October 2013. Hong Kong. It is a sunny Saturday morning and Freddy Chow is reading the South China Morning Post. All is well with his life, loves and bank account. Amid the sea of advertisements for developments in London, he spots a quarter page for a newly refurbished 2,000 sq ft house in SW1 for £2,000 per sq ft. How much had a friend just paid in the same postcode? £2,700 a foot! A snip! Just the sort of bargain he has been looking for.
A quick call to the estate agent, Forge & Flogit – and yes, the property is still available and an asking price bid of £4m might secure it. Freddy is used to making quick decisions. Two weeks later he is the proud owner of prime central London real estate on which he will get a yield way ahead of anything that a high street bank could give him. Perfect.
October 2014. London. The sun is not shining – but Freddy has heard this about London. The last year has not been kind to Freddy. His wife left him and the leveraged yen trade that should have put him into a house on the Peak hadn’t worked out. Anything that a bank might have given him would have been better than the yield he didn’t get from the house that he couldn’t rent. Still, the London market is hot and a profit is a profit if he sells.
Forge & Flogit have gone out of business – but a nice young man from Hackett & Boden meets him at the house. He has had the house measured – but it is only 1,500 sq ft. Freddy is understandably concerned at the disappearing square feet. The nice young man explains that Forge & Flogit had used Gross External which measures around the outside of the building and is more usually used for construction. They had also included the roof terrace. He explains that the Net Internal measurement, which he has used, excludes the stairs and circulation space – as well as the roof terrace.
The partners of Forge & Flogit, who are now living in Panama, had technically done nothing wrong but the nice young man sympathised and explained to Freddy that measurements did vary a bit depending on who was wielding the tape measure – hangovers and Friday afternoons could give a 10 per cent variance.
And the value? Freddy did think that he was sucking his teeth rather more than necessary before replying – but was even then rather shocked to hear the figure of £2.55m. But the market has gone up 10 per cent, protests Freddy. I agree, says the nice young man. But that is only £1,700 a foot, says Freddy – and my friend paid £2,700 a foot for a flat in SW1 last year in somewhere called Eaton Place.
The nice young man knew it well. It was a lovely flat and the demand for nice flats was red hot – especially by the developers Pastel & Pastel who provide all the toys that Russian oligarchs cannot do without. This flat had also had some Picasso lithographs that Freddy’s friend had bought lock, stock and barrel. Developers and agents tend to forget this when looking around for benchmarks, Freddy was warned by the nice young man.
Freddy’s house was also really in Pimlico rather than Belgravia and of course Pimlico houses tend to be a foot or two narrower and are much closer to the house behind than those in Belgravia; and the going rate per sq ft in Pimlico is £1,700 max. But they look so alike from outside, protests Freddy.
When they go inside it looks rather sad and smells of damp in the basement. A house without furniture looks so much smaller than the furnished picture in the brochure, thinks Freddy. Being quite tall he finds the sloping roof on the top floor a bit of a challenge. Apparently, Freddy learns, it is customary to measure the floor area in spaces like this up to a ceiling height of 1.5 metres. But I’m nearly two metres high, he protests. The nice young man sympathises again – but as he is an amateur jockey he doesn’t feel quite so strongly about the issue. Freddy can’t help feeling that this whole price per sq ft thing is a bit misleading: how do you apply it to a house where the first floor is nearly twice the height of the top floor and twice as light as the basement? Shouldn’t it be valued on a cubic foot basis, asks Freddy?
The nice young man looks surprised at this and says that he hasn’t really thought about it but maybe Freddy is on to something. He then talks about apples and pears – which Freddy doesn’t quite understand. I’m a bit disappointed, confides Freddy: surely it’s worth more that £2.55m?
I’ll tell you what, says the nice young man, we can get it up a bit if we use Gross Internal rather than Net Internal. That will include the stairs and circulation space. After all there are plenty of suckers who buy by the square foot – and they won’t notice, will they?
Charlie Ellingworth is a founder of Property Vision, a buyer’s adviser