UK market review - number 27, 2011
Eccleston Square Mews SW1, £1.35 million guide
Permanent takeover?
Overseas buyers and tenants continue to dominate central London demand. Where might it end?
Ex-pats have long dominated demand in the London rental market, particularly in central areas, but the importance of overseas capital in the sales market has never been greater than in recent years. Furthermore, a strong characteristic of overseas buyers is the tendency to hold the same property for long periods. Might this eventually lead to a much slower central London market completely dominated by foreign ownership and occupancy?
Though suffering from a constant shortage of stock, the London residential markets have enjoyed fair to strong levels of activity for over a year now, the main problem being satisfying demand. Rents continue to rise by at least RPI (i.e. 5% or even 6% this year) and capital values, despite strong resistance from many prospective buyers, are either holding or, in some categories, creeping slowly upward. We see no indication of a change to this pattern, the possible exception being that rents in some outer areas could rise faster, yields for family and luxury houses there being, in the main, significantly below the central London norm of around 4.5%. A £1.8 million house on St George’s Hill, Weybridge, for example, which is close to important international schools and business parks, as well as central London, currently fetches around £5,000 pcm, or less than 3.5% pa.
Queen Anne St W1, £5.5 million guide
We also see no change in the dominating influence of overseas cash, especially as turbulent world events prompt even more non-UK residents to seek a safe home for their money (and, just in case, a bolt-hole for themselves and their families, to boot). The tremendous competition for the Belgravia house pictured opposite, for example, demonstrates the readiness of buyers to pay handsomely for exceptional properties in the very best locations, even at over £2,000 per square foot. Without exception, the prospective buyers were from overseas.
East Horsley KT24, £4,750 pcm
The impact of such capital values does, of course, 'ripple out', almost literally in the case of owners with young children making the traditional – and still widely honoured – move to a larger property in the suburbs. This has helped to support a near or actual full recovery to 2007/08 peak prices everywhere from Richmond and Wimbledon to the Home Counties' countryside. Realizing this, some clients have asked if we might be witnessing some sort of 'last hurrah', with central London stock being left largely in the hands of overseas investors with little interest in selling – and none in moving to the suburbs or country. Our view is that this scenario might be developing to some extent, but that it will be far from permanent. National economies and international fortunes ebb and flow. When sterling recovers, the UK economy and buyers will, by definition, be in the ascendant. At the same time, the home economies and currencies of at least some of our overseas investors will be less rosy, making the lure of a large profit on their London investment, irresistible. Given that sterling is already significantly above the lows of, say, spring 2010, especially in relation to the US dollar, that day may not be as far off as it currently appears.
Chesham St SW1, £1.5million guide