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A rising tide lifts all ships. The corollary of this aphorism is that, as the tide goes out, there are a few barnacle-covered bottoms on display. So it is proving with the property market. The tide analogy is perhaps too laden with other words like ‘fall’ and implies a predetermined rhythm of events. Things rarely work out like this – as Mark Twain wisely said, ‘History does not repeat itself but it often rhymes’. Where we do seem to be is at some point of ebb, where things are changing.
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When we last commented on the market in July, the Governor of the Bank of England had clearly become bored with raising his eyebrow and nobody taking any notice. His sharp ticking-off to the sixth form echoed round the school, rates went up a tick or two and the feverish mainstream property market seems to have slowed down dramatically in the autumn as both press comment and mortgage providers, under a tighter rein, did their bit as well.
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| In our market, ‘international’ London and the upper end in the country, things have been less dramatic because, contrary to popular belief, prices have been pretty well flat for the last three years and interest rates have less impact than international events and the climate in the City. This may sound odd to country buyers caught up in bidding wars for the best houses – what they are currently seeing is catch-up with a London market that had outpaced it through the nineties – but what we have increasingly seen is a decoupling of the excellent from the mediocre in all our markets – hence the comment about bottoms and barnacles. |
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| This has been particularly evident in the new-development market where we have been consistently sceptical as to whether it has been a sensible way to get ‘value’ in the property market – the same ‘value’, in our view, as buying a swanky car out of a Mayfair showroom. However, in the same way as there is no such thing as the property market, only a myriad of micro-markets, there are definitely developments and developments. For instance, The Bromptons – a former hospital with air-conditioning, swimming pool and parking in the very best bit of residential London -has always been expensive to buy (currently circa £1300 per square foot) but it has always sold expensively as well. All the ticks are in all the boxes and, in an increasingly international market that wants flats with all the toys, it is truly blue chip. As an aside, £1300 per square foot equates to €22,000 per square metre – a figure that has Parisians squirming with disbelief; at least the carpeting will feel cheap. |
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| There are other equal class acts in London, though location is certainly not enough to guarantee blue-chip status. The Knightsbridge, now being marketed with a big fanfare, is certainly expensive enough – up to £2000 per square foot – but the jury is still out as to whether the hotel-style services will be good enough to overcome some rather indifferent views and, at over two hundred units, a somewhat saggy sense of exclusivity. At just over sixty units, The Phillimores, on Campden Hill in Kensington, with great views, ceiling heights and facilities, has that intangible smell of a class act – which tends to be valuable long after the marketing suites and canapés have moved on. |
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| In contrast, there are developments, particularly some of those labelled ‘Chelsea’, which are far off blue chip; they are no more Chelsea than is Fulham Broadway (the nearest tube and an invigorating walk to boot). Nor are they a village (as the marketing blurb would have you believe) any more than they are exclusive – there will be more than two thousand new units there over the next few years. In the inimitable London way, these are being built with a new tube line running North-South which is going to be of limited appeal to many of the target audience who, you would not need to be a clairvoyant to suppose, might be employed to the East and will want easy access to Heathrow (West). When their cars all meet on the King’s and Fulham Roads, joining their colleagues coming in from the South-West over the only two arterial bridges, there is likely to be, to paraphrase the unlamented dictator, ‘the mother of all traffic jams’. |
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| It is in developments like these where the barnacles are beginning to show. Markets that are moving sideways have a habit of showing up the less good buys and there are buildings, completed around the Millennium, where there are more than a handful of flats that are not selling and, as usual, the main reason is price; that those asking prices just happen to be above the price at which they were bought may be saying something. Many of these investors have been Asian, buying their properties off-plan from developers’ road shows; a general characteristic of this market sector is an unwillingness to take a loss, so the true picture may be worse than the limited second-hand sale market is indicating. The 15% developer’s premium is more difficult to remove in the wash when the trend is not your friend. |
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| This is not meant to sound churlish – though, if we were fund managers, we would certainly call ourselves stock-pickers rather than momentum investors. The truth is that the smart investors were those that bought in 1992/3 and those same Asian buyers were those that identified a bargain in the wake of the ERM crisis and did something about it – they may have been better off buying a tired Kensington house than a Berkeley Homes flat, but the clever thing was to have bought. |
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| It is also not meant to imply that our market is heading south. We said in July that a completely normal autumn pattern is a lassitude and lack of buyer enthusiasm, matched by opportunistic (and greedy) vendors. So far, if anything, the autumn has been busier than would normally be expected both in London, the country and in the rental market. The tone is cautious rather than speculative – people are happy to buy because they think the market is stable but they don’t expect to be seeing much in the way of an immediate increase in what they buy. As always in the country, and perhaps more surprisingly in the upper reaches of the London market, the problem is more one of supply than demand. At the other end of the scale, among under-let, buy-to-let flats, the tightening of liquidity is giving fewer buyers more choice – which is being reflected in prices as well as turnover. |
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| As for next year, there seems to be very little consensus – but then it might be wise to worry if there were. Rather, there seems to be an increasingly polarised view on the world economy – monetarist-dollar-doomsday on the one hand and business-cycle Keynesians on the other, with everyone looking at Iraq and its surroundings with increased dismay. Things are rarely as bad, or as good, as the polemicists would have one believe, so, as professional fence-sitters, we would plump for much of the same as this year – but without the catch-up that put the turbo-charge into the first few months. Amongst the commoditised buy-but-not-much-let market, there may be a less sanguine outlook, as the only market for many of these units are first-time buyers – and given the likely buyers’ market, they might well decide to carry on renting. |
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