'Hold on tight and look for a break in the clouds': Inside the London Prime property Market

A friend of mine once described nighttime in the central London Square he called home as the quietest place in the country. The huge number of properties owned by absent, overseas investors really did mean that all the lights were out, and no one was at home. I wondered if this still holds true, but reading the thoughts of our expert panel, it sounds like - despite the seismic changes we've all been through - perhaps the Central London Prime Property market has seen less change than most.

There's a consistent thread from all of our contributors - hold firm on price, look to the long-term, and remember how the London market has always offered a safe haven. In these uncertain times, let's hope it continues to do so.

Nick Portet - Editor

Robert Evans, Founder of Property Wealth Management:

PWM has recently engaged in repositioning clients across our acquisition, residential asset management and managed sales offerings.

Looking at our successful managed sales during 2020, it is clear that taking sound advice on pricing is vital for success. PWM does not work on a percentage commission, so advises our clients on pricing that is based on the prevailing market and we are not influenced by our own commercial concerns in getting deals done! A recent example was a property for a client who was an expatriate in the UAE, a Lawyer, returning to Denmark after 20 years and looking to dispose of his house which has been an investment property in Central London.

We valued the property, instructed the agent on PWM terms and delivered the desired result of a completion by mid-July 2020. The client is now happily retired in Denmark with the proceeds of that sale adding to his enjoyment and lifestyle.

We have also worked with acquisition clients in this period and have successfully negotiated terms meeting their brief. Again, we didn't work on a percentage basis and instead worked on a fixed fee. We also utilise an independent RICS surveyor to value properties once we are in the bidding process.

On the rental asset management front, all properties that have been available through PWM, have now let. In the main, we are seeing a reluctance to increase rents this year, but we're holding fast on rent reductions which are being attempted by some tenants. And looking at things on a case-by-case basis as there are a lot of new factors - the least of which, is the notice period the landlord has to give his tenants and the new Covid-19 guidelines.

So, to recap, price is extremely relevant. Estate agents are very keen to reduce prices - sometimes without good comparable evidence. And it is our job as the property advisor to ensure that are clients are getting an optimum return depending on the brief given by them and the circumstances under which they give their requirements.

Islay Robinson, CEO at Enness Global Mortgages:

Every time the clouds pass, international money floods into the London property market - the brief period of time between the Brexit withdrawal agreement and the start of the Covid pandemic clearly proved that, and there is still clear signs of pent up demand.

The market has had a list of challenges over the last decade: Brexit, Covid, austerity, stamp duty, tax changes for enveloped properties, IHT and more but the view is still widely held that you should never bet against the London property market. It remains central to the financial and cultural worlds, is politically and legally safe and remains top of many an investment list.

The key is to buy well, to finance correctly and to hold. Right now, starter homes and one to two bed properties with gardens are in high demand given the stamp duty holiday. Newbuild apartments are only good value if you can negotiate a significant value. Four plus bedroom houses with gardens are like gold dust in the £2-£10 million range, but only in the right areas. And don't touch anything over £10 million unless it has outside space.

Finance wise - interest rates are very low; mortgage availability remains very high if you can show either income or wealth and there are still very strong reasons to borrow money to acquire property.

Dominic Wertheimer, Director at Lornham:

Whilst Covid-19 brought global markets to a shuddering halt, for the central London property market this translated into a reduction in volume of transactions. However, this was shortly followed with activity quickly returning as investors (mainly overseas) were keen to capitalise on what they saw as a good entry point.

There have been some opportunistic transactions - we agreed an acquisition at £3.65m for a property that had been agreed previously at £3.8m on a guide price of £4m.

Management opportunities have seen a sharp increase - we have received multiple calls from lawyers who are at a loose end with their clients unable to be present for an effective takeover on completion days.

Landlords are looking for proactive property managers who can sweat their asset to maximise their yield and minimise void periods. Likewise, homeowners are realising the need for effective home management given some have not and will not visit their London home for some time.

Stock levels remain low as does our interest rate and therefore the cost of money for purchasers. Furthermore, political uncertainty (Middle East, China) has seen a deployment of capital from these regions into London residential property which continues to be seen as a safe asset class for HNW clients. Whilst we shall see a sticky market in the short term this will present suitable opportunities for the long-term property investor.

Justin Mason, Director at Justin Mason Valuation:

Is the Market in Prime Central London Stronger than you Think?

"How strong is the market? Can it weather the storm? Do you think prices are rising or falling? Do you think I should sell or buy now?" All perfectly natural questions.

Our valuation reports contain a market commentary that presents the story so far, helps the client to decide what to do and sets the scene for the valuation.

So, what is the story so far?

• The period after the Global Financial Crisis of 2007/2008 saw high asset price inflation because of quantitative easing and its consequent low global interest rates. Large amounts of global capital sought safe-haven assets during this period with prime London property identified as suitable for many wealthy investors. Supply became outstripped by demand from numerous buyers, many of whom were cash-rich, and this led to a rapid increase in prices.

• One of the key drivers of prime central London's recovery was its reputation as a safe haven. Also, the weak Pound offered increased buying power for many nationalities. Given the successive upheavals in the Eurozone and the Middle East, London property became an attractive investment option among wealthy Europeans keen to diversify away from Euro denominated assets and those seeking shelter from political uncertainty overseas.

• Prime central London prices continued to climb through 2012, yet much of the year was dominated by uncertainty given the proposed tax changes for high value properties, especially those held in a company structure. The market absorbed several successive increases in stamp duty land taxation over this phase. Then, at the end of 2014, further increases in stamp duty led to price falls as the market adjusted to a new tax environment as well as the tapering of quantitative easing and increased expectation of rising global interest rates.

• With an increasingly stringent taxation regime, greater transparency of ownership, and political and economic uncertainty that included the Brexit Referendum in June 2016, prices continued to fall between 2014 and the present day.

When assessing just how far the market has fallen since its peak of 2014/2015, most commentators' first point of reference has traditionally been the agents' indices that are published by the larger property consultancies. Whilst the coverage of each index will vary, a sample of the agents' indices confirm a fall of between 15% and 20% since their peak.

Indices are based, however, on the valuation of a basket of hypothetical properties and, being opinion-based, are not a strict record of actual sales transactions. As such, we decided to contrast them with achieved prices as recorded by LonRes and with the broad Land Registry index for The Royal Borough of Kensington and Chelsea.

Our findings were that achieved prices as recorded by LonRes fell by under 10% and that the Land Registry index for RBKC fell by close to 5%.

So, is the market in prime central London stronger than you think?

It could be, but this depends on your viewpoint and exposure to the market. Each property is unique and performs in its own way in relation to the market at large, but indices and records of achieved prices are important and can influence a decision whether to change ownership structure, how much tax should be paid or whether to acquire, dispose or refurbish a home or an investment.

In our research, we have collected the data that counts for good governance, including overall transaction trends, price history, average discount to asking price and time on the market, along with an overview of published forecasts. A copy of our latest research can be obtained here.

This research was created because of the need for continual review when holding these assets. Properties are expensive, they're illiquid, and commitment to them must be over the long term, especially given the high costs that are associated with the transaction.

We feel that by providing regular reviews and research, we're giving our clients and contacts a clear picture and a greater degree of ability to manage their risks.

Reviews and research are no replacement, however, for a formal valuation that's backed by a substantial amount of professional indemnity insurance.

It's the valuer's knowledge and skill that allow them to dig deep below the surface of the digital data to provide forensic analysis and an opinion that's robust enough for the client to sleep at night. Clients deserve to know who is at the coalface, preparing the valuation rather than trusting the strength of their employer's brand.

As was seen during the financial crisis of 2008, valuation uncertainty clauses have appeared in reports and there is widespread concern that valuers, uncertain of the strength of the market, could seek to use them as a defence if faced with a claim in future. Whilst it's true that there is an element of uncertainty in the market, it's the mark of an experienced valuer and a specialist that they can help their clients see their plans come to fruition without falling back on blanket caveats that do nothing but undermine confidence.

What do we see in the market at the moment? In short, agents are extremely busy but there's very little data on Land Registry-derived sources. Valuers are having to rely on the strength and quality of their relationships with everyone involved in the market be they estate agent, acquisition agent or property lawyer to get the details about sales transactions and how to interpret their research. Accurate valuations come from information and analysis of the highest quality, and these things just don't come from the internet or a hurried phone call with a stranger.

The picture that we have is that the core market below £3M and parts of the prime market between £3M and £15M, especially to the south west and north of the Capital are exceptionally active at all levels except for first-time buyers. This is driven by domestic buyers, many of whom had time to consider their quality of life during lockdown and the strengths and weaknesses of their existing accommodation. Areas like Mayfair, Knightsbridge and the Hyde Park Estate that have a strong international bias are extremely quiet, but agents have stimulated activity in areas like Chelsea, Kensington and Notting Hill by quietly offering property "off-market" to present a window of opportunity that is real or imagined. Those agents who are busiest have clients who hold their wealth in Dollars, and this is especially evident in the super-prime market above £15M where there have been a number of landmark sales. Whilst there remains a strong appetite for property that is brand-new and set in a secure, managed development, there is a rising interest in property that is suitable for redevelopment at every level, including super-prime.

In conclusion, the long-term results of the pandemic remain to be seen, but the performance of prime central London since the peaks of 2014 / 2015 and recent months show it to be a robust and durable market that has every chance of weathering the storm.


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