issue one 2013… · 2016-07-25 · the world wealth report 2013, from capgemini and rbc wealth...

Issue one2013

London and global insight by Strutt & Parker

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People buy and sell property around the world for a multitude of reasons. For some, it is a personal and emotive transaction; for others, it is simply about returns, income and yield. Ultimately, however, everyone shares the same goal – to ensure that their money is safely placed and that they have researched the options thoroughly.

This journal seeks to review London’s place in the global property world. We have a passion for this great city, and through these pages explore its place within the wider residential context of its international counterparts.

The chapters enclosed move through emerging locations, changed by transport and infrastructure; the tax benefits and pitfalls of London, Tokyo, New York and Singapore; and the new-build residential market that is acting as a magnet to global investors.

I hope that our passion is evident but, more importantly, I hope that the topics and features are of use and insight to you in your property journey.

Andrew Scott, Partner and Head of London Residential,

Strutt & Parker

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Fast-moving markets offer opportunities and

challenges. Graham Norwood identifies six factors

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Why London is still wearing the safe-haven

badge of honour. Chris Alden reports

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We live in taxing times. Lawrie Holmes looks

at the impact of the world’s fiscal regimes

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New prime projects must meet growing demand.

Caroline McGhie explores the new London hotspots

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Peter Buhlmann takes stock of potential

threats to key global property markets

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Analysis of domestic and international

market trends by Stephanie McMahon

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Asia tops wealth creation chartsThe number of high-net-worth individuals (HNWIs) in Asia has surged in the past year. There has been a 35.7% increase in Hong Kong and a 22.2% rise in India, thanks to strong performances from local real estate and stock markets. The World Wealth Report 2013, from Capgemini and RBC Wealth Management, found that Asia has 3.68 million HNWIs worth a total of US$12 trillion. The report predicts that Asia’s HNWI population – which includes other growth areas such as Singapore and mainland China, and accounts for 25% of the world’s total – will increase at one and a half times the global annual average over the next five years.

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Monitor

What will influence property markets in the months ahead? Graham Norwood highlights

six key factors impacting on residential super-prime hotspots around the globe

Ultra-prime buyers drive Londonmarket London has 4,224 ultra-high-net-worth individuals, each worth more than US$30 million. This is more than any other city and a key factor driving the market for ultra-prime homes, says WealthInsight, a consultancy that studies global wealth. The UK capital is well ahead of runners-up Tokyo (3,525) and Singapore (3,154). New York City is fourth on the list with 2,929, although this figure doesn’t take account of the significant number of wealthy individuals who live on exclusive islands outside of the city area. London also features in the top three global cities when it comes to the very wealthiest residents, with 54 billionaires, behind New York City’s 70 and Moscow’s 64.

WealthInsight’s analysis is based on data from 60,000 of the world’s wealthiest individuals. London’s strong performance is attributed to its political stability, friendly tax regime, good international transport links and high-quality education.

Why cash buyers are kingThe more expensive the property, the less likely it is that the buyer will require mortgage financing. In prime US locations, such as Los Angeles, New York, San Francisco and Miami, between 70% and 100% of homes purchased for over US$5 million required no mortgage financing, according to data from Christie’s International Real Estate.

Over 50% of US$5 million-plus homes elsewhere – including London, Hong Kong and Toronto – were also bought in cash, reflecting the relative economic strength of ultra-high-net-worth individuals, despite the downturn.

The exception is France. In Paris, 65% of US$5 million-plus purchases involve borrowing, rising to 95% on the Côte d’Azur. This level of borrowing is not caused by lack of funds. Mortgage financing in France reduces tax penalties on high-end buyers, making it a more cost-effective option, irrespective of a purchaser’s ability to buy outright.

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African luxury market favoursbigger homes Market analysis from South Africa shows high-end homes appreciating strongly in value. Luxury property in Cape Town and the Western Cape is particularly sought after. The country’s most respected index, produced by Absa, part of Barclays, reveals that the value of the largest homes, up to 4,000 sq ft in size, increased by 360% since 2000 – more than any other sector of the housing market. Standard Bank, another South African finance house, says average house prices across the country have grown 7.8% in the year to summer 2013.

While there has been a building surge of 11.8% to meet growing demand for smaller homes, the increase in newly built large properties for the wealthiest buyers has been “a meek 1.6% year-on-year”, says a Standard Bank spokesman. This suggests that future price rises are likely.

Spain offers residency towealthy buyers Spain has followed Portugal and Greece in offering residency incentives to ultra-high-net-worth individuals. The Madrid government says anyone from outside the European Union buying a home worth €500,000 or more will gain residency. This gives the property owners the right to travel freely within the Schengen zone of 26 European nations. Although prices in parts of the Spanish market continue to soften, there has been a significant rise in international interest in luxury villas since the incentive began in the summer. As a result, local agents predict a stabilisation in value of the country’s most exclusive homes.Graham Norwood writes for the

Telegraph, Financial Times and

Observer. He is a judge at the 2013

International Property Awards.

Dubai set for residential revival Two independent surveys suggest that Dubai’s housing market, home to some of the Middle East’s most luxurious property, is recovering. But this time, the market is avoiding the problems that led to its 2008 crash. A report by Standard Chartered bank, entitled Fundamentals, Not Speculation, says that recent price rises in the emirate have not been accompanied by the high-value mortgages, minimal planning regulations and glut of off-plan sales that characterised the last boom. Likewise, Fitch Ratings agency says Dubai’s residential price rises this year (30% at some high-value schemes) are partly because the emirate’s safe-haven status attracts investors from more troubled parts of the Middle East. Financing for new Dubai developments is also more limited than in 2008, which may help avoid a repeat of the over-supply that contributed to the last downturn.

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These are heady times for ultra-prime property in London. Against a background of weak domestic growth, prime central London prices rose by 19% between Q4 2011 and Q1 2013, according to a report produced by Fathom Consulting for Development Securities that measured prices in eight of London’s top postcodes. The star performer was SW7, where prices were up by an impressive 30%. This compares, over the same period, with a 4% rise in Greater London property prices (according to Halifax), a 25% rise in the sterling value of global equities, and a fall in the value of a rival physical asset, gold.

Fathom is already calling it a “modest bubble”, but believes prices could nevertheless go forward from here. So what has caused the strong performance

and are price increases in ultra-prime central London property sustainable?

At the heart of the rise is a simple economic reality: global demand is outstripping local supply. “Emerging economies such as Russia, India and China are creating new millionaires and billionaires,” says Charlie Willis of Strutt & Parker. “London has global appeal and ultra- high-net-worth individuals want to own a home here.”

These cash-rich global buyers are chasing scarce examples of top-quality, highly desirable property in the “golden postcodes”. To put it simply, there isn’t enough real estate in the right areas to satisfy demand.

“If we’re looking at the West End – Mayfair, St James’s, Kensington and Chelsea, and Belgravia – these boroughs aren’t getting any bigger,” argues

In a league of Its ownNo asset class matches the performance of London’s ultra-prime property. But what is really driving the world’s most elite real-estate market? Chris Alden reports

Insight

A collection of essays highlighting the key issues

facing today’s global property market investors

Strutt & Parker


“The biggest factor driving

ultra-prime property prices has been

‘safe-haven flows’ by global buyers

into sterling-dominated assets”

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Stephen Rees, Head of Real Estate at Coutts. He describes having a Knightsbridge or Belgravia address as a “badge of honour” for the globally rich.

But just why is the world buying up the best bits of London? Erik Britton, Director of Fathom, argues it’s mainly economic factors that are responsible for the recent boom because the fundamental lifestyle elements that make London a global city have been in place for decades.

“There have been lots of benefits and upsides to London over a long period of time,” he argues. “The use of the English language, proximity to mainland continental Europe, congenial culture, transport links, property rights being observed, a tax regime reasonably accommodative to foreign purchasers – all of those things have kept the price of property in London high. The question is: what’s changed over the past few years that’s caused prime central London property prices to accelerate relative to the rest of the UK?”

With a good quality of life already established, Britton believes it’s hard economics that have altered,

in a le ague of its own

in particular the search for diversification among the global elite. Fathom’s research shows the biggest factor driving ultra-prime property prices in recent years has been “safe-haven flows” by global buyers into sterling-denominated assets. This happened first in 1997–99, when investors moved into sterling as a hedge against the imminent creation of the euro, and then in 2010–11 when investors moved into sterling assets to hedge against the break-up of the euro. Those two hedges, in Fathom’s model, are still in place.

There is also another factor in Fathom’s analysis: quantitative easing. The US Federal Reserve’s bond-buying programme has flooded the global financial system with money, helping to raise asset prices across the board, especially over the past year. According to Fathom, a premature unwinding of this process could see a potential downslide of 15% to 20% for prime central London property prices as asset values decline relative to cash. If that risk doesn’t materialise, though, prices could head even higher. “Valuations are stretched but that doesn’t mean they can’t become more stretched,” says Britton.

However, according to Matthew Pointon, Property Economist at Capital Economics, there is a bigger risk than the end of quantitative easing: the possibility of a UK Mansion Tax.

“Both Labour and the Lib Dems have confirmed that if they win the next election, they will introduce a tax on property worth over £2 million,” he says. “If that is put into place, the main impact will be an immediate drop in values for those homes because tax is nearly always capitalised into property values.”

But Pointon also points out that the relatively high level of cash purchases in London helps to insulate the ultra-prime market against some changes in government policy. “For example, with so many cash buyers, investors in the best properties are much less vulnerable to a spike in interest rates,” he explains.

Despite the view of economists that hard-asset allocation factors are at play, could there still be hidden ‘soft’ factors holding up ultra-prime prices?

These softer factors are hard to measure and even


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harder to prove, but they could explain why London property prices have outperformed economic models in recent years. Rees believes they have helped to establish London as the pre-eminent global city in its time zone. However, it’s a status that has had to be earned.

“Whether you’re here for arts, education or business, you can argue that London usurps Frankfurt, Paris and probably Berlin as the place where you can touch it all,” he says. “But I remember the 70s and 80s – there was a battle for London to be a global city. Now it truly is a global city – Mayor Boris Johnson is not having to do a sales job about it.”

So, a stretched asset market or a city cementing its place at the heart of the global elite? Time will tell, but in the meantime, take a tip from an estate agent who has been watching the London property market for 18 years.

“Everything about this market is unique and that’s the secret of its success,” says Strutt & Parker’s Willis.

“It is driven by individuals chasing rare properties in just a handful of locations. There really is nowhere else like it in the world.”Chris Alden writes for the Guardian and Strategies for Growth

ONE HYDE PARK SW1 Home to the world’s most expensive triplex apartment, this iconic Knightsbridge development sets the benchmark for residential design, luxury and service.struttandparker.com

cHEStER SquARE SW1 Lonres.com confirms that, 53 Chester Square in Belgravia, sold by Strutt & Parker in 2012 for £32 million, was the most expensive mews house per square foot to come to market. struttandparker.com

A city with no limits?

Governments around the world are raising taxes for ultra-prime homes in an attempt to increase revenue and control their local property markets. However, not all governments are taking the same approach as they face widely different economic challenges and political pressures.

These variations in tax regimes are having a direct impact on the purchasing decisions of wealthy property investors. In the UK, for example, the government imposed an annual tax on homes worth £2 million or more held in companies or similar entities. Initially proposed for all residential dwellings, this was then limited to dwellings held for private use. It also

increased Stamp Duty to 7% on the sale of houses worth £2 million-plus.

According to Kersten Muller, Partner in real-estate tax at accountants Grant Thornton, this had an immediate effect on the market. “There was a drop in transactions in the £2 million to £5 million bracket,” he says. “But if you look at transactions of £10 million or more, there was little impact, despite the intention of the tax to cool the market and, of course, to raise additional revenue.”

For buyers in this elite price bracket, London’s reputation as a safe haven may well outweigh changes in its tax regime. With wealthy overseas buyers continuing to be active in the capital, Britain’s tax

Taxing maTTerSChanging global tax regimes are having a direct impact on the decisions of ultra-high-net-worth property buyers. By Lawrie Holmes

Strutt & Parker


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“The UK is in a favourable position

compared to European countries such as

France, where there is an expectation that

the government will squeeze the rich”

collector netted £223 million from transactions on £2-million-plus households in the year to April 2013. This is 50% more than it anticipated.

Piers Master, a tax Partner at law firm Charles Russell, believes investors were also reassured by announcements there wouldn’t be further hikes. He says this puts the UK in a favourable position compared to European countries such as France, where there is an expectation that the government will squeeze the rich.

“The perception about the overall tax burden is terribly important over the long term,” he says.

Other governments have taken far more aggressive measures to control their property markets. This is especially true of Hong Kong, which doubled Stamp Duty for properties valued at over HK$2 million and placed lower limits on loan-to-value thresholds for mortgage lending in February 2013. The city also penalises those selling their properties within three years. This was deemed necessary after its real-estate market rose 103% in the period following the collapse of Lehman Brothers in 2008.

During the same period, Singapore’s real estate rose 53% as, along with Hong Kong, it attracted high levels of non-residential investment. Singapore now has an Additional Buyer’s Stamp Duty of 15% for overseas purchasers, on top of a standard rate of around 3%. The recent budget also set out an additional increase in property tax for high-end residential real estate due to be phased in over 2014–15.

The measures taken by Hong Kong and Singapore particularly affected Chinese buyers. In Hong Kong, for example, mainland Chinese nationals amounted to 18% of luxury buyers in the first quarter of this year, down from 43% in the third quarter of last year, according to the Centaline Property Agency.

This could have unintended consequences for the global property market, says Professor Bob Edelstein of the Haas School of Business at the University of Berkeley in California. He believes these tax regimes are diverting Chinese investment into the international market, a flow likely to continue if plans to raise taxes on premium property in China, in places such as the

TA XING MAT TERS


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greater Beijing area, are implemented. “Rich Chinese with a distrust of the stock market will continue to acquire high-end residential property elsewhere as local governments look to raise taxes on transactions,” he explains.

One destination may be the US, which is unlikely to raise taxes on prime property. “America is a big country that welcomes outside investors,” says Edelstein. “Although President Obama might be keen to tax the rich more, a political logjam will prevent any such measures in the near future.”

However, according to David Cadman, visiting professor at University College London, the attraction of taxing the wealthiest may be too compelling for many governments.

“In difficult economic times and with various pressures on governments to share the burden of taxation, taxing ultra-high-net-worth property could prove increasingly popular,” he explains. “Investors

may well ask: ‘Is it going to persist or change?’ If I were a ultra-high-net-worth property buyer, I wouldn’t bet on it going away.”Lawrie Holmes, former Business Editor of the Mail on

Sunday, is editor of Financial Management magazine

hong kong The Arch, a landmark deluxe development located above Kowloon Station along Western Victoria Harbour, offers residents unobstructed full-harbour views. christiesrealestate.com

dominican republic A glorious 12,500m2 estate in the exclusive Casa de Campo resort. The Caribbean tax haven offers financial advantages for overseas investors. christiesrealestate.com

Global opportunities

Despite the recent recession, London’s prime residential homes have delivered exceptional returns. But where are the new areas that will see the highest levels of growth in the future?

According to Bridget Rosewell OBE, influential economist with Volterra consultants and formerly Chief Economist at the Greater London Authority, smart investors should focus on London’s new frontiers: overlooked residential areas that are being upgraded and fringe areas near existing prime neighbourhoods.

“The opportunity exists in old residential areas for reinvestment in transport and the conversion of offices

into residential,” she says, making the comparison between the transformation of Notting Hill in the 1980s, from a run-down area to high-end desirable address, to the changes currently under way in Vauxhall and the South Bank.

Improvements in the Tube service, new Underground stations, Crossrail and the building of new embassies are all useful catalysts. But it’s still down to developers to create the right product for affluent purchasers, who are often from overseas.

“The challenge is to create the quality of development that will attract the right buyers,” says Rosewell.

THe neW fronTierSTransport upgrades and iconic developments are creating new prime residential areas across London. Caroline McGhie finds out how to spot the neighbourhoods that will deliver the strongest capital returns

Strutt & Parker


“True prime is where property has reached

£2,500 per square foot. Newer areas are

priced at around £1,500 per square foot”

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“International buyers can be sure there won’t be a planning free-for-all so land values will stay high, which makes a good investment.”

A quick look at the supply pipeline tells you the strength of demand. Residential development research specialists Molior looked at 382 schemes across the capital and found that about 8,800 units began construction in the first half of 2013. Of these, 42% are in inner London, 35% in east London and 23% in outer London. Tellingly, about 60% of the units have already been sold.

They also found that developers in the East End have upped their game by building flats with a West End finish, luxury specification, concierge services and parking. These developments attract large numbers of Asian purchasers, who buy into the lifestyle and fast transport links.

Mark Dorman, of Strutt & Parker’s London Residential Development and Investment division, gives more cautious advice to his clients about where the new frontiers may lie, advising them to stay close to prime central enclaves.

“London’s prime areas were originally based around Knightsbridge, Kensington and Chelsea,” he explains. “But buyers are developing an interest in less well-known areas north of Hyde Park, north of Oxford Street and mid-town or east of Oxford Street. These include Fitzrovia and Covent Garden. There’s also much to be said for Pimlico and Victoria, which improve day by day. Two high-quality residential developments in Victoria Street – Kings Gate and 55 Victoria Street – are going to have a significant impact on the profile of the area.”

According to Dorman, true prime is where property has reached £2,500 per sq ft, whereas the newer areas are priced at around £1,500 per sq ft.

Investors are also focused on the River Thames, with the South Bank riding high on the success of Tate Modern, the London Eye and the foodie allure of Borough Market.

“The river has always formed a boundary, with wealth settling on the north rather than the south bank,” says Dorman. “Neo Bankside by Tate Modern is somewhere no-one would have thought of living five

The new fronTiers

55 Victoria Street SW1 The new development of 54 apartments, ranging

from studio flats to penthouse residences, boasts 24-hour

concierge, gymnasium, Zipcar club membership, a lushly landscaped courtyard and an eighth-floor sky garden.

struttandparker.com


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years ago, but now penthouses with fantastic views of the City are selling at £8 million.”

With growth in values slowing in homes above £2 million in prime central London, partly due to recent changes in tax laws, there is likely to be increased investment by high-net-worth individuals in property below that benchmark. Monika Ward, Deputy Head of Research at AXA Real Estate, which manages €45 billion of assets worldwide for institutions and individuals, is developing its strategy for entering the UK and London market. “Despite signs of overheating in prime central London, there will be further growth but at lower levels,” she says. “The stronger growth will be on the fringes. We are interested in investing because we felt the UK is further advanced cyclically in the recovery than elsewhere in Europe.”

When it comes to discovering the new frontiers for London’s prime homes, buyers should follow the holy

trinity of property development: improved transport, excellent build quality and, perhaps most important of all, strong interest from overseas investors. Caroline McGhie is Chief Property Writer for The

Sunday Telegraph

Kingsgate sW1 100 new residences, from studio apartments to penthouses, with 24-hour concierge, secure underground parking, private balconies and terraces. struttandparker.com

the courthouse sW1 New studios, one-, two- and three-bedroom apartments and penthouses in the heart of Victoria. Many offer triple-aspect balconies and terraces.struttandparker.com

New kids on the block

The global ultra-prime property market appears to be immune to the economic turbulence that has swept the world since 2008. Demand for top-tier residences in some cities has boomed as buyers have sought to put their wealth in safe, tangible assets. With a changing global economic situation, are risks now appearing in the world’s most exclusive property markets?

London: ExposurE to gLobaL capitaLThe international nature of the capital’s ultra- prime property buyers means the global economy has a direct impact on market values, according to James Forbes of Strutt & Parker. “In Knightsbridge, Mayfair and Belgravia, 70% of the buyers are international,” he says. “This makes the market particularly

sensitive to the changing values of global assets.”At the moment, currency fluctuation has actively

encouraged property sales, while unsettling political events in Europe have resulted in wealth moving to the relative stability of London. However, the capital’s reliance on international buyers could create vulnerabilities in the future. “The euro has strengthened as concerns about the eurozone have fallen away,” says Forbes. “If the need for a safe haven diminishes, then demand in London could slacken and prices may soften. Ultra-high-net-worth individuals rarely have property in just one city. As the global outlook changes, they may begin to rebalance their portfolio to reflect other concerns, such as a return on investment or a desire to buy property in their home countries.”

reality bitesThere are risks as well as rewards when it comes to investing in ultra-prime property. Peter Buhlmann assesses the future fortunes of key global hotspots

the New froNtiers


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New York: CoNCerN about Capital gaiNsThe ultra-prime property market at the end of 2012 was resurgent. Up-coming increases in Capital Gains Tax, record low interest rates and the availability of luxury property boosted volumes and prices. The highest residential sale price for New York was achieved when a single residential property was sold to an international buyer at the full asking price of US$88 million. At the end of 2012, sales of properties valued over US$10 million were 44% above the same period in 2011, according to broker Brown Harris Stevens.

The rush to beat the introduction of higher tax rates has been at the expense of sales during 2013, which recorded a marked drop. The increase in Capital Gains Tax from 15% to 23.8% for those in the top income brackets now makes for an expensive sale. Hardest hit are those who bought before 2003 and have enjoyed substantial capital gains.

It all adds up to a slowing market and a certain cooling of sentiment. “New York remains a high priority for those with business interests in North America,” explains property expert Henry Pryor. “But there are those who are concerned about government intrusion, specifically the change in Capital Gains Tax.”

tokYo: FaCiNg stiFF CompetitioNCurrent sentiment is equivocal about Tokyo’s investment potential. “I would argue Tokyo is no longer in the premier league,” says Pryor. “Investors who are prepared to take a gamble are buying in mainland China.”

His views are supported by research from global management consultancy AT Kearney. Its Global Cities Index suggests that Tokyo will be rivalled by Shanghai and Beijing within 10 to 20 years. Yet Tokyo currently sits at number four in the index, with the weak yen making properties 15% cheaper than a year ago for foreign buyers. At the same time, a move by Tokyo’s ageing population towards the city centre and its more convenient services is expected to boost property and rental values.

Even so, according to AT Kearney, there is a longer- term threat to the property market: Tokyo’s economic relationship with other cities. Global wealth, and

the accompanying demand for ultra-prime homes, tends to flow through business contacts between cites. The template is NYLON (New York–London), linked by financial services and political ties. While LATOK (Los Angeles–Tokyo) may emerge, the strategic triad of Shanghai–Beijing–Hong Kong is a stronger contender, which would move Tokyo out of the top five global players.

siNgapore: iNCreasiNg goverNmeNt iNterveNtioN The international nature of Singapore makes it susceptible to changing currency values. Andrew Tan from propwise.sg, a leading Singapore property commentary site, believes this fundamental issue should be monitored by investors over the medium term.

It’s not the only note of caution raised by experts. The willingness of Singapore to exert control over the property market is also unsettling. The government has intervened seven times recently with measures designed to cool the market. As well as raising Stamp Duty, it has introduced new restrictions on permanent residents buying landed property (any property for the purpose of residence, apart from flats and condominiums of six or more storeys). “These are measures that are meant to control the present market,” says Tan. “But they may well impact on future growth.”Peter Buhlmann is Editor of Grant Thornton magazine

“With a changing global economic

situation, are risks now appearing in the

world’s most exclusive property markets?”

Strutt & Parker


We l ive and work in a world of fast- changing markets and ever increasing investment volumes; in the reg ion of US$114 bi l l ion was invested d irect ly into commercia l real estate a lone across the g lobe in the f irst half of 2013. The need to understand the macro is , of course , signi f icant. However, u lt imately, investment comes down to local market dynamics and asset-by-asset oppor tunit ies.

Stephanie McMahon, Head of Research, Strutt & Parker

UHNW_16_Intelligence_des9.indd 16 14/10/2013 10:28

Luxury home market buyer breakdownIn 10 indexed cities identified as the most important locations in the world, demand for luxury homes outstripped supply. Top-tier properties priced above US$1 million achieved record prices globally in 2012, with ultra-high-net-worth international buyers driving the sales coupled with strong interest from local entrepreneurs.

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Intel l igence: internat ional

Our luxury residential markets are global with buyers seeking both primary and investment property across

the world’s greatest cities and leisure locations. Although some markets attract international wealth, others are

also buoyed by their domestic markets. In New York, for example, on average 70% of transactions are undertaken

by local buyers – a burgeoning trend for London, too. The luxury buyer in the US often purchases a home for

their primary use, whereas Hong Kong and London are more about secondary or additional properties. We view

currency fluctuations as a sweetener to a deal. However, due to foreign exchange differences, it is clear that

comparing a US$1-million price banding across markets results in dramatically different levels of potential stock.

As a result, liquidity in this price bracket in the London and Côte d’Azur markets is substantially higher

than that of the US cities. From an exit strategy perspective for investors, this can prove very attractive.

los angeles new york dallas toronto hong kong

70% 70% 75% 8 0% 8 0%

30% 30% 2 5% 20% 20%

côte d’azur london miami san francisco paris

10% 4 0% 55%

6 0% 62%90% 6 0% 45%

4 0% 38%

Non-local buyers (everyone else, including international) Local buyers (residents within the city)

Source: Christie’s International Real Estate

Strutt & Parker


Intel l igence: internat ional

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What US$5 million buys in 10 global cities Globalisation, economic development, wealth deposits and technology attract ultra-high-net-worth individuals to key global urban centres where knowledge, capital and culture intersect.

san francisco Bedrooms_6 / Baths_5.5Size_5,627 sq ft

Classic Queen Anne circa 1895

U S $ 4 .75 mi l l ion

ToronTo Bedrooms_5 / Baths_5

Sleek, contemporary loft-style home

U S $ 4 .97 7 mi l l ion

new york Bedrooms_4 / Baths_3.5

Pre-war apartment on Park Avenue

U S $5.175 mi l l ion

london Bedrooms_4 / Baths_3Size_1,742 sq ft

An exceptional upper maisonette

U S $ 4 . 652 mi l l ion

Paris Bedrooms_3 / Baths_3Size_1,991 sq ft

In a Haussmanian-style building

U S $5. 30 4 mi l l ion

los angeles Bedrooms_3 / Baths_3Size_3,000 sq ft

In the West End’s Sunset Strip

US $ 4 .995 mi l l ion

dallas Bedrooms_5 / Baths_8.2Size_8,340 sq ft

Exquisite Tuscan-style estate

US $ 4 .999 mi l l ion

miami Bedrooms_7 / Baths_4Size_8,911 sq ft

Captivating luxury family home

U S $ 4 .95 mi l l ion

côTe d’azure Bedrooms_4 / Baths_4Size_3,552 sq ft

In the picturesque town of Mougins

U S $5. 21 mi l l ion

hong kong Bedrooms_4 / Baths_2Size_1,574 sq ft

Tastefully decorated seaview apartment

U S $ 4 .7 73 mi l l ion

Source: Christie’s International Real Estate


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Square foot sale price per residential unitDespite the 10 indexed cities being among the most important locations in the world, there is remarkable variation in prices per square foot for the luxury market. In some cities, truly luxurious homes can be found at around US$5 million, although the type of home that comparable values buy in the top cities varies (see world map left).

Average market price for properties over US$1 million

Record price

Listings over US$1 million, 1 October, 2011 to 30 September, 2012

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3

Luxury market inventoryThe luxury property market is small in capacity: fewer than 33,000 properties over US$1 million were offered for sale in 10 indexed cities in 2012. London and the Côte d’Azur top the list.

par

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ng

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Total listings over US$1 million as of 30 September, 2012

All information presented on pages 17–19 courtesy of Luxury Defined: An Insight Into The Luxury Residential Property Market, Christie’s International Real Estate, 2013. christiesrealestate.com/luxury-defined

Strutt & Parker


Intel l igence: London resident ia l

20

London residential has acted as a magnet for international investment, with buyers taking advantage of both

the second-hand prime markets and the high-specification new-build opportunities within central London.

The traditional flow of international money into existing houses and flats has been in areas such as Knightsbridge

and Belgravia, where up to 70% of our buyers can hail from overseas. In these markets, buyers are generally

seeking properties for their personal use, whether as primary or secondary homes. Conversely, the new-build

market attracts capital seeking a global investment opportunity that will provide both capital growth and yield.

The potential return is aligned to location and pricing risk; core property will deliver a yield more akin to

low-risk assets, operating a more conservative margin above the risk-free rate.

Percentage of UK buyers in key London hotspotsThe majority of sellers (76%) are UK domestic while 63% of buyers are UK domestic, with notable variations in key prime central London enclaves.

Niche London hotspots Within global cities are niche postcodes that command the highest prices. London is home to the UK’s 10 most expensive streets.

AverAge property vAlues (oCtober 2013)

1. Kensington Palace Gardens, W8 £ 37,927,102

2. The Boltons, SW10£ 24 ,131, 266

3. Grosvenor Crescent, SW1£19, 653 ,4 61

4. Courtenay Avenue, N6£10 , 572 , 554

5. Park Palace Villas, W2£ 9,955, 345

6. Compton Avenue, N6£ 9, 815,4 62

7. Frognal Way, NW3£ 9,727, 875

8. Montrose Place, SW1£ 9,4 0 0 ,973

9. Carlyle Square, SW3£ 9, 2 31, 514

10. Cottesmore Gardens, W8 £ 9, 2 2 2 ,496

ChelseA, south kensington And fulhAm

kensington And notting hill

knightsbridge And belgrAviA

12 months to deCember 2012

12 months to june 2013

6 0% 67% 47%

4 0% 33% 53%

Buyers from outside the UK Buyers from the UK

6 3% 56% 75%

37% 4 4% 2 5%

Source: Strutt & Parker Source: Zoopla Property Rich List 2013


Strutt & Parker

21

12 ,0003,400111,500

Greater London 500 units plus planning commissions, construction or complete and unsold.

Westminster All units, construction or complete and unsold.

neW Homes New home starts and sales per annum.

New-builds to meet demandWith a shortage of housing stock in prime central London, new-build construction is set to meet demand from UK investors and overseas clients. In 2012, a total of 126,900 new builds were given planning permission, were started or completed across Greater London and Westminster.

6,00

00Q2

2010

Q1

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Net private sales by quarter in LondonSince Q1 in 2010, private property sales in London have exhibited steady growth, with a notable spike in Q1 of this year. This was attributed to some major schemes, such as Battersea Power Station, being successfully brought to the market.Source: Strutt & Parker; Molior

Source: Strutt & Parker; Molior


Intel l igence: commercia l

22

The international investor has been pivotal to the London commercial markets in recent years.

Institutions, sovereign wealth funds and ultra-high-net-worth individuals have sought a home for

their capital in a market of liquidity, transparency and of a critical mass that results in both return

and relative safety. Yields have sharpened accordingly. In 2012, more than 50% of UK investment

was from overseas and we anticipate a similar figure for 2013.

Q2 2013 transactions £2 billion lower than Q1 2013, marginallydown year on yearThe first quarter of the year was particularly strong with some spectacular investments, including the £472-million sale of Ropemaker Place in the City of London from British Land to Frasia Properties S.à r.l., an international consortium of investors.

Overseas net investment dominates in Q2 2013While UK institutions and property companies have been holding pretty steady on their UK investment, overseas investors have sought central London safety in commercial property, being the dominant investors. Private individuals were the only other net investor group in Q2 2013. u

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rs

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ate

ind

ivid

ua

ls

0

-800

1200

overseas investors 47%

private prop co 9%

quoted prop co 7% uk institutions 24%

others 5%

private individuals 5%

occupiers 3%

Source: Property Data

Source: Property Data


For more information, please visit

struttandparker.com

Strutt & Parker is the sole UK affiliate of Christie’s International Real Estate, working with 137 affiliates, 939 offices and 25,409 agents across 45 countries.

Published on behalf of Strutt & Parker by sundaypublishing.com The views expressed in this publication are not necessarily those of Strutt & Parker or the publishers.


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