It’s one of the truisms of the investment world that in uncertain times, you go back to what you know. In the world of high-end real estate, this classic flight-to-safety (or perhaps quality) strategy refers to a few pockets of rock-solid patches around the globe.
Singapore has often been seen as one of these havens for property buyers — and the stratospheric rise of prices in recent years against a backdrop of a sluggish global economy is testament to that.
But in the global stakes of the luxury real estate world, it is London that perennially emerges as the luxury investors’ favourite. Even as Europe struggles to shake off the effects of the growth-sapping debt crisis, the global city has lost little of its allure.
Not surprising perhaps, that a slew of high-end developments from the British capital is being marketed to potential buyers here. A track record of consistent returns and the city’s unique lifestyle offerings have kept it at the top of the list for buyers looking for a second home or a good investment.
“London property has treated investors well over the years and has earned a reputation across the world as a great store for money,” says Roarie Scarisbrick, partner at Property Vision, an agency that specialises in the top-end residential property market in London and the country house market in the United Kingdom.
“For some it is an economic decision based on steady yields and capital appreciation, but for many it is more practical. We have a beautiful city with great parks and schools, and amazing diversity of entertainment, education and culture,” he adds.
Over the past 12 months leading to May 2013, average prices for prime central London property have risen 7.7 percent, according to real estate agency Knight Frank.
Indeed, this year is proving to be one of the busiest for Berkeley Homes (Capital), reveals its Managing Director Piers Clanford, as increasing demand coupled with a shortage of well-located and quality housing in London boosts home prices.
Berkeley is a UK-listed property developer that recently launched in Singapore the second phase of Satin House, a luxury 18-storey development located in Aldgate, within walking distance of the city. Prices start at £650,000 for a studio apartment, all of which have since been sold out.
In its latest World Cities Review by property consultancy Savills, which ranked cities according to the performance of their residential and commercial real estate markets in 2012, London is placed third, behind Hong Kong and New York.
The report notes that at the premium end of the market, billionaires have started to shift their funds into “new world” markets in Asia-Pacific. That said, London’s luxury segment was the only “old world” economy to outperform in recent years.
Only London’s ultra-prime market stands out among such cities in the US, Japan, Australia and Europe, and has shown significant growth since 2005 totalling 107 percent. New York’s ultra-prime real estate stands only 47 percent higher and Tokyo ultra-prime residential is only eight percent more expensive (in local currency) than it was in 2005.
Unlike better performing markets that have been sustained by domestic demand, such as Hong Kong, Moscow and Sydney, London is very much an international market, with overseas buyers accounting for around 70 percent of new-build sales in the city’s prime central, according to Savills.
“International capital appears to be retreating to the core of established world cities due to their long-term investment credentials, namely London and New York,” the consultancy says. A weakening sterling pound also makes it a more attractive investment for overseas buyers.
What to Look Out For
In recent years, there has been a shift in terms of what investors look for in a property. While location still remains key, future infrastructure, transport links and residents facilities have become just as important among buyers.
Areas set to benefit from new Crossrail stations when it opens in 2018 are becoming increasingly popular with investors, as they are aware of the future capital gain, and high rental yields, which could be achieved.
Crossrail is a 118-km railway under construction in southeast England that will pass through greater London. New stations are being built through the central section of the route at Paddington, Bond Street, Tottenham Court Road, Farringdon, Liverpool Street, Whitechapel, Canary Wharf, Custom House and Woolwich.
“Buyers should always ensure that they research the location and how far away it is from transport links especially when buying as an investment. The rental prices you can achieve are often dictated by how commutable it is for a rental tenant and the appeal of the surrounding area,” says Clanford.
Investors should also look for new-build homes as they come with a guarantee and have fewer maintenance worries although they still have to be well-located and close to transport links, advises Gary Patrick, regional sales director for Barratt London.
The developer’s most recent project is The Courthouse in central London that boasts views of iconic landmarks such as Big Ben and Westminster. Prices for the 129-unit development start at £640,000.
While doing your homework is important, getting advice from the right experts is also key. “Everybody has an opinion on London property but be careful who you take advice from. The selling agents are helpful but their advice will be tailored to their sales list. There are independent buying agents who will give you a balanced view based on your objectives,” says Scarisbrick.
And once you’ve found your ideal property, you should react immediately or risk missing out in a fast-moving market, he adds.
Time to Buy?
One of London’s beauties as a real estate hotspot is its resilience in the face of undulating sentiment. Certain parts of the city will always enjoy robust demand regardless of the broader economic situation. “There will always be a demand for rental properties in commutable areas of London so there has never been a better time to buy,” says Clanford.
Also, despite the efforts being made to increase supply, it is unlikely that the number of new homes built over the next few years will be able to keep pace with the number required in London, given expected population growth and the existing shortage, thus making it a very safe proposition for international investment, noted David Campbell, group sales and marketing director at Telford Homes.
But some market-watchers sounded a note of caution, saying that while the market remains on an upward trajectory, things may not be as bullish as most sellers believe. “There are some great opportunities out there where properties have sat in the market at a grossly over-inflated price and failed to find a buyer, so you need to track the market carefully and monitor the circumstances and expectations of sellers,” warns Scarisbrick.
Last year saw significant curbs imposed on wealthy buyers in some cities, resulting in slowdowns in most of them, including London. Several high-end real estate agencies have forecasted zero growth this year because of additional levies on property transactions introduced by the government in last year’s budget.
That said, when it comes to quality bets in the high-end property market, few come better than Europe’s most cosmopolitan city. Indeed, the sales of properties above £3 million have remained unchanged despite the curbs, suggesting that wealthy buyers are undeterred by the additional charges. Wrote Savills in its World Cities Review: “Ultimately, the world’s richest inhabitants will continue to set up homes in the most cosmopolitan and wealthiest cities, which offer commercial advantages and quality of life.”
The Hot Spots
Here is a breakdown of London’s property market for overseas investors
The safe choices
Mayfair, Belgravia, Knightsbridge and its surrounding areas are well-trodden paths for international investors.
Don’t rule out the leafier, more picturesque areas to the west, including Kensington, Holland Park and Notting Hill. These areas appeal to the family market and have great transport links.
Marylebone and St Johns Wood to the north are also worth exploring. There are pockets within all the different central boroughs which should be considered.
These tend to have higher rental yields than parts of prime central London, where residential values tend to be higher. There is also potential for greater capital growth in percentage terms in regeneration areas. One example is Croydon in south London, which is benefitting from a multimillion pound regeneration programme where retail, leisure and employment opportunities are improving within the local area. The announcement that Westfield, one of the world’s largest shopping centre portfolios, is opening a third London retail complex will also raise Croydon’s profile internationally.