All animals are equal, but some animals are more equal than others.” George Orwell’s well-known aphorism from Animal Farm is surprisingly applicable to London’s high-end housing market today. Prime property is booming – but not all prime property is equal. Some, in fact, is positively cheap.
Finding a bargain might seem an impossible task, but there are pockets of value to be found in the UK capital – if you know how to look.
The key to sniffing out prime bargains is to identify where competition from other buyers has fallen off. The biggest losers in the market in recent years have been bankers.
Regulators have forced banks to scale back cash bonus payments and many banks now pay a substantial proportion of staff bonuses in deferred shares instead. London-based banks have cracked down further in this year’s bonus season in preparation for the new mandatory EU-wide limit on bonuses.
As a result of these changes, a lot less cash is being spent on London property at bonus time.
“There was a time when we would monitor the bonus announcements of the big banks and wait for the phone to ring, but those days are over,” says Roarie Scarisbrick, a partner at agency Property Vision, which acts for buyers of prime London property. More than a third of his clients used to be bankers, but this has now dropped to less than 5 per cent.
Prime London property consultant Charles McDowell, who specialises in buying and selling homes in Knightsbridge, Chelsea, Belgravia and Kensington, says there is a particular “vacuum” around the £10m-£15m price bracket, which he says is the “bankers’ sweet spot”. “Some of the vacuum has been filled by an increasing number of foreign buyers, but they in the main are more inclined to buy ‘lock-up-and-go’ investments, mostly flats,” adds McDowell.
As a result, homes in certain parts of London are taking months to sell, rather than days, and some sellers are reducing asking prices by up to 10 per cent, agents say.
Larger period houses in areas often dominated by European and North American residents, such as Chelsea and Notting Hill, have been particularly affected.
This is despite generally strong price growth across central London’s residential market. The average property price in Kensington and Chelsea rose 19.1 per cent in the past year, according to figures from the LSL-Acadametrics house price index.
London’s property market has been boosted by an estimated £23bn of bonus money from the financial and insurance services sector over the past ten years, with a further £14bn invested in the housing markets of the commuter zone, according to figures from estate agency Savills.
Ed Mead, director of Douglas & Gordon estate agents, which specialises in high-end central London property, says his company has seen “a cliff-like fall” in sales to banking clients this year. “The appetite among this small but vital driver for cash-fuelled, high-end housing has gone,” he says.
The drop-off in home sales to bankers has also affected other buyers. “They also drove the aspirational desire to move upmarket, so they aren’t selling what they’re [living] in at the moment either. So it’s a double whammy,” says Mead.
A popular banker haunt, Notting Hill has been hit by the bonus reforms of recent years. The area has not suffered as badly as Chelsea because it has a more varied housing ecology, with politicians and media types also common. But bargains can be had.
This is perhaps the original prime area of London. Its status as a desirable location has been eroded in recent decades as small businesses such as hedge funds moved into the area, converting period houses into office space. That trend has begun quite suddenly to reverse – the area is the accidental beneficiary of a government policy intended to boost the levels of affordable housing across the country. In 2012 the government made it easier to convert offices into housing without needing special planning permission. The rule change has triggered a wave of reconversions in Mayfair. As a result, Westminster City Council is worried about losing its local economy as high-earning businesses move eastward into the City. But it’s a plus for buyers: a lot of recently refurbished homes are now coming on the market.
As demand for London property has soared in recent years, the number of areas where house prices top £2,000 per sq ft has increased. The primary beneficiary has been Fulham. Until recently Chelsea’s poorer neighbour, the area is now bustling with activity as homeowners seek to capitalise on its new popularity by extending their homes. As a result, there is an increasing number of larger homes to be bought. Fulham has become one of the most popular areas in London for basement dig-downs – making it one of the most affordable parts of prime central London for family-sized houses.
The newest kid on the block, Battersea is also the most radical prime neighbourhood since Notting Hill was first put on the map. The reason? It’s south of the Thames. As south London’s first prime area, Battersea has benefited from the same prime sprawl effect as Fulham. With new infrastructure going in – the Northern Line extension, for example – awareness of the area’s charm is set to rise. Only certain parts – those closest to the river and with good northbound connections – have seen high price rises. As a pricing pioneer, there is plenty of value for canny prime buyers.
Chelsea is the prime market causing the most surprise. Unlike other parts of the capital, many homes in the area are proving hard to sell. Locals could be forgiven for thinking that London’s supposed prime boom is nothing but media hype. They’d be wrong – the truth is that not all prime is equal. The classy period houses that epitomise the Chelsea area appeal to a section of the market that has had a tough time in recent years: bankers. When their annual bonus season rolls around, few are splashing the cash on houses any more. By contrast, the biggest buyers in London at the moment – overseas investors – are not keen on older properties, and they want serviced apartments rather than houses.
Kate Allen is the FT’s property correspondent
Get alerts on Life & Arts when a new story is published