11/10/2011 - Safe havens are key in an uncertain world
by HO
Sometimes generalisations can help
MARKET COMMENT October 2011
Generally speaking we avoid generalisations.
As the financial crisis stumbles on and the problems of the Eurozone appear to accumulate, the role for financial safe havens becomes ever greater. So while we continue to see London play its key part, on which we have been reporting for some time now, we thought a few snappy generalisations on our chosen field were called for.
There is nothing the printed media likes more than quoting sweeping generalisations. For them UK house prices are often part of one homogenous group and therefore they are either rising or falling and borrowers can either borrow or they can’t. The world of mortgage finance may appear to have been simplified with the withdrawal of scores of mortgage products since 2008 but there are many varied facets between the first time buyer borrowing 90% at close to 5% interest and the UHNW private banking client borrowing 60-70% at less than 2%.
We have always tried to resist generalisations as they are often the sustenance for the idle and ill informed. However, we accept that they have a role to play in acting as useful barometers or benchmarks. With house price indices for example, what the statistics don’t tell you about regional variations, they do perhaps reveal about general sentiment and broad economic activity.
Here are our generalisations to try and help put the current London market in context;
12 MONTH PRICE CHANGES (source Knight Frank)
UK HOUSE PRICES Down 0.3%
PRIME CENTRAL LONDON Up 11.4%
PRIME COUNTRY HOUSES Down 1.7%
PRIME UK SOUTH EAST Up 0.4%
MARKET STRENGTH
Prime Central London (in essence the boroughs of Westminster, Kensington & Chelsea) VERY ROBUST - High levels of demand/equity and shortage of stock
Secondary London (examples : Fulham, Islington, Wimbledon, Canary Wharf) FAIR to STRONG in parts – Reasonable levels of activity
Category ‘A’ Greater London (examples: Chiswick, Dulwich, Kingston, Highgate) FAIR to WEAK in parts – Pockets of localised activity
Category ‘B’ Greater London (examples : Woolwich, Camberwell, Kilburn, Hackney) WEAK - Low levels of both demand/equity and bank funding
WHO IS BUYING IN PRIME CENTRAL LONDON
UK BUYERS - 48%
FAR EASTERN BUYERS 7.5%
EUROPEAN BUYERS - 7.5%
RUSSIAN BUYERS - 6%
UAE BUYERS - 5%
US BUYERS - 4%
INDIAN BUYERS - 3%
OTHER COUNTRIES - 19%
The above is a rough indicator taken from various published figures from leading agents.
DIVIDING PRIME CENTRAL IN TO CATEGORIES
Category 1
Mayfair, W1
St James, SW1
Belgravia, SW1/SW7
Knightsbridge, SW3/SW7
Category 2
Chelsea, SW3/SW7
South Kensington, SW3/SW7/SW5
Kensington,W8
Notting Hill, W11/W14
Holland Park,W11/W14
Hyde Park, W2
Marylebone W1 (east of Gloucester Place)
Regents Park NW1,NW8 (inc. St Johns Wood flats facing the park)
St Johns Wood, NW8 (houses)
Category 3
St Johns Wood, NW8 (flats)
North of Oxford Street, W1 (west of Gloucester Place)
Bayswater, W2
Westminster, SW1
Earls Court, SW5/SW10
AVERAGE PRICE PER SQUARE FOOT (based on ‘good’ property in good condition)
Category 1
£2,500 to £3,000psf
Category 2
£1,500 to £1,800psf
Category 3
£1,200 to £1,400psf
Good Property is what we all assume to be plentiful but quickly come to realise is surprisingly rare. Much of prime central London is zoned a conservation area which does not permit houses to be demolished and rebuilt. As a result, a sizeable majority of apartments are in converted houses which were never intended to be apartments. The majority of these houses were built between 1850 and 1900. Many of these ‘conversions’ will not have lifts for example and they may be sub divided in a manner to reflect a way of living which differs from today’s lifestyles. Therefore the rather innocuous term ‘good property’ is in fact extremely important as it refers to the type of the property most of us want to live in and as a consequence it correlates with those properties that appreciate in value at a greater rate.
A good property means being in the better position on the better streets with no major adverse issues, such as a short lease, and excludes the likes of basements, upper floors with no lift, 1960’s architecture etc. It recognises, for example, the difference in being on a garden square as opposed to being just off. New build schemes in the prime positions, which are rare, command premiums well in excess of the upper range above. New build schemes in secondary locations have also commanded a substantial premium in part due to their appeal to the overseas market, particularly in the Far East where they are heavily, and sometimes exclusively, marketed.
The figures above are simply a realistic range, the very best will command more and the compromised and mediocre, of which there is by far the greater majority, will achieve appreciably less thus real averages for all stock will be a fair bit lower.
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