While it is acknowledged that Brexit related uncertainty has curbed activity across all UK residential markets over the last 12 months, the situation is more complex at the top end of the London sector, according to a new analysis.
It is too simplistic to see the super prime market in London, that is homes worth £10 million plus, in the context of the current political situation, says the super prime London insight report from international real estate firm Knight Frank.
It reveals that the demand drivers in this housing market are more numerous and complex. ‘More wealth is being created in the world than ever before and it continues to move across borders. Combined with the fact that there are more ultra-high net worth individuals based in London than in any other global city,’ it explains.
They want to invest in property, so, the reports says, it is not surprising that last year saw the highest number of £20 million plus deals in London since 2014 at 38. Indeed, the total volume and value of transactions above £20 million has been on a broad upwards trajectory over the last nine months.
Overall, there were 109 transactions above £10 million in the year to January 2019, a 19% decline compared to 134 over the previous 12 month period. Meanwhile, the total value of transactions decreased by a smaller figure of 11% over the same period, reflecting the uplift in activity in the higher price brackets.
Notting Hill and Mayfair are the two markets where transaction volumes grew over the same period. While demand in Notting Hill has grown due to the extent of price adjustments in the area and its needs-driven buyer base, Mayfair has benefitted from a high quality new build pipeline.
It also points out that the weakness of the pound has sustained demand. The effective discounts available for a range of overseas currencies since the European Union referendum are similar to those seen in the 12 months following the collapse of Lehman Brothers.
The second factor that needs to be understood when evaluating the performance of the super prime market is that pricing has had less far to fall due to its characteristics as a more thinly traded and discretionary market. This fact, which means previous price increases have been less steep and an annual decline of 2.5% in April was half the prime central London average.
The future feel positive, according to Paddy Dring, global head of prime sales at Knight Frank. ‘Pent-up demand continues to build as buyers sense good value. At the same time, a growing number of vendors are taking a more pragmatic approach and engaging with buyers, which is why we expect future activity levels to strengthen,’ he said.
‘The continuing weakness of the pound means there has been a good balance of international and domestic demand, with many pricing in the political risk surrounding Brexit and taking a long term view,’ he added.
However, Rupert des Forges, head of prime central London developments at Knight Frank, said that the prime new build options are narrowing. ‘We have seen a flurry of activity across build complete schemes in prime central London, most notably in Mayfair and Kensington,’ he pointed out.
‘The currency factor has been a trigger for some decision making but a lot of demand also derives from the fact that the options are narrowing for finished super prime schemes in the prime postcodes. In April, we saw five reservations in completed schemes above £10 million,’ he added.
The resolution of Brexit will, however, boost this section of the London market, according to Rory Penn, head of private office at Knight Frank. ‘Transaction volumes will increase when buyers have more clarity regarding the resolution of Brexit. Sentiment is then likely to improve quickly as we move on from peak uncertainty, particularly given how robust the economic fundamentals are,’ he explained.
‘Best in class stock, whether fully serviced lateral apartments or low build family houses with large gardens, remain the most in demand properties for capitalised and active buyers,’ he added.
