29th September 2023
Whenever there is a big upheaval in a property market – a rise in buying taxes, a slump in prices – there are always buyers whose gut response is to stop whatever they are doing and adopt a wait and see strategy.
And the long string of interest rate rises the market has just endured has been enough to put the freeze on many people’s plans to move house over the past couple of years, sending transaction rates tumbling to record lows.
But shock does eventually wear off, and as summer turns to autumn, London’s buyers seem to have begun to reconcile themselves to the fact that cheap lending is a thing of the past. Vendors, for their part, are now increasingly willing to bend on asking price, having realised that price tags that might have worked in 2021 and 2022 simply won’t fly today.
The result? A healthier and more unified market than we have seen in many months, with some standout performances, new arrivals at the pinnacle of the market, and a big wave of price cutting for buyers to navigate….
After months on end of doom scrolling negative headlines, there have been some very welcome nuggets of good economic news in recent days.
There was a surprise fall in inflation, and for the first time in almost two years, the Bank of England’s Monetary Policy Committee agreed to hold the base rate at 5.25 per cent, giving those with home loans a little breathing space and buyers much more certainty.
Meanwhile, the latest UK House Price Index, the official Government monitor of prices, reported that prices in London had inched up by 1.1 per cent in the past month, while research from Knight Frank found that the number of exchanges agreed in London in July and August was 15 per cent higher than the five-year average for these months.
Nobody is suggesting that we are now out of the woods. Interest rates remain higher than most buyers would like, particularly since they are simultaneously expected to pay hefty Stamp Duty bills. But at least matters are no longer getting worse.
“Good properties are selling well and there is a good supply of new buyers,” said Caspar Harvard-Walls, a partner at Black Brick. “But this is the first time in our working lives that we have been in a situation where both interest rates and Stamp Duty are high, and it is understandable that we have had people taking a pause.”
Bolstering demand for London property has been a bubbling up of demand from North American buyers. “There has been a huge amount of wealth generation in the USA, particularly in tech,” said Harvard-Walls. “And what I am hearing is there are also a range of financial, political, and moral issues which are making them think about whether or not to stay at home.”
These issues include the spectre of Donald Trump returning to the White House, rising urban crime rates, and relaxation of anti-drugs legislation. London represents a safe haven for these buyers, who also see the British capital as a perfect, English-speaking gateway to Europe. “One of my clients said to me that the difference between London and San Francisco is that two hours from London is Rome,” said Harvard-Walls. “Two hours from San Francisco is Detroit.”
One of Black Brick’s recent American clients spent £8.75m on an apartment in Carlos Place, Mayfair. Their reasoning was that they visited London frequently enough that buying a property would be more cost effective than staying at Claridge’s, and we found them a best-in-class property in one of Mayfair’s most prestigious streets.
For Camilla Dell, managing partner of Black Brick, another recent, and positive change, is that most vendors now finally accept that their homes are probably worth less today than they were a year or so ago. “Sellers’ expectations don’t come down as quickly as interest rates go up, but they are much more aware now which means that our ability to negotiate strongly for clients is much improved,” she said.
Highly serviced residences with globally recognisable brand names attached have been spreading like wildfire around the globe, taking property markets from Miami to Dubai by storm.
London has been relatively late to the party at this ultra-luxury end of the property market but now three upscale branded residences schemes have turned up almost at once.
The Old War Office in Westminster, featuring 85 residences by Raffles Hotels & Resorts, a 120-room hotel, restaurants, bars, and a spa, officially opened its doors on September 29 in the former Government building where Winston Churchill once wore. Prices range from £4m to £30m.
The launch follows the successful arrival of 77 residences at the Mandarin Oriental Mayfair, on Hanover Square, which are now understood to be sold out, and The Peninsula Residences, set in Belgravia overlooking Wellington Arch, which has been achieving record prices per square foot.
For Caspar Harvard-Walls, this trio are the first proper branded residences to hit the capital – previous highly serviced offerings, like One Hyde Park, and 20 Grosvenor Square, have had plenty of bells and whistles when it comes to spa facilities ad but have not been fully integrated with adjacent hotel services. “The level of service is different,” he said. “A real branded residence has everything – you can pop downstairs for a hot stone massage, order canapes for your pre-dinner drinks, get your laundry done while you are out, and you don’t have to worry about boring things like finding a cleaner.
“There is a profile of buyer who wants to come to London, put their bags down, and have everything they need on tap.”
The pedigree of the brand is hugely important to this kind of development, providing a global clientele with reassurance about the standard of service they will receive. “Some of these buyers already own these residences in other cities, and they know and trust the concept,” said Dell. “It gives them peace of mind.”
The service charges for branded homes are notoriously high, but many brands offer the chance to rent properties through the on-site hotel when owners are not not in situ. This arrangement can not only cover annual bills but provide owners with a useful chunk of holiday spending money.
According to the latest raft of house price data, average prices in prime central London fell by 1.4 per cent in the past year.
But Knight Frank found that prime outer London – its cluster of leafy affluent suburban enclaves – have had better staying power, with prices down 0.8 per cent in the same period.
The strongest annual growth in the year to August was to be found in Dulwich, southeast London, with prices up 3.6 per cent year on year.
This shows that buyers are still flowing out of the centre of town in search of space, indoors and outdoors, and as a result prime outer prices are closer to the pre-pandemic peak levels than its better known counterpart.
Across PCL prices are down 16 per cent on their peak levels, while prime outer prices are down by a comparatively modest eight per cent.
Part of the reason for prime outer’s strength is that this is a solid family house market where people go to find their forever home and are therefore somewhat less concerned by issues like short term price growth potential.
And it is also no coincidence that many parts of prime outer London have great state schools, another major driver at a time when private school costs are escalating, jumping by 5.6 per cent this year according to a survey by the Independent School.
“People are very conscious about getting into the right catchment areas,” said Harvard-Walls. “With the cost of living rising it has become an increasingly important issue for buyers.”
Last year Black Brick helped a family looking for a larger property in Dulwich – a challenge since locals tend to stay put in their family homes for years, and few houses come onto the market each year. We were able to find them a 4,500 sq ft house, being sold off market. Competition was considerable but our offer of just over £5m was accepted even though it wasn’t the highest bid: https://www.black-brick.com/expertise/case-studies/alleyn-road/
The proportion of homes on the market which have seen their prices cut back stands at its highest level in more than ten years.
Property portal Rightmove has revealed that more than one in three homes listed on the site have had at least one price trim since being listed, the highest level seen since the start of 2011.
The average reduction, said Rightmove, was 6.2 per cent but some homes are seeing much more radical cuts.
A nine bedroom Georgian house in Hampstead, for example, was put on sale in June for £22m. By September its asking price had been cut back down to £18m, a reduction of almost 20 per cent.
Black Brick’s view is that homes with major price drops were probably simply overpriced to begin with. But widespread discounting is certainly confusing for buyers.
“It is becoming even harder for people to know what to offer for a property, because you keep seeing properties come to the market at one price and a month later £1m is chopped off its price,” said Dell. “It is a situation which creates uncertainty.”
The most obvious way to establish a property’s true value is to calculate what the average price per square foot is in the area (an equation which involves access to data from both the Land Registry and LonRes). But, warned Dell, reality is a lot more complex. “There are so many subjective issues which impact on what a property is worth,” she said. “The condition of the property, the aspect and views, how light it is, what floor it is on, whether there is outside space, whether the garden is south facing or not, which side of the street it is on. Unless it is a world you are really, really immersed in it is difficult to know what to offer. This is a key benefit of working with a good buying agent. The analysis we do prior to making offers gives our clients real confidence.”
Some buyers, particularly those who will be taking out a mortgage, are going to the trouble and expense of hiring a surveyor to value properties for them. This gives them a clearer idea of what sort of value their lender will place on a property and thus whether there will be a shortfall they need to make up.
Black Brick’s podcast is back with a new episode this month, looking at the role of property surveys.
Our guest is Peter Bird, co-founder of Bird Charles chartered surveyors and valuers, who helps us explain why a pre-sale survey is a crucial part of the buying process, arming buyers with accurate information about the state of their prospective property and giving them ammunition for price negotiations. You can listen to the latest episode here: https://www.black-brick.com/podcast/.
While London’s property market has undoubtedly slowed over the past year, best in class properties still get snapped up very quickly.
This was the situation our client found themselves in after setting their heart on a lateral apartment on one of London’s very best garden squares. The dual aspect property perfectly fitted their requirements – two bedrooms, a leafy view, and in the very heart of prime central London. The building is also pet friendly, crucial since our Singaporean client has a dog. It was being sold on a share of freehold basis, a rarity in prime central London where most homes are leasehold.
Another buyer was also interested in the property, so the agent invited best bids. By following our advice on how much to offer our client emerged victorious.
Our client is based overseas but spends large stretches of time in London. He wanted a four bedroom flat in a portered building with a lift and, given his work commitments, he didn’t want to have to do much in the way of renovation works.
We helped him select a spacious fourth floor 2,800 sq ft apartment in a popular building in the heart of Marylebone, his preferred location.
The property, which was in move in condition, was being sold off market and we were the first in through the door.
It was listed for £4.5m but after careful but determined negotiations we were able to secure it at a £150,000 discount.
Many of our clients own global property portfolios, but buying overseas in unfamiliar markets requires expertise, guidance, and trusted partners. That’s why we’ve made it our mission to partner with top buying agents in key locations.
Each month we will be bringing you an “in focus” look at one of the new markets that we now cover, from Berlin to Miami, Dubai to Sydney. This month we take a look at Portugal.
Over the past few years Lisbon, with its laid back atmosphere, culture, and easy access to the beach, has picked so many awards and plaudits for its appeal to travellers and residents that its metaphorical trophy cabinet must be groaning.
Better value than Paris (and indeed most other western European capitals), less chaotic than Madrid or Rome, diminutive Lisbon (population: just over half a million) punches well above its weight, attracting star buyers from Michael Fassbender and Scarlett Johansson in recent years.
Beyond Lisbon, buyers could head to the gorgeous romantic coastal city of Porto, or the newly-hip holiday destination Comporta – both George Clooney and Sharon Stone are said to have invested in plots at its CostaTerra Golf & Ocean Club. The Algarve, meanwhile, is perennially popular with British buyers.
Like many European nations Portugal experienced a property boom at the height of the pandemic as buyers, national and international, began scrambling for spacious new homes with access to countryside or seaside. The covid bounce has now ended, and clearly the recent end of Portugal’s “golden visa” scheme, which offered residency in return for real estate investment, will have an impact on its market going forward.
Sale prices, according to the Portuguese property portal Idealista, have been flat in the capital city this year, at an average of around £420 per square foot. The stunningly beautiful Porto is Portugal’s second most expensive option, with average prices of €270 per square foot, with no price growth during the last 12 months.
Nonetheless Knight Frank’s latest prime cities forecast for 2024 predicts that prices in Lisbon will rise around two per cent next year. And lesser known cities are quietly enjoying some serious price growth. Idealista prices have increased by nine per cent year on year in the northern coastal city of Viana do Castelo, as buyers priced out of Porto spread along the coast. Vila Real, which is 60 miles inland of Porto, is another one to watch, with prices up 6.6 per cent. Faro, on the Algarve, has enjoyed annual price growth of four per cent.
Portugal seems to be a particularly big hit with youthful international buyers, perhaps thanks to its hipster reputation. Knight Frank’s annual Wealth Report described a “huge influx of younger wealth in recent years – surfers that have earned money in the US tech sector, for example.”
Investors clearly believe that prime buyers will continue to invest in Portuguese real estate, and branded residences, the hallmark of a prime global property market, have begun to appear. W Hotels Worldwide’s W Residences Algarve opened last spring, and this summer Martinhal Resorts opened a luxury hotel and residences in Lisbon’s Park of Nations neighborhood. Hyatt Regency is at work on a development of residences in Belém, one of Lisbon’s swankiest suburbs.
If you are interested in how Black Brick can assist you to find your perfect property in Portugal please contact Camilla.Dell@black-brick.com
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.