Of all the world’s luxury housing markets, none is as globally connected as London, and the super-prime £10m+ market here provides a crucial bellwether for global property investment trends.
This market has faced significant pressures in recent years. These include growing political uncertainty, in part as a result of the Brexit vote and domestic electoral turmoil, but also, more critically, some sharp increases in taxation on high value properties. A decade ago, the purchase of a £10m house would have attracted a stamp duty charge of £400,000. Today, a similarly valued property would attract a charge of over £1.4m.
Unsurprisingly, these pressures have acted to slow the top of the London market. Prices have fallen by between 10 per cent and 20 per cent over the past three years.
Supply-side data points to an
increase in choice for purchasers. Available stock has increased by over a quarter in the past 12 months, with the number of newly-available properties increasing by more than 30 per cent year-on-year over the most recent three-month period. Demand-side data tells a more mixed story, with a year-on-year decline of just under a fifth in the number of prospective purchasers active in the market in the three months to the end of August. But while the number of purchasers may have fallen, those that remain in the market are more active.
Sales of properties worth £10m+ in the three months to the end of July were 28 per cent higher than in the same period in 2017, according to the most recent data available. This was boosted by a remarkable rise in the number of £20m+ transactions, which more than doubled over the same period.
As to the question who is driving this increase in activity, the short answer is that buyers are as diverse as ever. But some themes do emerge from data. Buyers from mainland China continue to grow in number, and their £10m+ market share has trebled to more than 8 per cent over the past three years. Buyers from the Middle East have seen their market share rise from 11 per cent to 17 per cent over the same period, while Russian buyers have held steady, taking around 12 per cent of all sales. One standout trend has been the strength of domestic demand, with British buyers taking 38 per cent of all purchases: the highest level for five years. The uncertainty engendered by the Brexit process does not appear to be having a significant dampening effect on the attractions of London’s most expensive properties for local or global buyers.
Centres of excellence
One of the biggest drivers for prime residential markets globally is the demand for international education. Knight Frank estimates that a total of £2 billion each year is invested in London’s prime housing market by parents looking to secure accommodation while their children are at school in the capital.
During the summer of 2018, Keystone Tutors surveyed over 130 education consultants, head teachers, heads of admissions, private client advisers and relocation agents to collate data on global trends regarding independent education in the UK. The countries with the greatest numbers of children represented among the institutions taking part in the survey were Hong Kong, mainland China and Russia.
The three greatest motivations for clients sending their children to school in the UK were: quality of education (87 per cent of all respondents); prestige of school name – including perceived future employment prospects (67 per cent); and to improve their children’s chances of securing a place at Oxbridge or other top UK universities (62 per cent). Other motivations included property investment and quality of life, as well as the higher cost of school fees in other countries.
Besides the UK, the most popular choices of countries to send children to for school were the US (mentioned as an option by 68 per cent of respondents), Canada (29 per cent), and EU countries (29 per cent). After these, non-EU countries such as Switzerland are popular choices. For university options, the US leads with 86 per cent of respondents confirming it as an option, followed by the UK, with Canada next (35 per cent), the rest of the EU (35 per cent) and Australia (20 per cent).
In the analysis of the Prime International Residential Index (PIRI 100), published in The Wealth Report back in March, prime prices in European cities were strengthening, while Chinese cities were in general seeing moderate growth in luxury residential prices. Six months on, a focus on 20 of the cities within the PIRI 100 finds these trends persisting – and some new ones emerging. As previously forecast, price growth is slowing at a global level. Across the 20 cities tracked, average prime prices rose by 6 per cent in the year to December 2017; by June 2018, this figure had dipped to 4.2 per cent. With the cost of finance set to rise in a number of markets, more stringent cooling measures being imposed, and slower growth in China’s first-tier cities, lower price growth will characterise the overall results of the Index for some time to come.
Inevitably, there are outliers. Singapore and Tokyo, for example, have seen a resurgence in growth. In Singapore, recovery is a consequence of rising foreign demand and high land bids by developers, which has fed through to new-build prices; in Tokyo, growth is linked to economic sentiment, the city’s relative value compared with Hong Kong and Singapore, and investment ahead of the 2020 Olympic Games.
Madrid continues to fly the flag for Europe, with prime prices up 10.3 per cent over a 12-month period. Berlin saw prices rise by 8.5 per cent, and Paris, where domestic buyers, buoyed by an improved economy and cheap finance, are investing once more, saw prices accelerate 6 per cent.
US cities registered positive growth in the year to June, reflecting the general health of the economy, with Los Angeles leading the pack at 7.8 per cent. In some cities, inventory levels are still rising, and it is likely to be 2019 before the full impact of Donald Trump’s State and Local Tax (SALT) reforms is known.