Super-prime London property: a deep dive
Simon Robinson (left), legal director in the real estate team at law firm, Shakespeare Martineau and Russell Smithers (right), managing director at REDD
Anyone working in the property sector – at any level – will know that it ebbs and flows in accordance with current economic conditions. However, things work slightly differently in the leafy squares and mews of London’s West End; this is super-prime property at its finest, where exclusivity, luxury and location are all of the highest importance.
The phrase, prime real estate, is commonly used in the property world and generally relates to the top 5% of property by value. Super-prime, by comparison, represents the top 1%; the rare and exclusive properties aimed at the wealthiest audience. Whilst in financial terms, super-prime property in Mayfair, Belgravia, Kensington, Chelsea can be pegged to be anything over £4,000 per sq. ft. (although there is no set value), capital value isn’t everything and falling into this class of property requires something extra, be it valet parking, concierge services, terraces or even unique and top-end design elements and luxury interiors.
Whilst London has always been home to some of the most desirable properties in the UK – and even through the market has remained steady – there have been notable shifts in recent years. Reforms to Stamp Duty Land Tax introduced over the past decade have had a noticeable effect on the prime and super-prime market, with prospective purchasers reflecting on the notion of paying one-off charges which are often equivalent to two or three years’ rent in similar properties, opting to rent instead of buying. The result has been a surge in the number of top-end, high-spec super-prime rental properties coming to the market, which were originally intended to be sale stock. However, with a new majority government and the potential for further SDLT reforms on the table, this could shift again, buoyed by the movement of prospective buyers to commit to purchases after sitting on their hands, waiting for political and Brexit uncertainty to die down.
People often ask what buyer demographics look like for the ultra-high-end, super-prime London property. Where in the past, it could be said with certainty that in certain years the inward super-prime investment interest was being generated from particular foreign countries – for example, Russia and China – recently the landscape has become much more varied. Families and individuals globally are looking for this top-level property in specific London locations to add to their portfolios.
When looking at the drivers for this interest, it is clear that the attraction of London West End property is a familiar story, galvanizing the appeal to inward and domestic investors. Currency-wise, London’s high-end property is a safe bet and the weak Pound of recent years has contributed to its attractiveness. Even after strengthening since the election, exchange rates still make it favourable, especially if purchasers are looking to tie up assets in sterling, rather than other, more volatile world currencies.
Finance is by no means the main driver for people diving into London’s super-prime market but lending rates at the top of the private client sector are currently very attractive. The city has long been one of the most-established areas to buy for the internationally-mobile, being central to most time zones, English-speaking, with a temperate climate and a stable economy.
London – and the UK in general – has some of the most renowned educational institutions in the world, from primary level right up to higher education. For ultra-high-net-worth investors, tapping into these resources for their children is a huge draw, and often is a real motivation to purchase some of the best properties, even if only to use whilst children or dependents are going through education.
Consider the UK’s robust legal and political systems (despite the recent well documented and high-profile hiatus), status as a centre for financial services and rich architectural history and it is not hard to see why the London market is so attractive.
The attractions of the high-end London property market are clear. However, for many high-end buyers, the way the UK property market functions in general, along with the old and historic housing stock often found in London’s West End, can be a shock to the system. Much of the property stock in Central London is still owned by a number of longstanding and well-known landed estates, for example, Grosvenor Estates or Howard de Walden Estate. This has remained the case for hundreds of years and the majority of the properties bought and sold are on a leasehold basis. Whilst many in the UK are accustomed to leasehold, for some, this is unusual and the concept of buying a property and not fully owning it is an anathema, especially when looking at prime and super-prime values.
The estates which control swathes of London’s freehold interests in residential property are very efficient at managing their portfolios – after all, most have been doing so for a significant amount of time. For them, preserving these portfolios is crucial and the option to buy freeholds is rare – new entrants into the London super-prime market may even find themselves locked into negotiation over things which may seem trivial, such as replacing the sash windows on a leasehold townhouse.
Luckily, dealing with the freeholder is one of the most complicated aspects of a super-prime property transaction. Apart from that, the purchase should function much like any other leasehold purchase, except the monetary sums in question are much higher. The London market is fast-paced and can be complex, so finding legal advisers, agents and developers who understand how to navigate it successfully and give realistic advice is crucial, especially if there appear to be title issues on the horizon. In particular, the ability to move quickly and efficiently in negotiating and exchanging on prime and super-prime property is vital. Sellers in this sphere don’t like to wait.
London’s super-prime property market is something special and unlike any other around the world. The calibre of property, rich history and attractiveness of the city means that in all likelihood, it will continue to thrive, regardless of economic and political events. What’s needed now is a continued push from the government and local authorities to ensure that development keeps on going and the right stock is being brought to the market, targeted at the right buyer.