Properties for sale over £20 million in areas such as Mayfair, Knightsbridge, Kensington, Marylebone and Belgravia but also in parts of Richmond, Hampstead and St Johns Wood, generate worldwide headlines when they are sold.
The question is, at the moment, are they selling at all? The market would suggest… not enough to keep prices rising. Knight Frank says asking prices for homes in this super-prime price bracket have reduced by nearly 7% over the past three years, while buying agent Hannah Aykroyd claims that overall the prime market from £3 million upwards is down by 20%.
But is this elite market really that important to the property industry? Despite the overall £10 million-plus market only generating approximately 250 sales a year, 10% of which are over £20 million, it employs a large army of property managers, interior designers and sales and letting agents.
It also keeps dozens of property developers and house builders afloat, not to mention the millions it raises in Stamp Duty every year for HMRC.
And it also generates handsome returns for the agents who can find buyers; even at an 0.75% rate, commissions total £18 million each year and the market turns over property worth £2.5 billion.
It’s also notoriously hard to pin down. Many properties for sale do not make it into any agents’ branch windows or the property portals and are instead bought and sold via a system of ‘little black books’ that has hardly changed in 40 years.
Dealmakerz went to find out what’s going on in this extraordinary, unique and sometimes controversial property market.
The political sparring between the West and Russia over the past 12 months or more, along with the renewed emphasis by the UK government on money laundering, has persuaded an increasing number of Russians to sell up and go home.
“I think there are some who bought four or five years ago as an investment and who know they are not going to see much more capital gain from their properties and so are bailing out now,” says Richard Barber, Director in JLL’s Knightsbridge office.
Trevor Abrahamson of Glentree Estates agrees, saying that for his estate agency in Hampstead the Russians have switched markedly from buyers into sellers as the political climate has chilled.
Buying agent Simon Barnes of H.Barnes & Co says what’s really changed in London recently is that no one nationality is dominating the property market in a way that Nigerian, US, Middle Eastern and latterly Russian buyers used to.
“What’s happened is that nationalities no longer arrive in waves and the ones who are already here are facing unique problems and challenges which, in part, explains the central London super prime slowdown,” he says.
Almost every agent Dealmakerz spoke to pepped up when Notting Hill was mentioned, clearly marking it out as an area almost booming success compared to its much quieter neighbours.
Marc von Grunderr of Benham & Reeves said he’s seen a ‘notable uplift’ in prices in the area which, although expensive by Greater London standards, is well below nearby but stuffier Belgravia and Knightsbridge.
“Notting Hill is doing very well,” says Richard Barber. “There’s very high-quality stock there including big, wide family houses being chased by international money who are attracted by its fashionable shops and food outlets.”
In a market where transactions are so low, sentiment is everything. Barber is reluctant to ‘sugar-coat’ what he says is a difficult super-prime market, but which is picking up at the lower, sub £3 million end, and featuring a few deals in what “we call the middle market of between £10 and £15 million”.
Buying agent Hannah Aykroyd is more positive, claiming that the overall market is becoming competitive again and that properties “that have been on for six, eight, or twelve months with little or no buyer interest are suddenly selling quickly – often in competitive bidding scenarios”.
“We are seeing gazumping and contract races. A house exchanged in Notting Hill recently within three days of going to market, with a back-up buyer £100k behind the successful bid.”
Even the most sceptical of the agents we spoke to recognised that buyers are returning to the market, particularly overseas ones enticed by the weak pound.
“We’ve seen buyer numbers increase by 35% year-on-year in this market across the board which means thousands of extra purchasers in the market,” says Guy Gittins, CEO of Chestertons.
He says this is being driven by both the weak pound and perceived value in the London market after two years of price reductions.
But the main challenge for agents is finding properties for these buyers to purchase.
“If you have a really good first floor two-bedroom flat in Cadogan or Eaton Square or a good house in a plum position in good nick and you don’t really need to sell it, then you’re going to wait for the next upturn,” says Richard Barber.
Prime and super-prime London has been known for decades as the money laundering capital of the world. But while this has largely been swept under the carpet, 2015’s Channel 4 documentary exposing its worst excesses helped spur the government into action.
New legislation means the National Crime Agency can now obtain High Court orders to both force owners to prove where the money came from to buy their London homes, and also prevent them from being sold while an investigation is on-going.
Few agents want to talk about money laundering because they fear frightening off potential clients and quietly get on with the background checks, but in the super prime market it’s helped soften demand over the past 12 months, several of the agents DealMakerz contacted confirmed off the record.
One feature of prime London that has always been its prime and super-prime long-term rental market fuelled by demand from blue-chip corporate clients. But the economic instability created by Brexit has helped significantly reduce demand from long-term tenants.
As a consequence of this, short-lets are now becoming a lifeline for many landlords and letting agencies.
One example is Beauchamp Estates, whose Marylebone lettings manager Francesca Fox says short-lets has gone ‘crazy’ in recent months as the international market of wealthy overseas people who come to London during the Summer have arrived to look for properties.
“We’ve got people flying in looking for homes at around £25,000 a week for a three-month short-let,” she says.
Simon Barnes agrees. He says more prime and super-prime landlords are looking to Airbnb as a viable alternative to long-term lets, although “the only problem is that the bad publicity around some houses being rented out and then trashed during mass parties has put some owners off, and the bigger mansion blocks put restrictions on Airbnb,” he says.
One long-standing feature of London’s prime new-build, largely apartment-focussed market has been flipping, helped by generous non-dom tax allowances that exempted those living overseas from paying Capital Gains Tax on profits made from this activity.
Since July 2015 this has been withering on the vine as flipping has lost its appeal for many investors and forced many developers to switch tactics, offering traditional buyers more up-front incentives such as paying their Stamp Duty and, at some developments, offering significant discounts.
“It seems crazy to think of it now, but before 2015 an overseas owner could sell up their property in London after making £1 million profit on its sale and not pay any CGT but that’s all changed now,” says Guy Gittins.
“We are still seeing plenty of appetite from these buyers but their investment strategy has completely changed.
“In the past they didn’t care about the product so much because everything made money but now when we’re asking them to pay £2,000 psf they are being a lot more cautious and want a lot more for their money.
“Investors are also looking further down the market and we’re seeing the greatest interest in the sub-£1 million bands for apartments; people are now more interested in yield than capital growth than they used to be.”