5th August 2013
Prices in prime Central London (PCL) continue to confound those that predicted with confidence a year of consolidation and negligible gains for 2013 at the turn of the year. In light of the market’s continued strength, those forecasts have begun to look anomalous and one by one, the bulge bracket agencies have been upgrading price expectations.
Increasingly, however, a single number rather fails to capture the very different market conditions by post code and value bracket within the broader prime London universe. At Black Brick, the strongest price growth in properties we have sourced for clients continues to be at and below £1m with the weakest growth recorded in so-called Super Prime above £10m.
Indeed, although many PCL buying agents aren’t interested below £1m, at Black Brick we continue to successfully source properties ranging in value from £0.5m to £100m with the focus of our investor clients clearly at the lower end due to the lower stamp duty rate below £2m and the ease of structuring. We also believe that £2m will be the threshold if any wider Mansion Tax is implemented in the future.
The latest industry statistics for prime Central London confirms these insights. Savills says overall prices within PCL rose 2.5% in the second calendar quarter of 2013, taking annual price inflation to 6.6% at end-June. Meanwhile the Knight Frank Prime Central London Index rose 0.4% in June for a gain of 3.7% over the first six months of 2013 and 6.9% over the past twelve months.
Both agencies report significant price divergence by area and by price band with Savills reporting the strongest growth in South West London areas including Fulham, Richmond and Wimbledon. Historically, these areas have been seen as driven predominantly by domestic buyers. According to Savills these markets are benefiting from wealth accumulated prior to the downturn, new hedge fund wealth creation and increased buying activity from international buyers working and resident full time in the capital.
Interestingly Savills has significantly altered its forecasts for PCL property prices over the next five years, upgrading expected price growth for 2013 from zero to 6.0% and downgrading its forecast for 2015 from +8.0% to -1.0% – the likely year of the next general election. Overall Savills now expects prices to rise 24.3% in PCL in the five year period to December 2017.
In the wider UK residential property market prospects continue to brighten. In the latest monthly survey performed by members of the Royal Institute of Chartered Surveyors (RICS), the headline national house price balance improved to +21 in June from +5 in May – the highest since January 2010. The RICS survey also revealed a sharp rise in demand with the buyer enquiries net balance rising to +38, the highest reading since August 2009. These improvements appear to be underpinned by improved mortgage availability with data showing loan-to-values grinding consistently higher in recent months. According to mortgage lender Halifax, UK house prices rose 0.6% in June for a 3.7% gain in the second calendar quarter over the same period a year ago. This is the biggest increase in this annual measure since August 2010.
Is end of US QE a threat to PCL property?
In other industry news we were interested to read recently a report suggesting that PCL prices are ripe for a 20% fall with a disorderly end to the US monetary policy of quantitative easing the likely catalyst. Clearly, PCL price rises cannot continue in perpetuity. However, we believe that the conclusions of this particular report should be taken within the context of its commission by a large commercial property developer and investor that may well be looking to opportunistically add to its PCL exposure.
Meanwhile our view is that while the US Federal Reserve’s policy of cheap lending has benefited global equity and bond markets, little of this money has found its way directly or indirectly into less liquid Prime Central London property. Other assets such as emerging market equities and bonds have provided an easier, cheaper and more effective ‘carry trade’. Meanwhile, we believe the impact of higher US bond yields on long-term wealth and wealth creation in emerging markets to be relatively limited. Emerging markets are, in the main, relatively debt free compared to the Developed World. Meanwhile, the attractions of PCL property as a safe-haven asset extend way beyond concerns about the sustainability of the euro in its current form. Indeed, the end of QE in the US is likely to increase volatility in traditional risk assets including equities and bonds. Such volatility may only reinforce the attractions of PCL property’s relative stability.
UK Services sector expands at its fastest rate since December 2006
The widely watched Services Purchasing Managers’ Index (PMI) rose to 60.2 in July from 56.9 the month before, a stronger showing than economists had expected. The index is viewed as a reliable forward looking indicator of activity in the UK economy. If the latest results prove well-founded, the UK is in for strong growth in the current third quarter of the year. The services sector accounts for three quarters of economic activity, so July’s strongest result since December 2006 bodes well for future expansion. This is all potentially good news not just for PCL, but for UK property prices in general.
Among our recent transactions we would highlight one in particular that best reflects how we help our clients. The buyer was a long-standing and repeat Black Brick client, whose first investment property in London we sourced in 2007 and for whom we have sourced multiple properties over the years. Knowing his strong interest in St John’s Wood, we identified the new St Edmunds Terrace development overlooking Primrose Hill and Regents Park as one with strong investment potential. This boutique development is extremely high-end and will be the only apartment block in the area with a full range of facilities such as swimming pool, gym, parking and 24 hour concierge.
Building works are not scheduled for completion until 2015 and mainstream marketing is not due to start until this September. However, we used our contacts to access the development well before the official launch date, giving our client priority access to the best units. By getting in early, we also saved our client 5% from the asking price, and beat competition from another buyer with a higher bid due to our relationship and reputation with the selling agent. Given the quality of the development and its scarcity value within the immediate area we’re extremely confident our client will make money on his investment.
We are also pleased to reveal a sharp pick-up in demand for other Black Brick services. In particular, we have seen a sharp pick-up in clients using our Managed Sale service. In recent weeks we have overseen the successful sales of a stunning lateral apartment in Belgravia for £11.5m, a £2.7m flat on Stafford Terrace in Kensington and one of the biggest apartments in the Harley House, Regents Park for £5m.
We believe using a managed sale service makes sense on many levels – not least the preferential fee we are able to negotiate with selling agents on our clients’ behalf due to our relationship and reputation with agents across prime Central London. We add further value to clients by acting as the main point of contact for the sale, ensuring that the whole process is managed effectively and efficiently.
And while there is some comfort in selecting a well known ‘name’ as your estate agent, these agencies are not always best placed to manage the sale of your property. In a highly fragmented market there are a multitude of small agencies specialising in specific areas of prime London – even in specific streets or developments. Wherever your property may be in Central London, we know which agencies are doing the majority of sales in that area. Such depth of local knowledge and expertise can make a significant difference to the price you achieve for your property.
Elsewhere, our Lettings Search service has also enjoyed a significant rise in popularity over the past twelve months as frustrated potential buyers are forced to rent. Demand has also been buoyed by successful buyers awaiting completion of major development works on their properties and by a large influx of French families ‘trying’ certain areas of London ahead of more permanent moves and property purchases. If you need assistance finding the perfect rental property please call us on 0203 141 9861.
Finally, we are delighted to announce the launch of the new Black Brick website. The groundbreaking and client-friendly website features a host of useful information for potential buyers including multiple case studies, an interactive map, all our press articles and market updates which can be downloaded. The case studies section allows users to search by area, date the property was sourced, if it was an off market deal, percentage saving achieved relative to the asking price and a whole lot more besides! Don’t just take our word for it, go to www.black-brick.com and see for yourself.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.