Is it crunch time?

  • Agents bear the brunt
  • Turning a corner - for some
  • Help-to-let

Click to download Obbard's Property Investment Insights for September

Moving in the right direction

  • Surge in rental demand 
  • Prime sales market turning the corner?
  • New builds down, planning consents up


Uncertainty the only certainty

  • 2017 ends on a relatively positive note
  • Politics continues to be the key influence
  • 2018 looks set for much of the same


Stepping Back in Time

  • Politics takes us back to the 1970’s
  • Buyer motives are key
  • No buyers’ market yet


What's in store for 2017?

  • A confusing outlook 
  • Falling volumes but prices quite steady 
  • Buy-to-let is changing 


A Brexistential Crisis

  • Uncertainty creates opportunity
  • Shift from overseas to domestic driven market
  • Buying opportunities emerging after long gap

Click to download Obbard's Property Investment Insight September 2016


  • Lower volumes but prices holding firm
  • Sub £1m very robust 
  • Lack of sellers shows belief remains strong

Click to download Obbard's Property Investment Insight for April


  • Changes to property taxes starting to impact
  • Buy to let in the chancellor’s sights
  • Fall out in new build may create opportunities in core prime


Supply Demand Politics

  • Government intervention muddies the water
  • Stamp Duty increases cool upper end
  • Mainstream market offers strong potential


Politics trumps economics

  • Osborne’s radical tax changes continue
  • High value properties and Non residents in the firing line
  • A shifting dynamic in the residential market sectors


Conservatives confound the pundits

  • Surprise result gives reason for optimism
  • Prime markets breathe a sigh of relief
  • Short term price rally possible

Click to download Obbard's post election Property Investment Insight


  • Few surprises in the budget but more help for bottom end of market
  • Despite softening market, transaction levels remain positive.
  • Prime new build schemes encouragingly robust.


New Challenges and New Opportunities

  • Buyers take back advantage but many sellers withdrawing
  • Prime market still active
  • Other areas offer upside


Radical changes to SDLT

  • George Osborne takes all by surprise 
  • Upper end sees substantial hike 
  • Market set for short term adjustment 


Change in the air

  • Sharp increase in properties being withdrawn
  • Over ambitious asking prices being adjusted
  • Mansion tax worries having significant effect

Click to download the Obbard Property Investment Insight - November 2014

Prime London prices have hit a ceiling

  • Clear evidence that top end has slowed in 1st half of the year 
  • Newly labelled ‘Prime’ areas emerging more by virtue of their high pricing 
  • Government continues to muddy the waters with mixed messages

Click to download the Obbard Property Investment Insight September 2014

Is the UK housing market a bubble?

  • 10% growth in one year raises fears of a bubble
  • Under supply of housing remains the key issue
  • Interest rate rises present the biggest challenge

Click to download our Property Investment Insight for May

Buy to Leave causing changes to tax system

  • Empty homes prompt new property taxes
  • Inaccurate reporting as much to blame
  • The similarities of Art and Property

Click to download our Property Investment Insight for April

UK sets the pace for economic growth

  • Investors look beyond London
  • Sentiment & fundamentals align
  • Obbard continues to set records

Click to download our February Property Investment Insight

Levelling the playing field

  • Another year ending on another high 
  • Keeping an eye on the risks
  • Snapshot of our current developments 

Click to download Obbard's London property investment insight for December.

The UK Forever Blowing Bubbles

  • Help to Buy - genius or folly? 
  • Prime London needs no help 
  • Price psf can be a misleading means of assessing value

Click to download Obbard's London Property Investment Insight for October

A very un-british summer

  • Sunshine and sporting success have been the characteristics of this summer
  • Useful distractions in times of austerity but there are other stirrings afoot. 
  • UK housing market showing signs of real growth
  • Other data coming out giving rise to cautious optimism
  • Definite mood shift with both business and consumer confidence rising.
  • Spotting and planning for the risks ahead remain key to any investment strategy.

Click to download our London property investment insight for August

No let up so far this year

  • Most commentators took the view that 2013 was expected to be somewhat muted for the prime residential market
  • The market seems to be continuing along the same pattern as the past few years
  • The British are in play
  • Buy to let in London is back 

Click to download our London property investment insight for May

A Developer’s Dream but Buyers Beware

  • A residential building boom is underway in many parts of greater London
  • 20,000 units alone are in the planning pipeline around Vauxhall/Nine Elms/Battersea
  • Overseas investors can’t seem to get enough accounting for around two thirds of buyers
  • There are already signs of owners trying to flip as early schemes near completion

Click to view March's Property Investment comments

It’s a new dawn, it’s a new day, it’s a new year?

  • Unfortunately 2013 is unlikely to prove to be the new dawn that the stock markets seem to be heralding
  • The future remains uncertain at best and it is hard to see a genuine cyclical recovery in global markets
  • In this bulletin we look at recent changes to the UK residential tax system 

Click to download Property Investment Insight

Generally speaking we avoid generalisations.

As the financial crisis stumbles on and the problems of the Eurozone appear to accumulate, the role for financial safe havens becomes ever greater. So while we continue to see London play its key part, on which we have been reporting for some time now, we thought a few snappy generalisations on our chosen field were called for.

There is nothing the printed media likes more than quoting sweeping generalisations. For them UK house prices are often part of one homogenous group and therefore they are either rising  or falling and borrowers can either borrow or they can’t. The world of mortgage finance may appear to have been simplified with the withdrawal of scores of mortgage products since 2008 but there are many varied facets between the first time buyer borrowing 90% at close to 5% interest and the UHNW private banking client borrowing 60-70% at less than 2%.

We have always tried to resist generalisations as they are often the sustenance for the idle and ill informed. However, we accept that they have a role to play in acting as useful barometers or benchmarks. With house price indices for example, what the statistics don’t tell you about regional variations, they do perhaps reveal about general sentiment and broad economic activity.

Here are our generalisations to try and help put the current London market in context;

12 MONTH PRICE CHANGES  (source Knight Frank)





Autumn round up

At the beginning of last month I observed that the market had been slow to pick up after the various summer disruptions. There were clear signs that things were cooling and this remains our view as activity is down and we see a noticeable increase in property coming to the market, albeit few of great value or interest. In previous bulletins I have discussed the motivations behind London’s performance since the start of this global crisis and why we remain firmly of the belief that this market is inherently sound. However, as things were easing up last month I set out the risks, as we saw them. In this month’s commentary I thought I would simply summarise a few key relevant stories and observations from the past few weeks;
Mansion Tax shelved
The Party conference season has been and gone. Ideas on how to tax the wealthy were a prevailing theme but the Chancellor has thankfully ruled out a mansion tax for now, otherwise known as an annual property tax levied on properties of a value in excess of £2m. The outcome of the Government’s consultation period, following the various new measures announced in the March budget, are expected to be heard shortly after 11th December. 
UBS blow a cold wind through the City 
UBS announced sweeping staff redundancies. UBS were one of the larger sources of corporate tenants in central London. Further cuts in head counts amongst the large banks cannot be ruled out and therefore those that have allowed themselves to be overly dependent upon tenants, and buyers, within the financial sector will likely find a tough period ahead. 
The two tier market is ever more apparent
Rents in London are softening, meanwhile there is severe upward pressure in the rest of the country. The story is therefore one of shrinking capital values and rising yields on the one hand (broad UK) and falling yields with rising capital values (central London) on the other. The latter is looking like it has entered a period of consolidation and therefore we expect yields to settle close to where they are at present with capital values adjusting in areas of London which are heavily reliant on the financial sector. 
Buy to Let Funding in favour
Lenders have spotted the yield story and with this there is a growing appetite for buy to let lending. No more is this apparent than when one calls Nationwide to be asked first to press (1) for Buy to Let loans or (2) for Mortgage Loans. The council of mortgage lenders reported recently that in the second quarter of this year, buy-to-let funding was 17% up on the same time last year and 21% up on value. By contrast main stream lending had risen by 4% in volume and 7% in value over the same period. 
Are the Japanese back? 
Not since the 1980’s have we seen any noticeable number of Japanese investing in London residential property. There are tentative signs that this is changing, in discussion with agents, and based on our own experience, the Japanese are back looking at London. The numbers may not be huge but when one considers that 5 years ago Sterling was 85% stronger than where it is today, you can see where they are coming from. 
A quieter market still has its hot spots
A couple of weeks ago we looked at an un-modernised flat in Chelsea. The guide price was £2m for a three bedroom, 2 reception flat on a long lease of approx. 1,700 sq ft. There were over 70 viewings in the first week. After the second week best bids were invited. Around 16 offered and the flat sold for close to £2.4m. Meanwhile an agent this week sent out details of a £5.95m flat off Cadogan Square but attached the wrong details implying a rather beautiful apartment could be bought for around £1,600psf. They had over 50 calls within the first couple of hours and had to send out an apology email with the right details attached (an un-modernised property at £2,100psf) before their lines were freed up!

Knight Frank Market Performance Fact Check 
Prime central London prices rise by 0.7% in September, up 10% year-on-year
UK house prices fall 0.4% in September, down 1.4% on an annual basis
Prime country house prices down 4.3% on an annual basis
Prime Scottish property prices down 3% year-on-year
John D Wood survey
John D Wood have recently engaged the London School of Economics to carry out periodic surveys of their client/mailing list. The purpose of these surveys is to gauge the prevailing market sentiment amongst the general public. Questions are varied and include expectations on interest rates, likelihood of buying/selling and opinions on where rents are headed. The answers are divided in to regions and the following is the result of expectations for prices over the next 1 and 5 years between central London and broad UK;
Broad UK over next 12 months             +0.38%
Central London over next 12 months     +3.45%
Broad UK over next 5 years                  +6.76%
Central London over next 5 years          +16.48% 
Interesting Fact(s) of the Month 
Savills have recently written a report on how residential property values appear to be converging in Europe. Putting aside prime London, national average house prices are remarkably similar. 
What was also perhaps surprising was the ratio of owner occupiers shown as a % of stock in brackets. Average house prices are in Euros. 
UK                  205,330                (69.9%)
Ireland             207,000                (73.7%)
Germany         236,000                (56.2%)
Italy                264,000                (72.5%)
France            216,000                (63%)
Spain              164,000                (83.2%)
Other ratios of owner occupation include Sweden (69.7%) Belgium (72.7%), Holland (68.4%), Portugal (74.6%) and Greece (76.4%). Meanwhile Bulgaria, Estonia, Hungary, Latvia, Lithuania, Romania, Slovenia and Slovakia are all over 80% owner occupied. 

Cooler Climates

A year in the London residential property market is frequently a story of two halves. We have often seen one half of the year experience higher levels of activity leading to prices rising with the other half remaining relatively flat and subdued. There is no hard and fast rule whether the activity is mostly in the first half or the second. In 2012 it appears quite clearly that the first half of the year was when most of the action has been experienced. 
A rather negative budget in March was clearly intended to pour cold water on the top end London market and with the Olympics and Paralympics taking over the summer, the market slowed noticeably before pretty well being placed on hold for five or six weeks. As the Autumn chill sets in, with a semblance of normality returning throughout September, it was noticeable that the rental market has taken off with a vengeance but the sales market has been much slower to pick up.  However, I have deliberately waited a while since my last send out, sent just before the Games got under way, in order to attempt to gauge the market post the summer lull and the rather extreme one off distraction of the Olympics. 
Knight Frank report a 5% increase in prime London residential in the first half of the year with no further gains expected for the remainder of the year. Savills quarterly index reaffirms this with prices having risen sharply at the beginning of the year and then having more or less flat lined in the past two quarters. Amidst this back drop we have noticed a clear increase in new properties coming to the market but as is so typical, this is made up of relatively mediocre properties with sellers attempting to cash in at inflated prices, not a surge of quality stock which the market has been so desperately short of for so long. 
So prices are flat lining…..good news! 
Over the past 2-3 years prime London property has been a star performer for all the reasons discussed in these comments previously. I think it fair to say that most of our clients shared our concern of prices rising at unsustainable levels more than any short term dip.  Against that background, a dull period ahead with no real movement in values is to be welcome
The Government have chosen to play cynical political games and there is no doubt the March budget was all about politics, less about revenue raising. With the broad UK housing market contrasting sharply, being stuck in a moribund state, they will be only too happy for the upper end of the market to cool off, whilst hoping wealthy foreigners still see London as their preferred second home. The consultation period on the measures proposed and introduced in the last budget ends shortly and we await to hear which of the measures mooted will remain, be watered down or discreetly dropped.  What does seem clear is that offshore vehicles used solely for residential property ownership will remain targets and any stamp duty avoidance schemes (and there were precious few of these in practice) rigorously clamped down on. Meanwhile, the non resident and non domicile rules remain and therefore, for those who fall within these categories, many of the key tax benefits, such as CGT exemption, continue. 
Underlying demand remains strong 
Past decades have been neatly characterised by one or two key overseas groups being influential in buying prime London property (1970’s – Middle East, 1980’s – US & Japan, 1990’s Far East, 2000’s Russians) and so it is with the current decade, European buyers (specifically French & Italians) continue to be the key players. Meanwhile demand remains comfortingly consistent from elsewhere, such as the Middle East and Far East. Just recently a survey carried out by Cluttons  across seven capital hubs - Bangkok, Dubai, Jakarta, Kuala Lumpur, Manama, Singapore and Tokyo found that 57 per cent of all respondents picked London as their top investment location.
Spotting the risks ahead
While we take some comfort in the market taking a breather, we are very much aware that this market is not insulated from risk and some of these are as follows;
The Government has shown that they are willing to be radical and quite aggressive. The March budget caught most by surprise and the dust has not yet settled. The full impact of these new measures has yet to be truly understood but they certainly will have an effect of sorts. In our near 20 year experience, the very great majority of clients used their own name to acquire their investments and the rationale for establishing an SPV for most was simply related to inheritance tax planning. It was also surprising to note how, again the great majority, decided first to buy a property before then fully understanding how tax friendly the UK was for international buyers (no CGT, all costs including mortgage interest 100% off settable, no annual property taxes etc.).
The new measures target specifically residential property of a value in excess of £2m owned by ‘non natural persons’. There is clear evidence that the £2m to £3m price bracket has seen some affects but there has been a surprisingly limited real impact on higher value transactions. Therefore these measures appear to affect a relatively small portion of the market, and by no means the market as a whole. We remain hopeful and confident that the Tory side of the coalition will stand up to the Lib Dems populist calls to levy additional envy taxes on property owners. 
In view of London’s highly noticeable ability to perform so robustly in such troubled times, there has typically been a surge of activity as developers and investors look to capitalise on this. There have been a number of recent articles highlighting the substantial increase in supply of ‘luxury’ residential due to come on stream over the next 5-10 years. According to one report 15,000 homes with a value circa £38 billion. However, if one looks a bit closer to the detail, a huge proportion is focused around one area which few would refer to as prime London. The recently launched Embassy Gardens in Vauxhall is a huge scheme of some 2,000 units and this lies adjacent to an equally vast source of new supply on the old Battersea Power Station site that has recently been acquired by a Malaysian consortium. There is a total of 12,000 residential units in the planning pipeline in this part of south London alone and therefore these two sites make up the bulk of this big increase in projected supply. Given the values are way beyond the affordability of most local buyers, the developers will be relying heavily on off plan sales to overseas investors. 
We remain committed in the belief that value protection comes through investing in areas where supply is severely constrained through scarcity of development sites and planning restrictions etc. and that is why the traditional prime locations, all of which are designated conservation areas, remain our area of focus.
Arguably London’s rather exclusive safe haven status will significantly reduce in relevance for investors when the world returns to some normality and other traditional investment markets offer promise of strong and sustainable returns. There is no doubt prime London property looks expensive by most measures and this will appear more so as confidence returns to other countries and cities around the world, particularly in Europe and the USA. I have had several people theorise that the temptation to dump London will be too great and the chance of buying a Villa in Majorca for the price of a 2 bed flat in Notting Hill too big to resist. 
I have no doubt some will cash in, however I suspect a more likely scenario will be one where the high levels of cash stored in London property are released by using the properties as collateral. If the world gets back to ‘normal’ this will mean lending is back to normal. Positive sentiment takes time to develop (unlike negative sentiment which can turn on a sixpence) and so it is unlikely that Milan, Paris, Chicago or LA will suddenly be seen as clear dead certs and therefore London will likely continue to perform a role as a hedge in changing times, whilst hopefully remaining the extraordinarily diverse and cosmopolitan city that draws people here for reasons other than a pure economic rationale. 
The key influence on house prices. With the Government manipulating the markets by holding base rates down at levels not seen for 300 years, something will have to change. For those with cash and assets to borrow against, funding is accessible at very low levels typically through private banking relationships. For the typical borrower, rates and terms on offer are significantly higher and on traditional lender margins reflecting base rates more typical of being 4-5 times higher. Base rates will most certainly rise when normality starts to return, it remains to be seen how banks manage the margins they have been enjoying and how inflation is also managed as we come out of this long period of depression. 
Prime London property has acted as a sponge for excess cash and a key part of its underlying strength lies in the low levels of bank debt. However, rising interest rates will likely have more of a direct and broader impact than, say, the effects of the Government’s tax changes. Any sharp rises in rates and or long term rising trend, will certainly be a key risk to look out for.
Sterling’s weakness has played a leading role in recent years. Since May 2007, the pound is close to being 20% weaker against the US dollar, 15% against the Euro and 35% against the Singapore dollar. The world is too topsy turvey for most to predict which way sterling, or indeed any currency, might go in the years ahead. However should sterling appreciate significantly at some point, that might clearly dampen the appetite from overseas, especially if their domestic markets look attractive. 

Austerity - the word for our times

David Cameron has just announced that he believes the austerity program in the UK will last until at least 2020. For someone facing re-election in just over two years and running, at best, 10 points behind in the polls, this was a refreshingly realistic admittance. Not for him the recent tactics of M Hollande promising early retirement, jobs for all and debt denial, or the fantasy of Berlusconi seeking a new mandate as saviour of the country he so clearly half destroyed. 
France and Italy are fast becoming countries of emigrants as they join the likes of the Greeks. At first we had the  ‘Paristocrats’ and ‘Milanaires’ seeking refuge and security in central London but the flow of  ‘euroflighters’ is much broader now, both in terms of wealth profile and geographical spread,  as I witnessed in Hong Kong and Singapore recently. In Hong Kong I was told that the French had replaced the Americans as the largest expatriate community behind the domestic helpers from the Philippines. London has for some time now been the 4th or 5th largest French city per capita and Italians are fast creating a similar head count in the city. As a result French & Italian buyers in London account for nearly 14% of the market, this compared with 5% for Asian buyers. 
Cameron’s admission, helps reaffirm the reality that lies ahead. Austerity means lack of investment, lack of stimulus, lack of funding and lack of growth. Having adopted their position  on the basis that paying off the mountain of debt comes before all other, this Government  may not be popular within these shores, but London clearly offers attractions for our European neighbours who see a city that encourages entrepreneurs, has limited bureaucracy and unrivalled access to global markets.  Despite wishing otherwise, there would appear to be no clear alternative to the austerity approach and therefore this provides the context for the world we will be living in for a good while to come. 
Greed forced to take a back seat
Meanwhile big business continues to dig its own grave. Whether this be yet more revelations of avarice and illegality within the banks or abject incompetence from the likes of G4S in providing security for the Olympics, capitalism’s dirty laundry is being well and truly displayed in public.  With austerity having become the word for our times, greed is now so last year. The great expenses scandal of a few years back had politicians first on the hot griddle, then came the egotistical bank CEO’s soon to be followed by bankers at large earning multimillion bonuses. As the libor scandal sees more heads roll at the top and Bob Diamond becomes another high profile head on a stake, many are seriously questioning on what basis any individual, no matter how talented, can earn £100m over 5 years. From our own property perspective it’s hard to see what general good this provides to the market, as for sure we would rather see 10-20 individuals worth £5-10m active in the market, rather than one uber rich individual splashing his cash once in a blue moon. 
Sadly the counter to greed tends to be fear. This manifests itself in many ways, such as pessimism, insecurity, negativity, anxiety etc. and the world is full of all these and more. The point of this rather downbeat navel gazing is to understand the prevailing sentiment of individuals, investors and markets as a whole and to make sense of certain investment hot spots in the world. Gold is a classic default hold when fear strikes and nowadays London property seems to sit alongside. 
Owning a slice of the world’s only global city is one clear option for wealth preservation and this clearly has appeal on many levels. This appeal comes in the form of a sense of protection being amongst others of similar wealth, stature, status etc.  It also comes through being part of a city with history and heritage which indicates longevity. The more recognised appeals of London clearly (fair and transparent legal system, language, schools, stability, culture, aesthetics etc.)  and being where the wealthy and influential congregate and network. 
Sad to say we have a UK Government intent on meddling and introducing measures for short term political gain that do little to support this.  An excellent feature report in the Economist this month highlighted how governments, who meddle  with London in the belief they can distribute the wealth, energy and entrepreneurship around the country, are destined for failure. 
The soft target of immigration is one such area this government is addressing and the opposition are now also taking up the baton. Whilst I think we all take issue with freeloading economic migrants choosing, usually illegally, to reside in the UK due to the overly generous and freely distributed welfare on offer, we know we need the sharpest minds and hardest workers from foreign lands as our own education system has not, and cannot, provide these skills and attitudes that the country so desperately needs. 
As things stand London still holds its place as THE global city and the secret behind this is the fact that it is far from being an English (or British for that matter) capital city.  Whether you are Russian, Bahraini, Saudi, Malaysian, Hong Kong Chinese, Korean, Polish, Brazilian, French or Portuguese...there is a part of London that has your cultural identity  and there are parts where you will mix with all of the above where the indigenous locals are simply an irrelevance. 

How to offer a premium service when premium prices are being paid 
Occasionally we find ourselves doing something outside of our natural comfort zone, whether this be acquiring 267 low cost/high yielding houses in Newcastle (in the late 1990's) or advising on a country house in Buckinghamshire (last year), we are up for a challenge.
At the end of last year a client came to us looking to invest £20m in the very best of prime London residential property.  His knowledge was limited and therefore we did the whole initiation tour from un-modernised units in Notting hill to swanky developments in Belgravia. At the end, the client asked to see One Hyde Park which we had been discussing during our various outings. My comments, as made in earlier versions of this commentary, were less than flattering. 
We set up an inspection and I can only say the client was totally seduced. He decided he would buy two one bed flats, one to rent and one for himself. Despite the price being near as dammit £10m each when allowing for all costs (plus the car parking space for a mere £350k.) his heart seemed set, despite my attempts to talk to his mind!
A few months passed as the client became distracted by other things related to his business and, I think, his friends advising him otherwise. Meanwhile the OHP sales machine had me in its sights. Nick Candy is very hands on with each sale and he must have had me on speed dial. 
The client returned in March but the 2 one bed units were no longer available. He had a limited choice of  a 1 and a 2 and three x 3 bed units. There were four beds as well  but this was of no interest. None had the view he so clearly was impressed by when first viewing the original one beds. No park view for him, he wanted to see Harrods lit up at night, Hyde Park Corner to his left and the quintessential view of red double decker buses and black cabs below. But none of the units offered this.
It was our task to find this, and we did. We managed to negotiate the purchase of one of the very first units to be sold which was owned by an investor. Terms were agreed and the deal done. A content (relieved?) investor exiting within one year  of completion, a very happy client, a disappointed Nick Candy (although he should be happy in the resale value he can boast)  and £17m spent on a 2,800 sq ft flat in a development that seems to defy its detractors.....oh the price included the car parking space!
Happy Clients 
The great majority of our clients come to us for our investment advice. However, we also use this ‘hat’ to help and assist clients buying for their own use, as became the situation with One Hyde Park above. The following are two testimonials on providing this service. 
Dear  Hugh,
First up just wanted to say a big thanks to you and your crew for all you have done on Lansdowne rd. Great find, Great work on the total renovation/project mgmt and the recommendations on designer and contractor. Flat is very comfortable and the whole xxxxx clan been through and all gave their thumbs up. Easy for me to say as the Mrs has been driving the project our end but we have been very happy with the whole process. Growth in the size of your biz has clearly not diluted the quality of services you guys have always provided so pls say thanks to all involved in the project. 
Dear Patti,
I thought now was probably a good moment to thank you for your input into Cheyne Court. We have been here for a week and are very much enjoying it.  Going back right to the start you gave us a very good feel for a variety of properties in Central London in an action packed morning, but it was sheer genius to end the tour with the ‘piece de resistance’ – or that’s how it seems with hindsight. 
 Over the subsequent year, things have progressed steadily and smoothly  - your choice of lawyers was excellent and of other people involved likewise. More importantly (my wife) has consistently said what a pleasure it is working with you – she at least has felt totally on a wave length and comfortable with your judgment and guidance.

The actual refurbishment and decoration of the flat has involved a lot of effort from everyone and produced a result that totally meets everything I could have hoped for. To be honest I do not think at the outset I had any idea of how lovely the flat would be. 
Gregory and his crew of craftsmen have also done an exceptional job and I have written to Gregory separately to thank him. I know there have been one or two difficulties along the way and that there are still some things to be corrected or adjusted, but I am sure these will be put to rights shortly. I do not want these to distract from my total satisfaction with their work. The carpentry in particular is exceptional and it is clear that enormous trouble has been taken by him over the job.

There is lots more I could say. I am very grateful for the day when I first met with Hugh and through him was introduced to you. The process of buying and refurbishing a flat has been a pleasure from start to finish and produced in our humble opinion an excellent result.

​Thank you. 

More of the same

The problem in writing a market bulletin on a specific sector every month or so is that you can so easily find that you end up simply repeating yourself. February’s headline Global inflation, Middle East upheaval, Sovereign debt – why prime London property has become a store of value for many is as apt for today as it has been throughout much of the first half of 2011. I am therefore aware of becoming repetitive and more boring than usual! On the other hand,  the broader headlines in the media underline that we live in the most extraordinary of times which on occasion would test the imagination of the most fertile of minds (from the US covert assassination of the world’s most wanted man on another’s sovereign territory to the head of the IMF in a NY hotel room sex scandal) how can one compete with that!
April was a peculiar month as we had two back to back public holidays with a Royal Wedding thrown in to the mix. The result was close on being a 10 day holiday for the whole country. Fortunately our Summer has come early and with the sun shining the UK consumer was out and about spending their precious cash. Meanwhile the prime London property market was a bit subdued but primarily due to the wealthy filling the ski slopes to catch the end of the season or off to the beaches to take advantage of the 10 day break.
Normal service has resumed in May and the enduring fight over meager stock has continued. Not being one who has an instinctive trust in statistics let alone generalizations, this month I thought I would highlight a few sales achieved over the past couple of months that I would say are somewhat indicative of the market and illustrate the dramatic variances in values, both at a nominal level and on a price per square foot.

Gloucester Street, Pimlico, SW1
Asking price £475,000        
Sale Price £480,000
525 sq ft (£914psf)
First floor, well presented flat on good street. Open plan kitchen to reception, small balcony
Sloane Gardens, Chelsea, SW1
Asking price £1,045,000
Sale Price £960,000
635 sq ft (£1,511 psf)
First floor, recently refurbished in excellent address. Separate kitchen, good sized balcony.

The Knightsbridge, Knightsbridge, SW7
Asking Price £2,750,000
Sale Price £2,750,000
845 sq ft (£3,254psf)
6th floor in prestigious development with 24hour concierge etc.

London – a global City facing global issues

It has been widely predicted that economic austerity and associated political opposition would result in varying kinds of unrest, including strikes, demos, and violent clashes.  Far from being something new to Britain, these are, unfortunately, as familiar a part of our history as they are in most parts of the world.  Regardless the particular events or incidents that “kick things off” there will always be many who will jump on the bandwagon and use such events for opportunistic theft, violence  and disorder.  Whilst serious damage was caused to a number buildings and businesses, and there were a handful of extremely ugly incidents of violence,  in reality the extent of the damage was very localised.  A number of incidents described in the media as rioting in fact amounted more to gang robbery.  None of it is pleasant or excusable but neither is it exactly a meltdown of society.

A general consensus appears to have emerged where the initial faults for the scale of the troubles lay with weak and/or inadequate policing as events first sparked off. A long term position of political acquiescence towards those who elect to, or are forced from, engaging in society had led to a deliberate softly, softly approach. However the experiences of recent days has forced a major rethink, with Cameron’s ‘hug a hoody’ being rapidly consigned to the bin and replaced by a desire to bring in zero tolerance police chiefs from the US. The political debate will no doubt rage on but for sure the UK has had a huge wakeup call and the political arguments for stronger policing, tougher sentencing and zero tolerance for repeat offenders would appear to have swung firmly to the right.

There are more than likely to be more eruptions of such behaviour over the next couple of years and not just within the UK.  Next time, though, in this country we can expect a more practical and robust police response to protect law-abiding people and property.  What lasting effect there may or may not be on investor sentiment (particularly property investors) will become clear over time – if history is a guide it will be quite limited.

I firmly believe the issues in London are connected to those faced around the world with each country’s situation of course being so very different in its constituent parts. The nature of such events are that they erupt with little or no immediate warning. In London we saw a known criminal shot by the police in Tottenham result in expressions of violence and opportunistic theft as far away as Liverpool. In lesser stable parts of the world where the imbalances are more stark, we have seen a simple street vendor being humiliated in Tunisia set off events leading to the overthrow of a 30 year old dictatorship in Egypt to uprisings in Syria and beyond.

The injustices and imbalances in the world are not going to be corrected in the near term, if ever, and therefore my simple point is that London has simply been the most recent to hear and feel the voice of the angry.

The Push and Pull effect
Meanwhile, the property market continues apace with the biggest story perhaps being the record sale of a private house an hour from London sold to a Russian Oligarch for £140m. Whilst this is somewhat extreme, supposedly this topped the highest price paid for a single home by £4m as the previous record was the reported £136m for the One Hyde Park penthouse, the strength of the upper end of the residential market continues.

As the broad UK housing market barely limps along, and will continue to do so for some whileyet I feel, the prime markets in London and parts of the south east appear very robust.

Historically property prices have been built on the ‘push’ effect from first time buyers. The simple premise being that as new buyers enter the market, typically first time buyers in their 20’s or so, prices were pushed upwards all through the chain as demand increased reducing available supply. While this remains the case in many areas, particularly where the market is not simply domestic but very localised, the situation in prime London has been quite different.

Rather than relying on a first time buyer ‘push’, many parts of London operate on a ‘pull’ factor. This is where high prices being achieved, often as a result of inflows of foreign money, pull neighbouring values up as a result. There are two classic examples of this;

One Hyde Park, SW7
Residential property prices hit their pre credit crunch peak in 2007. It was more or less around this time that One Hyde Park was first launched for sale with its target completion for late 2010. Just up the road, another high profile development, The Knightsbridge, had been quite successfully launched a year before and was achieving average prices of £1,500psf which was a good 25% over and above typical Knightsbridge prices. Hitherto highest prices achieved in Knightsbridge were to be found in Lowndes Square but the magical £2,000psf had never quite been breached.

One Hyde Park came to the market quoting unheard of figures approaching £4,000psf. To the astonishment of many the initial phases were achieving these levels. Putting aside some imaginative marketing and well spread rumours, the reality is that around 60% of One Hyde Park has been sold and average prices now being achieved are in excess of £5,000psf.

As a result of these truly record breaking price levels, the Knightsbridge is now changing hands at around £3,750psf on average and prices in SW7 have all enjoyed the pull effect of such a high profile project with average prices for the area as a whole at around £2,000psf.

Pimlico, SW1
Bordering Belgravia to the south, Pimlico used to be part of the Grosvenor Estate. The Grosvenor Estate is arguably the most valuable and best managed privately owned property portfolio in the world. Between the two world wars, so the story goes, the then Duke of Westminster (Grosvenor is the family name) had to sell a large chunk of his portfolio to cover his late father’s death duties. The area sold off was today’s Pimlico.

Separated from the Belgravia Estate by Buckingham Palace Road and free from the strict management controls of its feudal landlord, the freeholds in Pimlico were sold off. This was followed by lax planning laws allowing a plethora of guest houses and B&B’s to spring up to service the adjacent Victoria Station. Meanwhile general maintenance and upkeep became at best re-active but in no way pro-active.

As a consequence the difference between the two parts of the old Westminster estate became ever more pronounced. Eaton Square, with its grand houses and an extension to the Kings Road dissecting it, outshone the more peaceful garden squares of Warwick Square & Eccleston Square (same architecture and period) and just a short 5 minute walk to the south. As the rich and famous competed for houses and apartments in the likes of Chester Square and Eaton Place, Belgravia cemented itself as one of the most sought after and pricey areas to live. Meanwhile, Pimlico deteriorated in to bedsit land and has remained one of the cheaper locations within the prime central boroughs of London.

And so it is today. Pimlico’s story demonstrating the pull in both directions. On the one hand high prices and the ‘snob’ value of an address in the likes of Belgravia pulling up values all around while conversely on the other hand, cheap B&B lodgings and badly maintained property in Pimlico have substantially held back values over many decades.

Global inflation, Middle East upheaval, Sovereign debt...

...or why prime London property has become a store of value for many.
The world is nothing if not full of uncertainties. There are few who believe we are truly in to a new post financial crisis era and unforeseen aftershocks of significant magnitude are still reverberating……..Egypt? With many Governments still propping up their anemic economies with artificially low interest rates and commodity prices from wheat to oil applying inflationary pressures, cash remains a poor choice for the conservative investor. 

Despite all the woes of the world, real wealth continues to be created and the cash proceeds are looking for the protection of a secure and safe haven. For some the option of choice since the first rumblings of the subprime crisis in the US has been gold. However gold is up by some 150% in US dollar terms over the past 5 years implying, when compared with almost any other asset class, that this ship has well and truly sailed. 

Once more we are seeing prime London property fill the role as a wealth protector. Most noticeably this is in the prime residential market but the commercial sector, in particular prime Grade A office, has seen a significant inflow of oversees funds attracted by the perceived low down side risk. In an earlier bulletin I had noted how each decade had rather conveniently been characterized by a certain region/country choosing to divest in to prime London;

1970’s      =             Middle East petro dollars flow in to London. Knightsbridge & Mayfair will never quite be the same
1980’s      =             The might of Japan buying all in front of her, coupled with American buyers as the dollar approached parity with sterling.
1990’s      =             The  fast growing South East Asian tigers swoop as the UK emerges from a spiraling interest rate driven recession and come to the rescue of London’s Docklands, amongst others.
2000’s      =             Russia and the ex communist states of Eastern Europe show their taste for Knightsbridge & Belgravia and help establish Candy & Candy as the masters of property bling. 
2010’s      =             Expected to be the decade of the new super powers of India and China with the former a noticeable presence in the market in recent years.

With 2009/2010 having been dominated by Euro denominated buyers fearful of a PIGS contagion (21% of buyers last year were from the Euro zone), and the start of 2011 seeing a surge in Middle East activity, the next 5- 10 years look set to form the first broadly global decade in terms of investment origins. 

Rising demand in an under supplied market gives rise to some eye watering prices. 
The worst performing property markets since the financial crisis hit have been the US, Spain, Dubai and Ireland. Some 3 years on from the implosion of the US mortgage market and the knock on effect to other world housing markets, the US average house price remains around 15% off 2006 peak values, Spain anything from 20-30% depending on what article you read and Ireland and Dubai showing at least a 40% decline. The UK average house price meanwhile is around 10% off 2007 peak. Such indices of course hide a myriad of regional variances as well as differing property types (houses, flats, new build, period etc.).

Looking to the future, the UK holds a very clear distinction that sets it well apart from the other markets referred to above. Unlike Florida or the fringes of the desert in Dubai or along the Costa Brava, there are precious few dormant, half constructed schemes in the UK let alone the ghost towns of Detroit or at the outskirts of Dublin. The reason for the situation in the US and much of Europe is the massive oversupply which came on the back of all the cheap credit and speculation of the boom years. These countries are all ‘blessed’ with abundant land and relatively lax planning laws, a situation the UK can barely fathom.

The prevailing undersupply of UK housing stock has been a cause for concern over the past decade and more. Even when credit was available to all and sundry, by 2007 the UK was building 220,000 new homes against a Government stated need of between 250,000 to 280,000 new homes a year. 

In 2007, Savills Research showed an undersupply of approximately 210,000 homes nationwide, today this stands at around 350,000 but in 5 years from now the cumulative effects of the shortfall will reach over 1.1m homes. This is a broad UK problem but again there are marked differences between region to region. It is this extreme situation which leads us to believe that we are going to see rents rising very sharply across much of the UK in the near future. At some point the prospect for large scale investors to partner with experienced house builders and developers will become blatantly obvious as the housing shortage creates a rare market opportunity which will dovetail sweetly in to a new UK economic cycle. 

Central London is of course well experienced on chronic undersupply. Many of the best addresses are Grade listed or the freeholds are held by the large historic estates such as Grosvenor, Cadogan, Portman etc. Pretty well all of it lies within a conservation area which restricts any alteration to the external façade. The opportunities to build new stock are therefore massively limited. 

London did experience a brief over supply problem of its own in the early 1990’s. A recession brought on by spiraling interest rates tipped the property market in to a prolonged depression. This came about just as the grand Docklands vision was being realized. All the waste fields and brown field sites along the Thames in East London were being developed as London ‘moved East’ and Canary Wharf was set to be the new ‘City’. The result was a speculative frenzy which saw the Canary Wharf developers go bankrupt and reams of buyers walk away from their down payments on new river frontage flats.  The market collapsed but there were still hectares left to develop. It took nearly 15 years to fully recover whereas values in the historical prime areas were back to their highs, even adjusted for inflation, by 1996/7. 

QI - A few quite interesting Stats courtesy of Savills Research 

Total value of UK housing stock equals £4.156 trillion
37% of  London’s property value is in Prime London (5 of the total 33 boroughs)
70% of above is equity
One sixth of London’s total value is in the boroughs of Westminster & RBKC

83% of equity in households held by the over 45’s
53% of buyers in prime London are from overseas
40% held by over 65’s
21% of buyers in 2010 were from Europe

London’s under supply story is brought about as a result of severe planning constraints, high density of relatively low rise property, large numbers of single dwellings in prime addresses and an international  demand that appears at times to be insatiable. The combination has led to values being achieved that make the mind boggle. £10-15m homes may not be so rare these days when one looks at the usual addresses around the world where there is a high concentration of super wealthy, however prices of £6,000psf are truly rare. One Hyde Park, was recently launched…again…but this time due to its completion and handover to owners. The developers are masterful at PR and therefore it is difficult to obtain factual information, it is however generally accepted  that around 50-60% are sold. The developers claim they have achieved £6,000psf recently and we know, from our own contacts, of deals agreed at around £5,000psf. By contrast £2,000psf is still a relatively upper end average for Knightsbridge. 

One Hyde Park is perhaps the most discussed development but diagonally across the park the new Northacre development, The Lancasters, have recently achieved £3,000psf.  The Knightsbridge, a development of 4-5 years back within sight of One HP, consistently achieves over £3,000psf, some touching £4,000psf, as do the prime addresses of Belgravia and Mayfair (Eaton square and Grosvenor Square for example). 

To infinity and beyond? 
For someone who can remember back in the late 1980’s when a developer called Regalian stunned observers on achieving £500psf for a development looking over Kensington Palace, I have to pinch myself hard to come to terms with some of today’s prices. As a warning of records being broken, I also remember the days when the Imperial Palace in Tokyo was said to be worth the same as the whole of California and this was then followed by two decades of stagnation (given California’s current dire situation, history may be repeating itself!).  However looking at what prices were is no indicator as to where they are going nor where they should be. As far as Tokyo is concerned, despite it being a thrilling and exciting city, I cannot think of a city least likely to attract foreign buyers on the same basis that London attracts.

Fundamentally the UK housing market is a story of critical under supply. The next few years will see areas of the UK hit very hard as the cuts and fallout from the recession bite, statistics on undersupply figures will appear meaningless for some time in certain parts of the country as unemployment and wage deflation erodes any chance for rents to rise by any great margin, let alone houses to be purchased. Meanwhile, the South East of England and the perimeters of London, in seeing the best of an economic recovery soonest, will see upward pressure on rents and the first indications of banks willingness to revert to more traditional lending.  In fact several mortgage products have been released in recent weeks which point this way including a few buy-to-let deals. 

For London the pressure on prices will remain intense. Areas like Stratford (Olympic regeneration) and south of the river in East London (Greenwich/Woolwich) will provide much needed new supply for more affordable homes. Prime London is set to retain its global appeal. Even in these challenging times, and as long as we are seeing wealth creation in some significant part of the world, it is hard to see a scenario where prices will show any significant fall or owners rushing to exit. As mentioned in earlier bulletins, prime London is generally a softly geared market and is therefore insulated somewhat from sharp interest rate hikes. 

On a simple dynamic of supply and demand, the long term future trend seems set for prices to continue to rise……but maybe an average £6,000psf is still some time off!

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