16/08/2011 - Global unrest in times of austerity
by HO
London's issues are global
MARKET COMMENT August 2011
London – a global City facing global issues
It has been widely predicted that economic austerity and associated political opposition would result in varying kinds of unrest, including strikes, demos, and violent clashes. Far from being something new to Britain, these are, unfortunately, as familiar a part of our history as they are in most parts of the world. Regardless the particular events or incidents that “kick things off” there will always be many who will jump on the bandwagon and use such events for opportunistic theft, violence and disorder. Whilst serious damage was caused to a number buildings and businesses, and there were a handful of extremely ugly incidents of violence, in reality the extent of the damage was very localised. A number of incidents described in the media as rioting in fact amounted more to gang robbery. None of it is pleasant or excusable but neither is it exactly a meltdown of society.
A general consensus appears to have emerged where the initial faults for the scale of the troubles lay with weak and/or inadequate policing as events first sparked off. A long term position of political acquiescence towards those who elect to, or are forced from, engaging in society had led to a deliberate softly, softly approach. However the experiences of recent days has forced a major rethink, with Cameron’s ‘hug a hoody’ being rapidly consigned to the bin and replaced by a desire to bring in zero tolerance police chiefs from the US. The political debate will no doubt rage on but for sure the UK has had a huge wakeup call and the political arguments for stronger policing, tougher sentencing and zero tolerance for repeat offenders would appear to have swung firmly to the right.
There are more than likely to be more eruptions of such behaviour over the next couple of years and not just within the UK. Next time, though, in this country we can expect a more practical and robust police response to protect law-abiding people and property. What lasting effect there may or may not be on investor sentiment (particularly property investors) will become clear over time – if history is a guide it will be quite limited.
I firmly believe the issues in London are connected to those faced around the world with each country’s situation of course being so very different in its constituent parts. The nature of such events are that they erupt with little or no immediate warning. In London we saw a known criminal shot by the police in Tottenham result in expressions of violence and opportunistic theft as far away as Liverpool. In lesser stable parts of the world where the imbalances are more stark, we have seen a simple street vendor being humiliated in Tunisia set off events leading to the overthrow of a 30 year old dictatorship in Egypt to uprisings in Syria and beyond.
The injustices and imbalances in the world are not going to be corrected in the near term, if ever, and therefore my simple point is that London has simply been the most recent to hear and feel the voice of the angry.
The Push and Pull effect
Meanwhile, the property market continues apace with the biggest story perhaps being the record sale of a private house an hour from London sold to a Russian Oligarch for £140m. Whilst this is somewhat extreme, supposedly this topped the highest price paid for a single home by £4m as the previous record was the reported £136m for the One Hyde Park penthouse, the strength of the upper end of the residential market continues.
As the broad UK housing market barely limps along, and will continue to do so for some whileyet I feel, the prime markets in London and parts of the south east appear very robust.
Historically property prices have been built on the ‘push’ effect from first time buyers. The simple premise being that as new buyers enter the market, typically first time buyers in their 20’s or so, prices were pushed upwards all through the chain as demand increased reducing available supply. While this remains the case in many areas, particularly where the market is not simply domestic but very localised, the situation in prime London has been quite different.
Rather than relying on a first time buyer ‘push’, many parts of London operate on a ‘pull’ factor. This is where high prices being achieved, often as a result of inflows of foreign money, pull neighbouring values up as a result. There are two classic examples of this;
One Hyde Park, SW7
Residential property prices hit their pre credit crunch peak in 2007. It was more or less around this time that One Hyde Park was first launched for sale with its target completion for late 2010. Just up the road, another high profile development, The Knightsbridge, had been quite successfully launched a year before and was achieving average prices of £1,500psf which was a good 25% over and above typical Knightsbridge prices. Hitherto highest prices achieved in Knightsbridge were to be found in Lowndes Square but the magical £2,000psf had never quite been breached.
One Hyde Park came to the market quoting unheard of figures approaching £4,000psf. To the astonishment of many the initial phases were achieving these levels. Putting aside some imaginative marketing and well spread rumours, the reality is that around 60% of One Hyde Park has been sold and average prices now being achieved are in excess of £5,000psf.
As a result of these truly record breaking price levels, the Knightsbridge is now changing hands at around £3,750psf on average and prices in SW7 have all enjoyed the pull effect of such a high profile project with average prices for the area as a whole at around £2,000psf.
Pimlico, SW1
Bordering Belgravia to the south, Pimlico used to be part of the Grosvenor Estate. The Grosvenor Estate is arguably the most valuable and best managed privately owned property portfolio in the world. Between the two world wars, so the story goes, the then Duke of Westminster (Grosvenor is the family name) had to sell a large chunk of his portfolio to cover his late father’s death duties. The area sold off was today’s Pimlico.
Separated from the Belgravia Estate by Buckingham Palace Road and free from the strict management controls of its feudal landlord, the freeholds in Pimlico were sold off. This was followed by lax planning laws allowing a plethora of guest houses and B&B’s to spring up to service the adjacent Victoria Station. Meanwhile general maintenance and upkeep became at best re-active but in no way pro-active.
As a consequence the difference between the two parts of the old Westminster estate became ever more pronounced. Eaton Square, with its grand houses and an extension to the Kings Road dissecting it, outshone the more peaceful garden squares of Warwick Square & Eccleston Square (same architecture and period) and just a short 5 minute walk to the south. As the rich and famous competed for houses and apartments in the likes of Chester Square and Eaton Place, Belgravia cemented itself as one of the most sought after and pricey areas to live. Meanwhile, Pimlico deteriorated in to bedsit land and has remained one of the cheaper locations within the prime central boroughs of London.
And so it is today. Pimlico’s story demonstrating the pull in both directions. On the one hand high prices and the ‘snob’ value of an address in the likes of Belgravia pulling up values all around while conversely on the other hand, cheap B&B lodgings and badly maintained property in Pimlico have substantially held back values over many decades.
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