The current period of declines in PCL has now lasted for almost as long as that recorded in the early 1990s, according to the just-in Q2 data from the big agency research houses, but there are still examples of buyers paying record prices for truly exceptional properties. Here, Andrew Richards, the joint MD of one of London’s best-known design practices, Studio Indigo, advises developers and private clients to remain focused on quality and longevity if they want to stand out in these difficult times…
The very top end of the market within Prime Central London property continues to see activity but at significantly reduced levels – whether that is through investing in existing properties or the purchasing of new ones, there are some serious buyers out there. There is no doubt that the property market has been taxed to the absolute limit, making transactional costs an excessive barrier and removing huge swathes of the market. There is a shortage of stock, as sellers are reluctant to pay the prohibitive SDLT cost, but also a shortage of buyers for the same reason.
However, the residential market has seen a huge price adjustment – with reduced prices creating some attractive opportunities for savvy buyers – whilst the commercial market continues to go from strength to strength, bolstered by the weak pound. The question is, has the market reached a turning point?
The key difference with the market of four years ago is that potential buyers know that they have more time, largely because the speculative developers have disappeared together with over-inflated prices. Buyers and developers have been pushed too far with exorbitant taxes and the market has fallen beneath them. Creswell House in SW10, for example, was originally marketed for £37.5m in 2016 only to fetch less than £20m earlier this year. This deal is one example which shows there are still cash rich buyers looking for a deal and taking advantage of a weak pound and currency fluctuations to keep the top of the market moving, albeit slowly.
The reality for most estate agents and developers is that business is quiet, with sales and purchases hard to come by. Many agents have reduced size or refocused sales teams, whilst many developers have left the market altogether. There are a few that continue to perform, with Russell Simpson seemingly bucking the trend for estate agents and Clivedale Ltd continuing to sell properties at exceptional prices.
There has, however, been a noticeable shift in perception since the end of last year – there has been an acceptance of post-Brexit uncertainty. Buyers know that there may well be another two years before Britain’s future position becomes clearer, but the reality has set in that there are far worse things going on in the world, and London still represents a safe haven – in all aspects – not just property. London remains the billionaire capital of the world, claiming more than 100 of the world’s 2,200 billionaires and, in the last year alone, billionaires added an average of £738m to their fortunes.
Compared with last year, there are now more people looking for top-end property registering with estate agents and there is also a greater appetite to buy, although this remains some way off the dizzy heights experienced a few years ago. There are some potential signs of that starting to happen with mid-range properties in the area, too. However, those who need mortgages have the added uncertainty of what will happen with interest rates and the price of more affordable properties will take longer to recover.
Back at the very top level, Brexit is possibly the saving grace as this has actually helped the market keep moving as the pound remains cheap and the majority of buyers at the top of the market are buying properties in foreign currency. In the last three years there has been a noticeable increase in Indian, Chinese and Malaysian buyers at the top end of the market – while British buyers have become an increasing rarity. They have either been downsizing or moving out of prime central London altogether.
The single biggest drag on the market, at just about all levels, is Stamp Duty. Paying a large amount in tax is a massive turn-off for any buyer and increases the transaction cost to an unattractive level. Without Brexit creating a cheap pound, the market would have been virtually non-existent for the last two years. The current political uncertainty with Russia and the devaluing of the rouble, combined with the tightening controls on spending by Saudi Arabian officials, has seriously depleted two important groups of buyers.
This situation is worsened by the UK Government’s attitude to wealthy British and foreign individuals who are on the point of being hounded out of the country – an incredibly short-sighted approach
This situation is worsened by the UK Government’s attitude to wealthy British and foreign individuals who are on the point of being hounded out of the country, taking their money and taxes elsewhere – an incredibly short-sighted approach. The direct and indirect losses to the UK economy are vast and completely ignore the trickle-down theory. The lack of spending from property sales and development has caused job losses across the industry with designers, builders and estate agents being hardest hit. In turn that reduces spending in local shops, restaurants and pubs as well as across the economy generally.
In terms of what people are buying at the top end of the market, serviced apartments are probably most in demand – people want a place with good security and excellent facilities where they can close the door and not worry about anything. They are an alternative to staying in a hotel and so there is a demand for anything from two bedrooms to significantly larger apartments. Clivedale Ltd, who are building a number of serviced apartments offering the highest level of service and quality, continue to attract buyers at a large premium.
So, whilst the market has undoubtedly slowed, and the nature and speed of transactions have changed, there are still examples of people paying record prices in Prime Central London. The world’s richest have got a lot richer and if more than one of those people want a particular property, the resulting price can be extraordinary – £10,000 or even £11,000 per square foot has been seen recently.
There is one essential characteristic which links all of the properties which continue to do well; exceptional quality. This can be in terms of the standard of finish, the architecture, the interior design, the garden or, at the very top, a combination of all four. Many of our projects have achieved record sale prices, either in terms of overall sale price or £’s per square foot, because there are no compromises. The key thing for those developers and private clients that do remain is to not cheapen their product and to remain focused on quality and longevity, which will stand out in a difficult market.
If more than one of those people want a particular property, the resulting price can be extraordinary – £10,000 or even £11,000 per square foot has been seen recently
It is too early to tell whether the Prime Central London market is going to mount some sort of sustained recovery, but if the UK government continue their attack on wealthy individuals then the situation will only worsen.
Should a more realistic rate of SDLT be announced and a more welcoming approach to high net worth individuals be adopted, we could see an almost immediate and drastic improvement.
So, whilst life at the top continues, and we are still very busy, it remains a difficult and unpredictable market for the foreseeable future.