Euro and Dollar rich buyers snapping up prime property bargains in central London
Euro and dollar rich international property investors are descending on London in private planes eager to snap up expensive real estate that is now regarded as cheap because of low prices and good currency rates.They are often cash buyers and arrive with their lawyers ready to complete on a transaction within five days and some are representing members of Middle Eastern Royal families.
These eager buyers are coming from the Middle East, the US, Japan and other European countries, especially Italy and France. They are particularly keen on prime properties in central locations like Mayfair, Knightsbridge, Belgravia and Chelsea.
This year's influx of foreign buyers is a direct result of the falling pound and declining property prices which have seen the average value of properties costing more than a million pounds plunge.
Prices in London's most expensive areas have fallen 21.4% from their peak in March 2008. In the popular £1m to £2.5m sector prices fell 25.3% over the same period, according to the latest figures from Knight Frank. Its Prime Central London Index published last week shows that the cost of a luxury home in London has fallen for 10 straight months in a row.
The pound has fallen 28% against the dollar in the past year and 14% against the euro, making properties in the UK highly attractive to foreign investors.
House prices already look 15% cheaper to the average UK buyer than they did 18 months ago; however to many overseas buyers they look between 35% and 50% cheaper, according to an analysis by international property consultants Savills.
Any European buyers, using Euros, have seen an effective price fall of -35% whilst any buyers with Japanese Yen have seen currency fluctuations strip out an additional 30% of value to make UK property half the price in Yen that it was a year ago.
Past currency fluctuations have influenced the behaviour of overseas investors and Savills deal records show that it was Middle Eastern investors in the mid 1970s, Americans in the early 1980s and South East Asians in the early 1990s. Some Euro investors, principally the Irish, were also active in the early 2000s.
The 21% drop in prime property prices, the largest since Knight Frank began recording figures in 1973, is attracting a large number of international buyers. As well as prices being attractive to them there are fewer UK buyers with the funds to buy as city workers lose their bonuses and their jobs.
The fact that experts expect prices in London to bottom out soon is another encouragement for foreign buyers who have the funds to buy and who don't want to wait until prices start rising again. In some cases individuals and funds buying multiple units in the same block.
If the Bank of England cuts the UK base rate tomorrow as many economists expect, then there could be a further rush of buyers. 'There was a real influx of international buyers after December's base rate cut, particularly from French and Italian buyers seeking to invest in the very best locations in and around Knightsbridge, equating to something like a 70% uplift in international buyer enquiries,' said Charlie Bubear of Savills office in Knightsbridge.
According to Liam Bailey, head of residential research at Knight Frank, price falls should begin to level out towards the end of 2009. 'Although 2010 is likely to see prices move sideways at best,' he said.
Knight Frank now expects prices to fall as much as 35% from their peak, compared with its previous estimate of 30%.
Viewing levels in central London last month were 65% higher than a year earlier, while the number of international buyers registering with a broker in January was 35% more than the year before, the international consultancy reports.
'If the weakness of Sterling continues, it will help to bolster demand from the foreign super-rich, partially compensating for the reduced earning ability of many City-based buyers,' said Bailey.
Knight Frank has found that the increased demand from outside the UK is led by Middle East buyers, 52%, and European buyers, 38%, with particularly strong interest from Italian, 43%, French, 49%, and Norwegian, 51%, buyers.
The markets seeing greatest growth in viewing and applicant activity are led by the core of Mayfair, Knightsbridge, Belgravia and Chelsea with viewings in these prime areas up over 80% on a year on year basis
Most analysts are not surprised by the increased interest from international buyers. Research from Savills shows that falling prices throughout 2008 has resulted in an increase in buyers from Russia, the Middle East, the US and other European countries. While buyers from countries like Ireland have declined.
The increase is particularly noticeable in the £4 million plus sector where the number of buyers from Europe in 2008 almost doubled from 8.5% in 2007 to 16.1% in 2008. In the £2 to £4 million bracket the number of buyers from Europe increased from 11.8% in 2007 to 15.7% last year. And in the £1 million to £2 million sector European buyers accounted for 12.6% of sales, up from 9.4% in 2007.
The Savills research also shows an increase in buyers from Asia, the US and Russia in the top end of the market. In the £4 million plus sector the number of buyers from the US almost doubled from 4.9% in 2007 to 9.7% last year.
So already towards the end of 2008 international buyers were viewing the luxury market in central London as one where bargains could be found. A look at some examples and what is happening with exchange rates gives an idea of the kind of savings cash rich buyers from abroad can make.
'While London might seem increasingly attractive to domestic buyers, the opportunities available look even better value from overseas as a result of the dramatic decline in the value of the pound,' said Bailey.
'The weakness of sterling is unlikely to abate in the near future, especially as the UK base rate is set to fall further. However, currency markets are highly changeable and there is a general expectation that the Euro, in particular, will weaken later this year,' he continued.
'As a result, many European buyers believe that there will only be a limited window in which to buy prime property at bargain prices. The prospect of a more expensive pound also provides them with a hedge against further falls in prices during the course of 2009,' he added.
This is confirmed by Bubear from Savills Knightsbridge office. 'We have many buyers looking to buy with Euros and US dollars to spend. I would say that foreign applicants must currently account for 70% of buyers looking in our sector, particularly in the £800,000 to £2 million bracket,' he said.
'Activity is being seen in top addresses, with an influx of international buyers, particularly Euro buyers, keen to transact quickly. There are a good number of cash buyers in the market, lined up with lawyers and ready to conclude fast deals and we have seen the return of the 5-day exchange,' he added.
They are looking for the very best addresses such as Cadogan Gardens, Lennox Gardens, and Eaton Square and looking for a bullet proof investment with a good long lease and good design.
Dollar-rich property buyers will continue descending on central London as the value of sterling continues to sink according to Charles McDowell, a property consultant in prime London. 'Well-heeled buyers from Euro and US$ dominated countries are arriving in London by the private planeload. This is currently the best buying opportunity for them in many years. In one instance, a superb home that may have sold last year for £10 million is now on the market for £8.5 million,' he said.
'In addition to that saving, buyers purchasing in Euros or US$ are gaining a significant further percentage, thanks to the declining value of the UK£,' he added.
He is also seeing increased foreign interest in London property around the £1 million mark. 'For Italian buyers, for example, London now offers an excellent opportunity to escape an unfavourable domestic tax environment, but which was until recently not a realistic property option,' he explained.
Hamptons International has also seen a sudden appearance of overseas buyers. The company said that there has been a 20% rise in European buyers interested in prime central London in 2008, and says that there are also more European and American buyers registering to purchase outside the capital.
The estate agency's figures show that between the final quarter of 2007 and the last quarter of 2008, the number of European and American buyers picking up prime property in the capital increased by 12%.
'We have seen a strong increase in international buyers over the last few months particularly from Italy and France. The devaluation of the pound has played a huge role in the increasing interest from foreign property investors,' said Rob Bruce, research manager at Hamptons International.
British expatriates in the United Arab Emirates are also showing increased interest in the London market according to Miles Shipside of Rightmove.co.uk. 'Property prices in the UK are probably around 20 to 25% below peak boom prices. The exchange rate means you can insulate yourself against further price falls – even if they fall another 5 to 10%,' he said.
'High net worth individuals and expatriates in the Middle East have always shown considerable interest in the European property market and the trend is likely to prevail. 2009 will be the window to buy in the UK and buying before the rest of the market comes back in.' he said.
It is also bargain time for returning expats. 'People returning can buy bigger properties than they could have a year ago,' said Maud Rousseau, Associate Director of TTA Group.
According to Matt Asplin, sales manager at Cluttons real estate agency, the opportunities in the UK are ripe and the local market in Dubai is likely to recover more quickly than elsewhere, leaving a window for British expatriates to invest.
'If the financing was there I don't see why people wouldn't do that. If people have spare cash we encourage people to look at England. I think it is sensible,' he said.
Nathalie Hirst, Director of London acquisitions at Prime Purchase, has also noticed an increase in interest from euro-rich investors seeking a safe medium to long-term investment.
She said she is regularly discussing residential property acquisitions with high net worth individuals who are taking a four to five year view on the market.
In 2009 researchers at Savills expect overseas investment to come from a combination of individuals buying single units and acquisitions of multiple units by private overseas investment companies and collective investment funds.
'This could be the year when the hitherto inactive Japanese and central Eurozone – French, German, Italian and perhaps Swiss buyers become active in the London market for the first time,' they said.
'We also expect to see the return of some more experienced overseas investors too, from SE Asia, the Middle East and perhaps even the Americas as the US economy improves.'