Appetite for London property at pre-credit crunch levels

Demand for residential real estate in London grew three times faster than supply during the first quarter of 2013 and is now at levels not seen since October 2007, just before the financial crisis triggered a property crash.

Figures from property analyst Hometrack also showed that homes in London were typically on the market for just 4.6 weeks in April, which is nearly half the period of more than eight weeks seen at the end of 2008, regarded as the peak of the financial crisis. In addition to that, the proportion of the asking price achieved in the capital was over 95 per cent in April – a level also not seen since summer 2007.

Land Registry market data released this week reinforced the bullish state of London’s property market, highlighting that the average selling price of a property in the capital has reached a new record of £374,568. In the desirable borough of Kensington and Chelsea, the average property price has risen by 12 per cent since March 2012 and now stands at £1.1million. Prices across the whole of London grew by nine per cent last year.

“There’s little doubt that demand from foreign buyers investing in London property, which they see as a secure immovable asset during turbulent economic times, is contributing to this on-going growth in value,” said international property specialist Julian Walker of Spot Blue. “Prime and super-prime properties in particular continue to appeal to high net worth individuals from ailing Eurozone nations, as well as the Middle East and Russia. Another recent report by Knight Frank proved that London property is seen as a safe haven asset – while prices of luxury property continue to rise there, the average price across all international cities has been falling.”

£250million – a record price tag likely to attract foreign buyers

In the same week that one of the wealthiest owners of prime real estate in London, the Grosvenor Group, speculated about a bubble in the capital’s property market, a house around the corner from Buckingham Palace made the record books by going on sale for a reported £250million.

The Grade1 listed Regency mansion on Carlton House Terrace in St James’s is said to be owned by a Middle Eastern royal family, who are keeping its sale an exclusive and private affair for security reasons. One thing that’s not a secret is that the property’s next owner is also likely to be of foreign origin.

With 50,000 square feet of living space – nearly as much as a football pitch – set over six storeys, the property stands out even in the super-prime real estate market, hence only the world’s mega wealthy will be offered the chance to browse the property’s brochure, the photos of which are said to be black and white images from the 1890s. If sold for the full asking price, the stamp duty alone would be £17.5million.

To give the sale some perspective, the property’s price is 1,537 times more expensive than what the average UK house sold for last month, namely £162,606. In terms of size, it is 30 times larger than a typical London family house.

Even by London standards it’s a staggering price tag. Last year, more than 400 properties were sold for more than £5million, up from 350 in 2011. Kensington’s Egerton Crescent is rated as Britain’s priciest street, where the average house price is just £8million!

London beginning to feel the Crossrail effect

The effect of the pan-London Crossrail project on the capital’s property market is gaining momentum, to the extent it is expected to create £5.5 billion in added value to residential and commercial real estate along its route between 2012 and 2021, according to a recent study by GVA, the UK’s largest independent commercial property consultant.

Crossrail, currently the largest construction project in Europe, will link Berkshire and Buckinghamshire with Essex via Greater London and should become operational in 2018. The value that Crossrail’s improved transport links will bring is already filtering down into real estate projects, both residential and commercial, as highlighted by Crossrail Director of Property Ian Lindsay recently: “Recent property deals have highlighted the ‘Crossrail factor’ as a growing influence on London’s property market. It is encouraging to see major UK and international firms citing Crossrail as a catalyst in pushing forward existing schemes and an enabler in identifying new development opportunities. With our own property plans also making good progress and plenty of commercial opportunities still in the pipeline, Crossrail will continue to be a key driver in the future development of London.”

It is estimated Crossrail will support the delivery of over 57,000 new homes and 3.25 million square metres of commercial space. Significant property investment could take place at locations  including Canary Wharf, Farringdon, Whitechapel, Abbey Wood, Custom House, Ealing Broadway, Southall and Woolwich.

Meanwhile, in January, CBRE Global Investors acquired two central London properties (110-113 Tottenham Court Road and 83 Clerkenwell Road) in a £20m deal, highlighting Crossrail as a key factor in both acquisitions. Michael Ness from CBRE Global Investors said: “We believe that these two acquisitions will be major beneficiaries of the Crossrail development, as infrastructure improvements are already adding to the commercial attractiveness of both Clerkenwell and the Tottenham Court Road area.”

Investment from wealth funds a shot in the arm for London property

London’s property market is expected to benefit from growing interest from global sovereign wealth funds, as immovable assets in prime locations around the world become a more attractive asset class in today’s unpredictable economic climate.

Historically, sovereign wealth funds (SWFs) have invested in bonds and, more recently, equity markets, as a form of alpha-generating asset. However, a new report has shown they are now looking to diversify into other asset classes, including property, thanks in part to the protection it offers against inflation. Overall, SWFs are predicted to hit a record $5.6 trillion in assets this year, with the UK being the second most popular destination for investment.

Chris Cummings, Chief Executive of TheCityUK, which published the report, commented: “The increased investment in property by SWFs is a boon for London, which is a prime real estate location and seen as a safe haven market for investors. The UK is a leading destination for SWF investments, accounting for one sixth of global investments since 2005, second only to the US, and attracting more capital than France, Germany and Spain combined. These investments bring numerous benefits to the UK economy, including new jobs and capital for vital infrastructure projects.”

Recent SWF transactions in London and the wider UK property market include China Investment Corporation’s £245 million purchase of Winchester House, the London headquarters of Deutsche Bank. Gingko Tree Investment, part of China’s State Administration of Foreign Exchange, has also splashed out more than $1.6 billion in at least four deals, including water utility, student housing and office buildings in London and Manchester. Meanwhile, the Korea Investment Corporation, the State Oil Fund of the Republic of Azerbaijan and Norway’s Government Pension Fund Global all invested in London real estate during 2012 too.

 

London shines on world’s luxury property stage

London has topped a new index ranking the world’s 10 most important cities or destinations for luxury residential real estate, thanks in part to achieving the highest sale price of £75million ($121million) in 2012, behind New York’s $88million.

The rankings, published last month, are part of a report by the global prestige brand, Christie’s International Real Estate, which compares the property markets of London, New York, Hong Kong, Paris, San Francisco, the Côte d’Azur, Toronto, Dallas, Los Angeles and Miami. Property markets in each were assessed according to key metrics, including record sales price, prices per square foot, percentage of non-local and international purchasers, and the number of luxury listings relative to population.

The report showed that prices for luxury homes are being pushed toward historic highs by limited inventory, strong international buyer demand and high-net-worth individuals’ (HNWI) increased appreciation for world-class lifestyle offerings.

“With financial markets providing a limited return on investment, high-net-worth individuals are recognizing the intrinsic value of investing in non-consumable assets such as prestige real estate and fine art,” commented Bonnie Stone Sellers, Chief Executive Officer of Christie’s International Real Estate, a subsidiary of Christie’s auction house. “Strong momentum in the luxury property market is also being driven by scarcity of quality inventory and demand from international buyers in many of the world’s top destinations.”

Globally, top-tier property sales achieved record prices in several cities, remaining immune to many of the economic concerns that drive the general housing market, confirmed the report. Findings also showed that HNWIs are often more inclined to invest in additional homes in an important global market than in another city within their home country, cash transactions have dominated luxury property acquisitions across many studied cities and recent tax law changes in many markets are expected to impact 2013 market activity.