March 2011

At the time of writing the full consequences of the tragic earthquake and tsunami in Japan have yet to be realised past the enormous human cost. But set alongside escalating political tensions across the Middle East and North Africa, a high oil price, a euro debt crisis still far from resolved and sharp falls in equity markets – the global backdrop to any major financial decision is clearly far from stable. It is little wonder then that the focus of Black Brick’s ever broadening client list of international wealthy individuals and families remains focused on the tangible simplicity of bricks and mortar in general and on the relative security of bricks and mortar in prime Central London in particular.

According to the Knight Frank Prime Central London Index, property prices in the most sought after areas of the UK capital rose 1.0% in February and 3.4% over December, January and February as a whole as international interest hardened in London property’s safe-haven status and the city’s strong business links. Having risen 8% in the year to end-February and 24% since the post-credit crunch low, prime Central London property prices now stand 2% below the March 2008 peak in sterling terms.

The rental market in prime Central London is also in rude health – buoyed by strong demand from the corporate sector, by limited mortgage availability and by a similarly severe supply shortage across the capital. With the countdown to the London Olympics in 2012 now in full swing – international attention is likely to be focused even more on London’s many attractions. As a consequence, Savills forecasts a 7% rise in rental value in prime Central London in 2011.

In his Budget of March 23rd, Chancellor George Osborne announced the UK government’s intention to ease the administrative burden and so-called ‘red tape’ that often prevents property development and regeneration across the UK. Of particular interest to both developers and potential investors in prime Central London property was the announcement that the government will consult on plans to make it easier to convert commercial properties to residential.

Camilla Dell, Black Brick Managing Partner, says: “There is a clear intention here to encourage development and we see this as a potentially big positive for the capital and for Black Brick clients. Should the suggested changes become law they will provide both redevelopment opportunities and significant flexibility for buyers of mixed use and commercial property in London.”

Price forecasts for 2011 already look conservative

Indeed, while forecasts for the wider residential property market remain muted, we believe forecasts for Central London property capital values for 2011 as a whole will continue to edge up in the wake of this robust start to the year. At the turn of the year forecasts for 2011 were tightly bunched in a range between -1.0% and +5.0%. Camilla Dell, Black Brick Managing Partner, says: “Given the continued shortage of quality properties in prime Central London and our own experience of strong new client sign-up from an ever-broadening geographic client base, we believe 2011 price performance in prime Central London may end up being stronger than many expected. Certainly, forecasts for no growth at all are starting to look very conservative.”

In contrast, the latest data from the major UK residential property indices continue to paint a picture of a fragile market currently trending gently downward everywhere outside of London. Indeed, the current state of the wider domestic UK housing market has rarely felt so disconnected from the drivers and dynamics of its prime Central London counterpart.

The latest monthly survey from the Royal Institute of Chartered Surveyors reinforces the sharp divergence in regional fortunes with a majority of surveyors reporting falling prices in every region in the UK except London in the three months to end-February. The Halifax house price index fell 0.9% in February while the Nationwide index posted a meagre 0.3% gain. Over the quarter to end-February the two indices were down 0.4% and 0.1% respectively while annual prices were down 2.8% according to Halifax and 0.1% according to Nationwide. Affordability, finance availability, rising taxes and an uncertain employment and economic backdrop are the major headwinds to market progress. However, both mortgage providers highlight the continued decline in new properties available for sale as a potentially key support for prices in the coming months if sustained.

Safe-haven status tops list of reasons for buying in London

Apart from an ever-broadening geographic client base, recent trends at Black Brick include an increase in new client sign-ups from countries benefiting from soaring commodity prices including several oil-rich African states and Russia. In particular we have seen a number of clients from Russia with families in recent weeks looking to relocate to the safer environment of London. With a fast-growing economy and high commodity prices providing the basis for wealth creation – and political instability and higher crime rates providing the impetus for relocation, we firmly expect this trend to continue. Interestingly we have also seen a rise in domestic clients in recent months not all of whom have come from the financial services sector. However, the characteristic that unites all our domestic clients is the inability to source appropriate properties for demanding housing requirements – whether that is due to time or other constraints.

The theme of London as a safe-haven was repeated in a recent survey by Knight Frank of the most important factors influencing wealthy people when buying property in London. An established network of friends, family and business associates came out as the top factor, closely followed by London’s safe-haven status from geo-political and security concerns elsewhere. This gives us confidence that there are stronger and more secular supports to London prime property’s recent strength than simply the short-term exploitation of a weak pound – though unsurprisingly this too features as a positive factor on Knight Frank’s list.

Growing list of off-market sellers

Meanwhile, in recent weeks we have seen a large increase in so-called ‘off-market sellers’ approaching Black Brick directly rather than using mainstream estate agents to sell their property. Camilla Dell, Black Brick Managing Partner, explains: “There may be a number of reasons for this – including a desire for confidentiality. No doubt a major attraction for vendors is the fact that we don’t charge them a fee as Black Brick only represents buyers. However, we also believe that the increase reflects our growing reputation as a significant intermediary in the prime Central London property market with a large and high quality client base. Clearly our close relationship with the mainstream selling agents remains a fundamental part of what we do and the service that we provide, but with a growing list of over 400 properties on our database of off-market sales this trend is becoming an increasingly important way that we can add value to our clients.”

And finally, the hike in stamp duty from 4% to 5% on properties exchanging hands for over £1m comes into effect from April 6. We do not believe it will have a significant impact on the overall prime London market past providing a small incentive for transactions that have already commenced to complete promptly. The reality is that Black Brick clients are mostly exclusively cash-rich high net worth individuals and families to whom the additional £10,000 per £1m is not enough to change the financials of a property transaction or to outweigh the long-term rationale for investment or relocation.

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