Old Burlington Street development. 2015 will be an interesting year for London’s higher end developers as there are so many new schemes under development and due for launch in a very tricky market. 

How many clients does Black Brick have on the books at the moment?

40. 

What advice would you have for someone thinking about starting a career in acquisitions?

Too often I meet candidates with no property experience who want to become buying agents. My advice has always been to learn about the market first, and the best way to do this is to work for one of the big estate agencies. There are no short cuts to this job. 

What was the firm’s biggest deal of 2014? 

£50 million.

Were there any interesting trends you’ve noticed amongst your buyers over recent years?

Our recent analysis looked at over 200 property purchases in Prime Central London since 2007.

In looking at transaction trends, it’s not surprising to note that the fewest transactions were during the height of the financial crisis in 2008, however, this was short-lived as Black Brick more than doubled the number of property purchases it made the following year.

Interestingly, budgets for investors (who make up 40% of all purchases) were on average, just over £2m in 2007, this fell to £1.31m in 2009, and reached just over £1.4m in 2014. Meanwhile, although average owner occupier budgets rose from £1.33m in 2007 to £2.92m in 2014, they’ve fallen from 2013’s peak of £4.66m.

The data also highlighted the fact the services of buying agents are not just for wealthy overseas buyers; UK purchasers form the third highest percentage of our buying clients.

The property market in London is time consuming, frustrating and difficult to navigate even for local buyers, hence the growing number of UK buyers within our client base. Our British clients tend to be busy executives from the financial services sector, who may have previously been looking for some time on their own, but have become increasingly disillusioned with not being able to find the right property, getting gazumped or having access to off market opportunities. Interestingly, 88% of our UK client base have been owner occupiers, buying a home rather than an investment, and the most popular postcodes have been SW1, SW3 and SW10 – mainly Chelsea and Belgravia with 70% of our UK buyers purchasing in these postcodes, dispelling the myth that prime Central London is purely dominated by international buyers.

What are you predicting for the London sales market in 2015? Is there going to be an optimum window for buyers, and if so, when?

2015 is likely to be a year of two very clearly defined halves split by the general election. Should the Conservative party win the May 2015 election, we expect an extremely active London property market and the opportunity to drive a hard bargain with vendors will be significantly reduced if not lost all together.

We believe the period between now and the general election may prove an attractive entry point to PCL property over the long-term, especially if prices are driven down by the changes in stamp duty.

Meanwhile, given the extent to which Labour’s proposed policy Mansion Tax policy has already been watered down, we do not expect a Labour victory to have a dramatic impact on London house prices – though some short-term weakness in prices is likely. For owners in the £2m to £3m price band, the Labour Party has outlined the cost of the Mansion Tax at £3,000 a year. We do not believe this is significant enough to precipitate any widespread selling should the Mansion Tax become law.

Our experience with previous tax changes affecting prime Central London property is that it is the uncertainty that buyers don’t like more than the imposition of the charge itself. In the recent cases of the higher Stamp Duty above £2m and the imposition of Capital Gains Tax for foreign owners of UK property the market paused while waiting for the precise details before regathering momentum.

What are your clients saying about the UK property market in general right now? Are any particular concerns holding them back from buying?

Some are showing slight hesitation about when to buy due to the looming general election, but most view the next six months as an opportunity. The recent dollar strengthening against the pound is also giving our dollar based clients an effective 11% discount off the price of UK property at the moment. 

Where would you like to see Black Brick in five years’ time? 

We are already one of London’s leading independent buying agencies, and I would like to see us expand into other parts of the UK. Buyers purchasing in other parts of the UK also need assistance and often university cities make great investments, so it would be interesting to develop the service outside of just Central London and the Home Counties. We are also expanding our Property Management and Vacant Care side of the business and in five years’ time I would love to see this side of the business make up 50% of Black Brick’s revenues.

Where would you personally spend a budget of £10m right now?

I would spread this across several properties, all sub £2 million and some sub £1 million, which is where I think the biggest growth will be over the next few years.

Short-term jitters in London real estate after tax changes

The changes in London’s property taxes – both the recent stamp duty reforms and a new capital gains tax for foreigners – may give investors from Singapore pause for thought before buying in the property safe haven.

But some believe that growing jitters leading up to the UK general elections next May could be the best opportunity for Asian buyers to drive a harder bargain, taking advantage of the slower market and a general feeling of caution.

The real estate market is already experiencing disruption and uncertainty, but this is likely a short-term transition period and, ultimately, will have a “very, very small impact” on buying, as the fundamental attractiveness of London real estate remains, analysts say.

The main downside is that the taxation of UK-held property has become more complex, so “international investors unfamiliar with UK tax rules will inevitably incur greater costs associated with compliance, or they risk failing to comply with rules through ignorance,” says Mark Pollack, director of property agency Aston Chase.

Camilla Dell, managing partner of Black Brick Property, a buying agency, however, says: “We love nervous markets as it gives us the ability to negotiate more strongly on our clients’ behalf.”

Our view is that the next five months present perfect buying conditions for buyers that are willing to take the plunge,” she said. “They could be rewarded handsomely, as the longer-term forecasts over the next five years are for 20-25 per cent growth across central London.”

The market has had about a year now to adjust to a capital gains tax that will be levied on non-UK residents when they sell a UK property that they are not staying in, starting April 2015.

Many see it as a long overdue closure to a “tax loophole”, given that UK residents have always had to pay capital gains tax on their second homes, but foreigners were exempted from any. “Most of our overseas clients have always thought it a bit odd . . . Most investors expect to pay some tax when they make a gain in another country,” says Ms Dell.

There is no doubt many international property investors have been attracted to the absence of such a tax and exploited that. But even with the tax in place next year, it remains cheaper than other hot-favourite jurisdictions for property investors.

At 28 per cent of capital gains, it remains lower than equivalent taxes in New York, Paris and Australiawhich can approach 35-50 per cent, depending on various factors.

Adam Challis, JLL head of residential research in London, says what is perhaps more damaging is the uncertainty surrounding valuations. The tax will only be levied on gains made from April 2015 and not on any previous gains, but he asks how all of these properties are going to be valued at the same time.

“What we don’t know is how they will be valued and measured, who will be responsible for the cost of managing a current valuation, and some of the impact on specific types of ownership,” he said.

“Details for investors are very important for transparency. And there are a number of details that we believe the government still needs to work out and have not done. The lack of clarity around some of these issues is why we are having short-term uncertainty,” Mr Challis added.

For now, values in most parts of central London remain strong and are expected to grow 5-6 per cent over the medium term, but he has seen the jitters quell property transaction volumes, especially at the top end of the market.

That uncertainty is also partly driven by the ambiguous and widely criticised mansion tax which the Labour Party had proposed to be imposed annually on homes valued at more than £2 million (S$4.1 million) – provided, of course, that it wins the general elections next May.

But the Conservative Party, led by Prime Minister David Cameron, had in early December announced and effected its own version of the mansion tax – in the chancellor’s words: ” . . . in stark contrast to the shambles of the anti-aspirational, unworkable homes tax that the Labour party wants to impose.”

Basically, the old “slab system” where stamp duties are charged at a single rate on the whole purchase price of a home has been abolished and given way to a fairer, graduated system where each rate will only apply to the part of a property price which falls in that band, like income tax.

For purchases of £937,000 and below, buyers will enjoy savings in stamp duty under the reformed system. This is good news for Asian buyers, most of whom don’t buy above £1 million, analysts say.

“Buyers from Asia tend to go for properties in the range of £500,000-900,000, for which there will be a modest lowering of transaction costs. As a result, the expectation is a modest boost for mainstream activity,” JLL’s Mr Challis says.

Asians make up between a third to 40 per cent of property investors in the UK by various estimates. But that percentage dwindles as one approaches the higher end of the market, which is crowded with buyers from Europe, the Middle East and Russia.

The reformed stamp duty rises incrementally to as much as 12 per cent for the portion above £1.5 million, which means a £2 million property will incur £154,000 stamp duty, compared with £100,000 before. Analysts thus expect the prime market to be badly hit, although Black Brick’s Ms Dell points out “that buyer profile group is quite frankly able to absorb the slightly higher taxes”.

In comparison, Hong Kong’s stamp duty reaches 8.5 per cent at the top end of the market, while Singapore’s hits 15 per cent for foreigners, and 7 per cent and 10 per cent respectively for citizens and permanent residents buying a second home.

Analysts think the prime central London residential market will stall until these luxury homes are re-priced to take into account the higher stamp duty. Mr Pollack says: “It’s inevitable that this will cause many deals to fall through and for aggressive and desperate re-negotiations to happen.”

Meanwhile, there is no guarantee that the Labour Party will drop the idea of a mansion tax over and above the stamp duty changes if it wins, even though an add-on tax now seems senseless and unnecessary.

If it does, Aston Chase’s Mr Pollack says, it would result in “a huge backlash from both the domestic and investor markets” and would shave 30 per cent off existing capital values.

It is amid this uncertainty that the high-end market now functions, but therein lies the opportunity for Asian buyers who have been mulling and hesitating about accessing the London property market.

“If buyers sit and wait until after May 2015, they may be disappointed. If you look back historically everytime we have had a general election in the UK, once the election has happened, the market bounces back. So if the Conservatives win, we believe the market will very quickly return to normal, with no threat of a mansion tax, and the opportunity will have been lost,” Ms Dell says.

 

Rich Nigerians Spend Millions on London Property – but where?

Wealthy Nigerians spent over $390 million on property in London over the last 3 years according to new research. They are the biggest spenders out of the whole Africa – who, as a continent, spent over $938 million.

“The most expensive property we’ve ever sold to a Nigerian is actually a transaction we’re in the middle of working on at the moment,” says Camilla Dell, from Black Brick Property Solutions. “It’s a property in the region of £50million (or $78million).”

While buyers from Africa account for only 1.5% of transactions in the “ultra-prime” London property market, they make up 5% of sales by value – which is up from 2%. And this is by spending between £15million and £25million on each home. “I would like to buy in Mayfair,” says one Nigerian lady. “But unfortunately, I cannot afford to live there.”

The most sought after areas for Nigerians, in particular, in London are around Knightsbridge, Mayfair and Belgravia. Buyers include Africa’s richest man – Aliko Dangote, a Nigerian businessman who has an estimated fortune of £16billion.

And the world’s richest woman – Folorunsho Alakija, is an oil tycoon, fashion designer and philanthropist based in Lagos, but is also a big investor in the London. She recently bought four apartments in One Hyde Park, the super-exclusive development in Knightsbridge. They’re running banks, oil and gas companies, telecomms companies and over the last ten or fifteen years have made a lot of money,” explains Camilla Dell.

But many Nigerians are suspicious of such large amounts of money being spent on such lavish property, outside of Nigeria. “You have to ask – where do they get the money from? Was it stolen money, because if you steal money from government or wherever – you want to live big,” says one man.

“Those places are for big, even bigger girls!” laughs one lady who cannot afford such property in London.