What Could Possibly Go Wrong? London’s Property Tipping Points (Part 2 of 3)

DarksideLogo5If you missed our look at the exceptional confluence of events that has helped the London property market to boom, see Part 1. If you’re already up-to-date, prepare for the dark side of the story: what could possibly go wrong?

It’s impossible to say exactly how, when, or how quickly London’s current property boom will come to an end. It does seem likely, however, whether in a year or a decade, that the time will eventually come. Old hands in the London market can remember a time and a place, not so far away, when they were not in favour. And they know that it will happen again. All things, after all, are cyclical.

In the immediate future, as campaigning for the 2015 UK general election gets into full swing over the coming months, analysts fear that just a single misplaced policy announcement could be enough to panic existing and potential investors across the world. The big issue is political uncertainty, specifically in anything relating to the tax regime, appealing to overseas capital and the immigration rules.

Meanwhile, the prospect of a referendum on Britain’s EU status – something the Conservatives have promised voters if they stay in power come May – is another significant political risk. Anything introducing uncertainty, and the EU issue has the potential to do so on a massive scale, is a worry both for the market and for investors.

But what are the specific tipping points that could herald the end of the situation we are currently experiencing?

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FIVE POTENTIAL TIPPING POINTS:

WHAT? Ultra-low interest rates

HOW? Many countries’ interest rates are at historic lows. As a result, mainstream investment classes are generating low yields. Fund managers who need to deliver certain levels of performance to their investors are searching desperately for assets that will produce higher returns. With London property averaging yields of 5-6 per cent, the sector looks very attractive. As a result, cash is pouring into property assets. But this trend is not expected to continue indefinitely. As countries begin to consider raising interest rates in the coming years, other investments are likely to start looking more attractive again.

HOW QUICKLY COULD IT CHANGE? Years to decades.

. . .

WHAT? Currency effects

HOW? After the global financial crisis, the pound became relatively cheap compared with property buyers’ domestic currencies. Between 2008 and 2013, sterling fell by nearly a quarter against the dollar and by 11 per cent against the euro. As a result, London property prices that looked eye-watering to locals seemed perfectly affordable to foreign buyers. But this trend has already begun to wane. The pound is appreciating once more, up 5 per cent against the dollar over the past 18 months and 8 per cent against the euro. This has taken some heat out of the London property market. For example, in March 2013 a £1m London home cost 1.86m Singapore dollars; today that is S$2m. If this trend continues, investors whose assets are denominated in other currencies could switch to other property markets.

HOW QUICKLY COULD IT CHANGE? Weeks to months.

Read the rest in the final installment, next week…

What Could Possibly Go Wrong? London’s Property Tipping Points (Part 1 of 3)

shard_2583070bWith the global financial crisis finally receding, the London property market is once again booming, but many in the industry are already questioning just how long current investment levels will last.

The current attraction of London property as an investment opportunity is down to a rare conference of factors, several among which being directly attributable to the financial crisis and its immediate aftermath.

The rise of the global middle class has brought with it a new abundance of personal savings, but with low base rates worldwide, investors have been forced look for returns in alternative asset classes. Meanwhile, with increasing numbers of institutional investors, competition for opportunities is also on the rise.

As political instability from the Ukraine to Palestine has sent the wealthy on a quest to find safer places to stash their savings, the falling pound has made London property look cheap for those making the conversion to many foreign currencies. At the same time, the UK’s political landscape has been stable, with a transparent legal system and a broad cross-party consensus allying any concerns investors may have over whether their assets will be safe and free from an interfering government. In fact, government has taken a pro-active role in encouraging inward investment in the property market; in his six years as mayor of London, Boris Johnson has actively set out to attract foreign money, going out of his way to court the Chinese in particular, with several visits to Asia.

As it stands, Chinese companies are among the biggest buyers in the capital. In a bid to attract Asian businesses to Europe, Chinese developer Advanced Business Park has partnered with Stanhope, the British developer, to create a £1bn financial district in the rundown Royal Docks. Greenland Group, the Chinese state-owned developer, bought the historic Ram Brewery site in Wandsworth, south London, at the start of this year, while China Life, the insurer, recently took a majority stake in Canary Wharf skyscraper, 10 Upper Bank Street.

And it’s not just the Chinese making high-profile acquisitions. The Canadian pension fund, Omers – through its property arm, Oxford Properties Group – has backed construction of the City’s newest high-rise, the Leadenhall Building (a.k.a. “The Cheesegrater”), and Indian developer Lodha bought the former Canadian High Commission building on Grosvenor Square, Mayfair, in November of last year. While large US private equity firms such as Blackstone and Lone Star continue to be active, the new kid on the London City block is Taiwan.

Taiwanese life funds have long been expected by London property advisers, following the ruling by Taiwanese regulators last year that insurers could invest in foreign real estate. Cathay Life’s August purchase of Woolgate Exchange in the City was the first step, with JPMorgan Cazenove analysts consequently predicting that the deal would mark the beginning of a stream of Taiwanese investors into London’s commercial property market.

And to cap it all off, there is a positive feedback loop constantly fuelling the market – the presence of buyers and sellers attracts more participants, making it more liquid, which attracts more buyers and encourages more sales. And so it goes on.

This fortuitous conference of longstanding factors is unlikely to dissolve overnight, but there are other aspects behind the London boom that could crumble very quickly. More in part 2, next week…

Flat Prices Up, House Prices Down: Sales Volumes Focused On apartments


Here in the Capital, contrary to recent ‘price cut’ headlines that have appeared in some publications, we have seen PCL (Prime Central London) prices reach new heights in the same period.

As regular readers will know, we firmly believe that international investors’ understandable focus on high-end new developments continues to highlight the relative value in London’s existing housing stock.  W3b25843rhile foreign investors push prices up in off-plan and newly-built property, potential owner-occupiers could do worse than to start their search in alternative markets. This view is further supported by industry figures showing apartment sales in a number of PCL boroughs up 32% for the year-to-date, with house sales falling 21% at the same time.

From a supply perspective, as long as new developments continue to trickle through at the present rate, demand will fail to be met across the majority of London and particularly in the sub-£2m bracket. Complex, cumbersome planning regulations remain a significant barrier in their current state, and ultimately inhibit an increase in supply at the level and rate required.

Elsewhere, the growth in our Managed Sale service reflects not just the strength of our reputation, but also the simple but powerful truth that managing a sale remotely is not just stressful, but also difficult and time-consuming. We continue to offer exceptional expertise across all major property services, boasting a broad and detailed knowledge-base that consistently informs the advice we give our clients.

Battersea Power Station

Battersea Power Plant London’s Battersea Power Station developer plans to sell luxury apartments for as much as 30 million pounds each, anticipating buyers will pay a premium to own prominent pieces of the historic building.

Battersea Project Holding Co. bought the Battersea site for 400 million pounds last year after its previous owner was put into administration, a U.K. form of bankruptcy protection. They will begin by selling 250 apartments at 2,500 pounds a square foot in April. The estimated price of a penthouse, to be built in the second phase of construction, is 25 to 30 million pounds.

The Battersea plant is Europe’s largest brick building and built in the 1930s consists of four 350-foot-high smokestacks, it is an investment that comes with the opportunity to own a genuine piece of British history in a unique location. The development is part of the Vauxhall Nine Elms Battersea Opportunity Area south of the River Thames and across from the Kensington & Chelsea and Westminster boroughs. It’s the U.K. capital’s largest redevelopment area and includes a new U.S. embassy and an extension of the London Underground.

The developer’s Malaysian roots may help it reach Asian buyers who have been snapping up London new homes following property curbs in their home country. Two-thirds of new London homes sold before completion are being purchased by Southeast Asian buyers. Measures taken by Singapore and Hong Kong to cool their housing markets have prompted buyers to seek investments abroad.Luxury-home developers are planning to build more than 20,000 properties in London over the next decade. The Battersea development has about 6,000 registered customers and there’s no risk of oversupply of luxury apartments in the area. The project’s first phase was sold in excess of 1,000 pounds a square foot and the third phase is expected to come to market in September next year at 1,800 pounds a square foot.

Off plan property is once again becoming a darling child of the property investor’s arsenal (read a previous blog post here explaining how it works) and we are in a position to provide advice and opportunities in Greater London with percentage discounts into double figure. Contact me for further information.