London Calling
Luxury Properties, August 2011The London residential property market has long been popular with overseas investors, particularly from Asia, but interest has rarely been as strong as it is right now. Sterling’s weakness, down 27 per cent against the Hong Kong dollar over the last three years, juxtaposed with the strong rise of property prices in Asia, has made London properties particularly attractive for wealthy Asian investors, and new opportunities at the luxury end of the market in particular abound.
Asian buyers are now a force to be reckoned with on the London property market. According to a recent report by Knight Frank, 60 per cent of new build property sold in central London between September 2010 and May 2011 went to purchasers from Asia, with Hong Kong buyers the largest group (24 per cent), followed by Singaporeans (12 per cent) and mainland Chinese (10 per cent).
“Asia is the fastest-growing region for cross-border sales of London property,” stated Neil Batty, head of Knight Frank International Project Marketing team, assign that between March and April alone, the company sold US$197 million (£120 million) worth of London property to Asian buyers.
According to a recent study by Lloyds TSB, the number of million-pound property sales totalled 7,185 in 2010, up 54 per cent on 2009, and there are now an estimated 184,000 homes in Britain worth at least one million pounds. Yet, despite this significant increase, million-pound property sales remain 13 per cent below the levels reached before the financial crisis in 2007, underlining the fact that the upper end of the market has been significantly affected.
Jennet Siebrits, Head of UK Residential Research at CB Richard Ellis, notes London has always been popular place to invest in property because it is home to one of the world’s leading financial districts and some of the best universities in the world, and has a culture and prestige that only a handful of cities can boast.
Edward Lewis, Director at Savills, adds that rare luxury London properties, such as the The Lancasters which his company is helping market, attract global high net worth individuals looking for private family residences whilst staying in the capital. “Their rational is not the mainstream buy-to-let market. It is securing a trophy London apartment that will retain its status and provide real long term value, “ he says.
According to Knight Frank, prime central London properties saw prices rise by US$1,256 (£767) every day over the last 12 months. Average values for prime residential property in central London have now risen by 31.2 per cent since March 2009, with the market being led by properties in the US$1.5-8 million (£1-5 million) price bracket, which have seen prices rise by nearly four per cent in the first quarter of the year. Mayfair, Marylebone, St John’s Wood and Kensington all witnessed more than 10 per cent growth over the past 12 months.
Price growth in the prime central London market shows little sign of slowing at the current time. Aside from a brief stumble last autumn, prices have been rising strongly since April 2009. Yet, while prices have now risen by a third from their low point in March 2009, foreign buyers are still buying at a discount when they factor in currency movements, says Liam Bailey, Head of Residential Research, Knight Frank.
Meanwhile, rental rates for prime London residences have remained strong and are now 25 per cent above their low of June 2009, marginally exceeding the previous peak reached in March 2008 by 0.2 per cent, according to Knight Frank. Bailey still sees scope for an additional five to 10 per cent increase in rents this year.
“The central London residential lettings market has been enjoying a quiet boom over the past 18 months. Demand for accommodation from a recovering financial and business services sector is high, and supply of accommodation has been weak, with potential supply leaking into the sales market as owners look to capitalise on near record prices, “ says Bailey.
A sharp reduction in the number of available rental properties, down almost 18 per cent in the 12 months to April, has been supporting rent growth. Limited stock means that there are a large number of prospective buyers who are still locked out of owner-occupation, and renting is their only alternative. As a result, income yields in prime central London hit an average of 3.8 per cent in April, up from 3.3 per cent in June last year.
Tim Hyatt, Knight Frank’s head of lettings, believes over time higher yields could be achievable, although a four per cent gross yield is probably currently the most realistic target.
Given their importance to London property developers, Asian buyers are being increasingly targeted for new property launches with exhibitions held in Hong Kong or Singapore on a more regular basis. Last year, an estimated 2,500 units, worth US$1.3 billion (800 million Sterling), were sold through exhibitions in Asia, Siebrits estimated.
Indeed, the first residential project of a regeneration development in King’s Cross in London, a 111-unit apartment project called the ArtHouse, sold out so quickly when being marketed in Asia, that a planned exhibition in Kuala Lumpur had to be cancelled. The ArtHouse is part of the 27-hectare redevelopment of King’s Cross in central London, located next to recently refurbished St Pancras International, which house Eurostar services and the King’s Cross Station. Once completed over the next 10 to 12 years, the King’s Cross development will comprise offices, residential and new public spaces and its proximity to several universities, such as Central Saint Martin’s College of Art and Design, will make the smaller residential units particularly interesting for rental.
Ashley Osborne, Executive Director of International Properties, Asia at Colliers International, points out that that the majority of buyers for luxury properties will still focus on prime location within MRT Zone 1, such as Chelsea, Kensington and Knightsbridge, though rental yields there tend to be lower, in the region of three per cent.
But Osborne adds that regeneration, inner city areas offer good locations for property investments as they can generate rental yields in the region of five-six per cent. “I suggest around Canary Wharf, the City and North London. Also areas to consider are the up and coming fashionable locations such as Camden, Islington and along the South Bank,” he says, pointing to projects such as the Arc at Packington Square in Islington and Baltimore Wharf in Canary Wharf.
An increasing number of Chinese investors are also looking at new-build apartments in regenerations areas like the Olympic zones. The neighbouring areas of Bow has seen a flurry of new developments, including some higher-end ones such as Caspian Wharf, located on the Limehouse Cut Canal and just a few minutes from Stratford’s Olympic Park. The first phase of this development, Atlantic Apartments, comprises of 82 flats with prices ranging from US$283,190 to US$787,888, while its second phase, Pacific Court, comprises of 162 apartments with studios starting at US$360,000 and penthouse apartments, featuring views of the Olympic Park to the north costing US$1.8million.
In Stratford, the Lett Road project offers a choice of one, two and three bedrooms as well as three penthouses at the top of the 12-storey block, with prices starting at US$385,800.