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Tales from the Front Line

James Geddes

The ongoing British fascination with the weather means that one regularly hears “It's too hot” especially in London during this current warm spell. So, spare a thought for those that come here for our summer from hotter climes.

What relevance has the weather to the property market you may ask? Well the link is clear. Whilst the British, Northern European and American buyers head off for their summer holidays, their position in the central London property market is filled by other nationalities, such as those that come to London to escape the oppressive heat of their own countries.

Traditionally this influx has been made up of people from the Indian sub-continent and the Middle East, with a few Eastern Europeans too and these regions have a tendency to think in US dollars. Thanks to the Bank of England's desire to keep interest rates low and the difficulty of the Government to plug the deficit, the value of Stirling against the US dollar in particular has plummeted. It was only 24 months ago that CABLE sat at over 2 dollars to the pound but this year the rate has been as low as 1.4 dollars to the pound and we are currently at a level of 1.5 dollars to the pound. This means that despite the unexpected price rises in central London since last summer, which are now slowing, these US dollar based buyers are still in a stronger position than they have been for some time.

Here at Property Vision, thanks to our link with HSBC Private Bank, we have found that when one side is down another is up. Because of this international spread of clients we are still busy and have clients that wish to purchase property in central London. The real problem is a lack of quality supply but then that is another story.

Roarie Scarisbrick

The summer of 2007 is generally viewed as the peak of the UK property market, but the reality is that the very top end of London's prime markets appeared to be invincible for another year, and thrived throughout 2008, until Lehman finally burst that bubble. 

The post-Lehman fallout was dramatic, and the market stopped dead in its tracks. We were negotiating on an exceptional house at the time and backed-off when the news broke. When we returned to the negotiating table three weeks later, we were talking about figures almost 50% less than previously. Indeed, it is fair to say that in the six months following Lehman, the very top end of the market was hit worse in percentage terms than the wider market, although there were too few transactions to crystallise the fall.

There were less than a handful of transactions in the first half of 2009, and even heavily discounted asking prices (sometimes to 30% - 40% from peak levels) could not revive the market in the first half of the year. However, the market did gain momentum towards the summer, due to growing confidence and continually contracting supply of stock, pushing values up by 20% (again based on very few transactions). 

The real activity in the market has been from January of this year. There have been between 15 and 20 house transactions in London so far this year at over £20m, against less than five in Jan - June 2009. A significant portion of the activity has been in North London, which accounts for around half of this year's biggest transactions.

Some of the big sales have been well publicised, including the large house on Eaton Square, which sold to Chinese investors at just over £30m, as well as the Royal College of GPs on Princes Gate which sold, again to Chinese investors, for £34m. In North London, a 12,000 sq ft house in NW3 has sold recently to a Russian family for over £40m. Indeed, the demographics of buyers are broader than ever, with Russians, Chinese, Middle Eastern, Scandinavian and even old-fashioned English buyers battling it out for the precious few houses available and sending values in excess of peak levels once again.

Charlotte de Silva

There are some fairly simple rules to follow when buying a flat; buy on a good street, close to transport links, in a well-managed building, somewhere quiet and light etc. but preferably not above the second floor without a lift and certainly nothing in the basement. Unfortunately the basement, or "garden flat" as it is romantically described, often lures unsuspecting buyers with the offer of good space for relatively little money.

Anyone who has ever ventured into the lower-ground floor of a converted building will know that what is actually on offer is generally not a bargain, but a dark residence with damp and security issues. And I'm sorry, but a postage-sized patio in a lightwell just doesn't really flick my switch. It will come as little surprise then, that these properties do not perform well in any market; when capital values are rising, basement flats will lag behind and in a falling market, they just don't sell.

So, why did I find myself enthusing over a basement flat in the Little Boltons the other day? Well, it seems there are a few exceptions to the rule and in some instances we should not be so quick to dismiss them. As most Londoners will know, finding a flat with any outside space is not easy, so a basement flat with access to a proper private garden is not to be sniffed at.

This particular flat has been designed in such a way that the garden - all 60 foot of it - becomes a rather wonderful extension of the living space. The interior and exterior combine beautifully to create some serious entertaining space that would turn even the best of us a little green with envy.

I am not so envious of the bedrooms however, which are both at the front of the building.  Let's face it, the pitter-patter of strangers' feet passing by your bedroom window does not create the most soporific of environments. Nor is the holler of dustbin men at 6am the most pleasant wake up call.... But put the bedrooms at the back of the flat and you're traipsing through them to get to the garden, which is not ideal.

The dream solution would be a building wide enough to accommodate both the living space and the master bedroom at the rear of the building, opening onto the garden. The front could then be used for the kitchen and / or surplus bedrooms - let your children and guests enjoy the hustle and bustle of the city during the less sociable hours...! This is a tall order but not impossible given a little imagination and a little work. 

The best of the basements are in the communal garden squares, which offer direct access to some of London's most charming secret gardens. Notting Hill and South Kensington are the areas to focus on if that is what you're after. There's quite a lot to be said for having a garden the size of a small park that you don't have to tend to yourself! Some of them have an active fun police so beware of restrictions on dogs, ball games and in some cases, children....

Richard Sharples

Much has been made of the new 50% top tax rate being introduced on 6 April. There have been a number of surveys indicating that city-based high earners are seriously looking at their options as London is no longer competitive in terms of income tax rates. The two interesting questions for us are: What is the likely impact on the top end of the London residential property market and where is the likely beneficiary of their departure?

Dealing with the former initially, by way of background it is certainly true that city salaries and bonuses in the good years have been one of the main driving forces behind the rises we have seen in our property market. Traditionally, a good proportion of bonuses paid would get spent on prime London property – both smart flats for the younger ‘guns’ and bigger houses through the prime geographical swathe from St Johns Wood through the Royal Borough and out to Wimbledon. However, it is important to note that there are other macro-economic factors affecting the prices of these properties meaning that any effect may be less pronounced than envisaged by some.

In terms of where these high-earners are likely to go, inevitably some will go both to the established far-eastern financial centres but also to some of the powerhouse emerging market economies too. However, it is for Switzerland that we have had by far the largest number of enquiries from old, current and potential clients asking whether Property Vision offer a similar service there. Both Zurich and Geneva differ in their attractions and tax rates vary across Switzerland on a Canton by Canton basis. For example, Geneva has one of the highest rates of tax, but neighbouring Vaud is significantly lower and easily commutable via the excellent road and rail links. The German-speaking Cantons of Zug and Schwyz offer lower tax rates still – as low as 20% income tax.

The final, and perhaps most pressing question is how many of these individuals will actually up-sticks and go. There was a lot of foot-stamping when the changes in non-Dom rules came into force in 2007 but certainly less went than was feared. The issues that need to be considered when leaving are lifestyle, schooling, availability of suitable housing stock as well as tax. For many, I suspect, will be cautious of the metaphorical tax ‘tail’ wagging the dog…

Roarie Scarisbrick

London

by Roarie Scarisbrick
on February 17, 2010 in London Property

OK. So we established that the London market isn’t bullet proof. A 40% landslide for prime markets in the months after Lehman proved that beyond doubt.

But this bounce has taken everyone by surprise. You would have laughed me out of K&C had I told you this time last year that properties would be trading at and over peak levels by now. But here we are again.

We have always said that you should base your view of the London property market on whether you see it becoming more or less of an international city. This is the food which feeds it. Our biggest fears in the last bull markets were threefold: 1. any changes to the domicility rules. 2. significant changes to the tax regime and 3. global economic meltdown. Ticks in all three boxes… but she hardly faltered.

Nobody can deny that our economic recovery feels somewhat fragile, and even the biggest of the bulls charge cautiously. Our market faces all sorts of threats in the coming months and years; currency arbitrage, apparently arbitrary tax threats and the elephant in the room which is inflation and the inevitable hike in interest rates.

But Central London is a very small place and it can’t grow, in spite of the high hopes of the peripheral developers. It will continue to thrive for as long as it holds allure for international investment. Indeed, a learned banking client of mine is looking to cash-in on promising emerging markets by ignoring risky individual investments, and investing in London property, where many of the gotten gains will end up.


 
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