London penthouse market reaches dizzy new heights

Penthouses now account for sales worth more than £1billion a year and represent a booming sector of London’s property market, according to research by a leading international property advisor.

Penthouses are being developed across London, but vary dramatically in price, although it is now impossible to buy a penthouse in the capital for less than £1million, the same research by CBRE showed. While it is possible to find penthouses priced between £1.5million and £3million in Islington and Camden for example, in prime Central London the starting point for penthouses is closer to £4million. In the most desirable boroughs prices average £13million and can easily top £4,000 per square foot.

On average, penthouses sell for a 60 per cent premium over the rest of a development, and can account for 20 per cent of a project’s gross development value.

Mark Collins, CBRE head of residential, commented: “Penthouses of the quality on sale in London now cement our capital’s new status as a home-from-home for the super-rich as well as providing an invaluable store for their wealth. With the burgeoning volume of billionaires in the world and the increasingly international appeal of prime London real estate we anticipate that the penthouse market will continue to be a very exciting and elusive space going forward.

Other findings from the research showed that penthouses these days have a range of features, including a private entrance or lift, a library or office space and additional suites for guests or staff. It’s not unusual for buyers to demand strong security measures, such as bullet-proof windows, a panic room and even retina recognition systems.

The most requested features by penthouse buyers in London are: high floor-to-ceiling heights, with glass wrap-around; generous outdoor space – up to 20 per cent of the floor area; luxury specification, notably better than the rest of scheme; being at the top of an iconic tower and designed by a leading architect; top appliances with ground-breaking technology; a broad range of facilities and additional amenities in development; state of the art security; spectacular views over the city or a park; location, location, location!

More prime London homes being bought by foreigners than by Britons

Foreigners have overtaken Britons as buyers of desirable London homes after research showed they bought more than half of prime residential homes sold in the capital in the past year to April 2013.

A report by international estate agent Knight Frank showed that overseas buyers accounted for 52 per cent of all £2million-plus residential properties sold in prime central London (PCL) between March 2012 and March 2013. The surge in sales to foreign buyers was led by citizens from Russia, China, the US, the United Arab Emirates and India.

In terms of market share, Russians bought 8.5 per cent of £2million-plus London homes sold in the year to April 2013, followed by buyers from the UAE, US and China, with each accounting for 2.8 per cent, while India accounted for 2.6 per cent, Hong Kong 1.8 per cent and Switzerland 1.1 per cent. Sales to citizens from Eurozone countries as a whole accounted for 9.5 per cent.

The same report showed that there is more buoyancy in the £3million-plus market than the £2million-plus market. During the year to April 2013, the number of properties priced between £2milion and £3million fell 16 per cent year-on-year, while sales of £3million-plus homes were steady. The increase in stamp duty on sales of property over £2milion to seven per cent from five per cent and the introduction of a 15 per cent charge on sales through offshore companies are likely to have caused this effect.

The attraction of prime real estate in London has been strengthened by the UK’s low interest rates, weaker Sterling and the appeal of owning an immovable Sterling asset in a buoyant and desirable destination.

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.

London property values supported by the weaker pound

Property prices in London rose 5.5 per cent in the year to January 2013, meaning the average cost of a home in the capital is now £403,000, higher than at the pre-crisis peak of January 2008, according to recent figures from the Office for National Statistics (ONS).

Much of the appreciation has been driven by demand from wealthy foreign buyers, especially those from Eurozone countries whose buying power has been strengthened by the on-going weakening pound. The pound is yet to come close to reaching last year’s highs of £1/€1.28 seen during the summer, before the European Central Bank announced it would do whatever it took to save the euro, thereby triggering the single currency to begin a steady climb against the pound. Even with the current banking crisis in Cyprus denting confidence in the Eurozone, the pound today (29th March: £1/€1.186) is still weaker against the euro than it was at the start of the year (1st January: £1/€1.231).

Similarly, buyers with dollars to invest in London have benefited from an increasingly strong greenback. Since 1st January, the pound has plummeted from £1/$1.626 to £1/$1.521 (29th March).

“On high value London property of a million-plus Sterling, it doesn’t take a huge shift in the exchange rate to make a considerable saving on the price for a foreign buyer with euros or dollars in the bank,” said Julian Walker, an international property consultant. “London property is always attractive to the international market, but the recent wobble in the Eurozone with Cyprus has increased the safe haven status of immovable assets here, hence I’m not surprised by the ONS data.”

Indian Investors Overtake Chinese as Dominant London Buyers

According to the latest data from leading estate agent Savills, Indians are now the biggest foreign buyers of London property, overtaking China for top spot.

India’s economy continues to grow rapidly, the middle classes are growing and more and more people are becoming wealthy enough to invest in property on a grand scale. With the Indian property market now showing signs of failing, more Indian investors are looking abroad and apparently now London is becoming one of the favourites.

“There there are more buyers coming from India and Pakistan than China – and they’re spending more,” the Savills report said. “This group is now the most important to the London market among the emerging economies.”

India, once a beacon of hope for the international property market, is now looking just a little too much like Dubai in 2008 for my liking. Developers’ sales and profits are turning downwards, which is making the banks increasingly wary to lend. This drop in liquidity, combined with falling sales and profits has left many developers looking severely overleveraged. Like Dubai many of these now stricken-looking developers are in the middle of constructing mega projects in India’s cities.

Indian investors are looking to invest abroad, and London’s booming market is looking incredibly attractive. London property prices have been growing consistently since mid-2009, and most areas have now recouped any ground lost during the crisis. Now, as all the UK joins in a rental market and buy to let boom, London once again booms bigger and brighter than anywhere else.

The UK housing market saw prices fall heavily throughout 2008, continuing the first signs of a crash starting in 2007. But in mid-2009 the indices turned positive and by March 2010 house prices had grown by 8.1% year on year according to Land Registry data. However in Kensington and Chelsea, arguably the prime borough of London prices grew by 19.4% during the same period according to the same Land Registry data.

The market has since turned again, and in the England and Wales as a whole prices fell 1.7% in the year ending March 2011, meanwhile in Kensington and Chelsea prices continue to grow, and were up 4.8% in the year ending March.

This growth has been attractive to foreign investors for sure, but they have also played their part in it. First attracted by the fact that prices in London had fallen, which combined with the weak pound made it a bargain too good to miss and foreigners from around the world poured in. Foreign demand for London property has been growing since 2009, and is incredibly strong in 2011. Demand from India and wider Asia is currently thought to be the fastest growing, having been slow over the past 2 years when Asian markets were booming.

 

Property in UK has Never Been So Alive

Though it comes at a very strange time, and for a set of very strange reasons, the UK property market has never been so alive.

This is because the rental market is experiencing a boom, which is fuelling a boom in the buy to let sector, which could have the potential to finally breathe some life into the market as a whole.

But, of course, the London and south west don’t need mouth-to-mouth; prices have been rising here since mid-2009 and prices and rents are growing the strongest there in this boom. But in the rest of the country prices have mostly been either falling or stagnating since 2007. Sure, reports throughout showed all indices showing UK house prices rising, but the consensus of opinion is that this growth was driven by exceptionally strong growth in the south, and only a slightly better performance in the rest of the country.

Thank fully the same cannot be said of the rental market; in fact according to the latest LSL Property Services (parent company of Reeds Rains and Your Move) buy to let index rents rose in all regions in September, for the first time on record. According to the index, which is based on a representative sample of 18,000 properties across the UK, the average rent in England and Wales rose by 0.7% to £718 per month, surpassing the previous record high of £713 in August 2011. Rents in London grew by 5.2%.

That the UK rental market is booming is hardly surprising; because house prices never fell as far as expected, and because, of the few first time buyers with credit immaculate enough to get a mortgage, most can’t raise the deposit they need to to be able to afford a mortgage on a house in their area. When first time buyers can’t buy, they rent, and this is on top of the thousands of people who lost their homes to the credit crunch and were forced into renting.

Landlords across the country have been reporting unbridled growth in demand for several months now, and the banks have been increasingly willing to lend to the buy to let sector, offering a range of new products to cater to their needs. It is ironic that buy to let should be seeing such increased lending, when many people were quick to call its permanent demise at the height of the financial crisis, but anyway…

Most residential property investors in the UK with capital to invest are currently increasing the size of their portfolio. At the same time we have wealthy buyers from around the world buying up prime assets in London, because they are a safe asset against the world’s financial volatility and currency devaluation, and also because of the rental demand and subsequent investment potential. In short: the UK property market is alive.