Prime London property is rather like gold. It’s just as rare, almost as expensive, and (nearly) as safe an investment. Earlier this year, research by Savills found that sales of London homes priced at more than £5 million mirrored the movement of gold prices, and a recent study by Knight Frank shows that, although returns from gold currently outstrip those from London properties, the two assets continue to follow similar trends.
The capital is one of a clutch of global cities whose property market is swiftly moving upwards. Savills have found that prime-property values in London, Paris, Sydney, New York, Shanghai, Singapore, Hong Kong, Moscow and Mumbai rose by an average of 77% between December 2005 and June 2011. And although London, which saw an average increase of 32% in that period, was hardly at the top of the price-rise league-the accolade goes to Mumbai, whose values went up by a staggering 154%-it offers more robust investment opportunities because its market is far less volatile than those of emerging cities.
‘Take Hong Kong: the local market has big dips and big rises,’ says Liam Bailey of Knight Frank’s research department. ‘Prices are not as stable as in London.’ At the same time, the British capital has better prospects than other established Western markets, because it attracts serious international wealth. Currently, about 50% of the prime market is in foreign hands, against 15% in New York and 5% in Moscow.
London’s global popularity is the result of three factors: the British capital is a politically and financially safe haven, its geographical position makes it a convenient base for Russian and Middle Eastern billionaires and British conveyancing rules are very friendly to foreign buyers-in New York, for instance, it can be much more difficult for non-USA citizens to buy. This makes prime centralLondon property ‘very much the asset of choice at the moment,’ according to Lulu Egerton of Strutt & Parker.
As a result, prices in prime central London have risen by an extraordinary 36% since March 2009, achieving the fastest recovery in 20 years to break a new record in August 2011, according to research by Knight Frank. Despite this spectacular growth, however, the weak pound ensures that Euro and dollar buyers can still save 10% to 18% on what they would have paid in the halcyon days of early 2008. Plus, adds Yolande Barnes of Savills, now that prices of ultra-prime properties are as high as £5,190 to £6,700 per sq ft in cities such as Tokyo and Hong Kong, London (where billionaires’ homes average a mere £3,090 per sq ft) is beginning to look like good value for the global super rich.
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Such wide-ranging international interest not only boosts prices, but also helps shelter them from the vagaries of the domestic economy, protecting long-term equity and making London property an appetising investment for the British, too. Although home-grown buyers don’t have access to favourable exchange rates, the low cost of money in the UK-the Bank of England’s base rate remains at 0.5%-can make a purchase rather more affordable. At the same time, income potential is as strong as ever after London rentals achieved an all-time high in summer, rising by 26.3% since June 2009.
The icing on the cake for British families is that a London property bought when the children are young will be of enormous use to them as they grow up. ‘We’re seeing instances of smaller properties being bought in trust for children,’ says Dawn Carritt of Jackson-Stops & Staff. ‘This investment would provide an excellent starting point when, as young adults, they want a base in
central London after university.’
Annual price increases in cities around the world are expected to slow down, but Mr Bailey believes London has potential to achieve ‘a significant double-digit growth rate’ by the year’s end. Market indicators certainly point to the capital’s ‘rude health’: in the three months to August 2011, supply levels in prime central London went up by 13% over the same period in 2010, but this increase in stock was absorbed by a 15% rise in exchanges. Interest rates are expected to remain low in 2012, and fears of a double-dip recession may have the paradoxical effect of strengthening a market that
is driven by global billions, because further downward pressure on the pound would make a London purchase even more affordable for international buyers.
All this leads Mr Bailey to be bullish about the capital’s future. ‘Demand is still very strong,’ he states. ‘I’m forecasting 30% growth in the next five years.’