Vic Chhabria: Prime London property will still attract global buyers

Knight Frank

This last year saw a strong start in the global prime residential property markets as the world’s super-cities continued to grow, showing average capital value growth of 2.4 percent over 30 cities in the first six months of 2022.

However, the prime central London market was far from overheated when compared to wider domestic residential property markets. It rose steadily, reaching in May this year 2.4 percent, the highest annual growth since April 2015, but still well below its August 2015 peak by 15.3 percent.

The number of annual sales of properties valued over £10 million reached 155 in April, the most since the year to April 2016, according to Knight Frank.

Partly driving this sustained interest was the weak pound relative to the US dollar and petrodollar-based Middle Eastern currencies, making London’s prime properties even more attractive to overseas investors.

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Into the summer months the Prime Central London market continued to attract the global elite. During the summer, we sold a 1,134 sq ft two-bedroom apartment on Park Street in Mayfair to an international buyer. It traded at over £3,000 per square foot, representing the highest price paid per sq ft for an apartment in the building (excluding the penthouse) since 2014.

This sale highlights the extent to which international buyers are willing to ‘pay to play’, paying premiums for a turnkey apartment in a prime location. 

The flurry of sales of £10 million plus properties, coupled with the ongoing lifting of travel restrictions, led to a continued release of pent-up demand and further drove interest as the top end of the market.

The second half of the year saw political and economic headwinds comprising a dramatic cost of living crisis, more adverse lending landscape (after 13 years of ultra-low rates), the drop of the pound versus the dollar.

These factors, though they made the prime central London market a far more challenging environment for domestic buyers, did make it an even more attractive investment proposal for international high net worth individuals. 

The luxury sector is somewhat of an anomaly in this discussion given its audience. High net worth individuals tend to be more immune to the economic factors driving the current crisis and, as such, the luxury property market is more insulated from its impact.

One particular theme we saw was an elevated interest in prime central London new builds, particularly among international buyers, particularly those from Middle East and North Africa (Mena), as not only are they more economically and environmentally friendly, but they also offer the benefits of a turnkey lock-up-and-leave investment, something we will continue to see in 2023. 

The prospect of further rate rises will likely weigh on domestic buyer sentiment over the coming months, as the Bank of England seeks to address inflationary pressures. This is likely to outweigh any impact from a very modest cut in stamp duty.

We’d expect therefore to see heat come out of the domestic prime market in the short term, meaning we’re likely to see supply contract as domestic vendors hold out to see what the market does.

At rates of in excess of 5.5 percent, it makes far less sense to borrow unless one has to, meaning we’re likely also to see the number of transactions reduce in 2023. 

Buyers that are doing so with no leverage are in a strong position and most sellers will pay attention to offers from cash buyers. Buyers could also take advantage of their position and negotiate a slightly better price of their acquisition based on their ability to transact swiftly.

Buyers from the Mena region will be in a position to capitalise on this as generally, they look to achieve no debt and buy outright.

This recent volatility will mean that there is still a significant opportunity for overseas buyers. What can’t be forgotten is the prime central London market’s uniqueness. There is very limited opportunity for new development – making the supply of new luxury property extremely tight.

Then there’s the cachet of owning a grand, elegant mansion, whether Regency, Victorian or Edwardian; properties that will no longer be built. Whether old or new, these properties are all concentrated in a small area in one of the world’s most dynamic and international cities.  

In 2023 the combination of London’s global city status, low value of the pound, stability compared to bubbly competitors and restricted supply of top end properties means the Prime Central London market will remain a highly desirable location for high-net-worth property buyers.

Vic Chhabria is managing director of London Real Estate Office