Super-Prime London Property Report 2011

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There is no hard and fast definition to the prime London market, although 1m has generally been accepted as the entry point. Similarly the super-prime market lacks a formal definition. Our view is that 10m is the appropriate starting point, which effectively means this segment encompasses the top 1% of the whole of the central London marketplace.

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<ul><li>1.RESIDENTIALRESEARCHthe Worlds Most Desirable Residential MarketThe Super-Prime London Report 2011 SPRING 2011MARKET SECURITYPage 3 SUPER-PRIME MARKET PERFORMANCE Page 6</li></ul><p>2. Super-Prime London Survey 2011 introduction It wasnt very long ago that Londons status as the worlds only true global capital was received wisdom by just about every economist and wealth analyst the world over. Back in 2007, at the top of the bull market, it While not limited to the UK, a fusion ofWhen does Primewas generally accepted, especially by those resentments against mega-bonuses, bankbecome Super-Prime?in Londons business world, that while Asias bailouts, MPs expenses and of course theThere is no hard and fasteconomies would no doubt do great thingsrecession, has certainly given this trend adefinition to the prime London over the next few years and that Brazil and particular resonance in London.market, although 1m has Russia were looking very interesting it was London that would be the real beneficiary ofThe combination of the new 50% income tax,generally been accepted this surge in global wealth creation. the bonus tax, tighter non-dom rules and theas the entry point. Similarly ongoing sniping at the City and bankers fromthe super-prime market At that time it seemed that every emergingpoliticians has created questions not only overlacks a formal definition. market oligarch was heading into centralthe ability of London to remain as a globalOur view is that 10m is the London to confirm their arrival on the global wealth centre, but even the desirability, in theappropriate starting point,rich list, by securing the only real musteyes of politicians, for this status to continue.which effectively means this have item; a super-prime London residentialsegment encompasses the topproperty, ideally within a five minute drive of The outcome of this debate is critical for the1% of the whole of the central Hyde Park.future health of Londons super-prime market.London marketplace. For anyone in the central London property In this report we have attempted to provide market at the time, there was a wonderful a robust analysis of the current health of sense of being at the centre of world trends. the sector, but also an informed view on the Rather guiltily, I remember deliveringoutlook for the market. a presentation close to Wall Street, in During January 2011 we interviewed 30 of the summer of 2007, to a room of rather Londons leading wealth advisors, tax lawyers disgruntled US wealth managers as I breezilyand tax accountants to gather their insight explained the difference between Londons into their clients views on London as a global residential market and Manhattans residential location. We have supplemented rather more domestic appeal.this survey with feedback direct from the Of course everyone knows what happenedmarket, from a dozen of Knight Franks agents next, with the market crash in 2008 puncturingwho deal almost exclusively in the super- any sense of prime market immunity. prime 10m+ marketplace. Despite the recent resilience of Londons Even if you dont concur with all of our findings, housing market, there has been a growingI hope that you will agree that we have at least question mark over Londons ability to retain provided a starting point for the debate. its top city status. The Y/Zen Global Financial Centres Index confirmed in late 2010 that while London remained the worlds top financial centre, closely followed by New York its lead over Hong Kong and Singapore is rapidly being eroded. More concerning for London has been the Liam Bailey broader popular backlash against wealth.Head of Residential Research02 3. is the super-prime londonmarket secure?Our super-prime London survey addresses the current and future risks andopportunities for the market.The first issue we asked our wealth, legal as a stable tax location, all of the other issuesand accountancy experts to consider wasput to our panel were viewed as issues for the Global economicthe influence of key issues on their clientsfuture which could potentially be averted by growth is nowdecision to buy in Londons super-primepolicy intervention.residential market. In figure 1 we haverunning at pre-summarised the results. Other comments provided by our panel referredrecession levels to concerns over the increasingly punitiveAt the top of the list of reasons for purchase tax treatment of trusts. In addition, while thecontributing toare the intangible elements, led by the fact new Governments stated desire to simplify wealth creationthat these buyers often have an existing the UK tax system was accepted as a positive around the worldnetwork of friends, family and businessstep, there were several concerns over theassociates in London.fact that there is a growing tendency for HMRCwhich is pouringLondons reputation as a safe-haven guidelines to be overturned retrospectivelyinto London again. by parliament or the courts, and that the mostinvestment location, combined with geo- beneficial development would be if a degree ofpolitical concerns elsewhere around the world, certainty could be reintroduced to the system.most recently for example in Egypt and Tunisia,have helped draw buyers into the market. Our agents active in the super-prime market have given us an insight into the attitudesAlso revealed in figure 1 is the fact that with expressed by vendors when they are lookingglobal economic growth now running at pre- to sell, and we have compared these over time.recession levels, this factor is contributing to In figure 3 we have compressed this feedbackwealth creation around the world which is now by considering the changing importance ofpouring into London once again. different reasons given for deciding to sellWith inflation rising in Asia, the desire to a property.add tangible assets to wealth portfolios isproving itself to be a key driver of demand.It is only the UK governments interventionFigure 1in the housing market (higher stamp duty for Why are they buying? How important are the following factors in influencing wealthy people when buying property in London?1m+ properties for example) and the UKschanging tax environment which are perceivedStronglypositiveas serious negatives; the latter point weexpand on next.The second issue we asked our expert panelto consider was the impact of recent tax andfinancial sector changes on Londons futureattraction as a wealth hub (figure 2). By somemargin the most damaging issue was felt tobe higher rates of taxation especially the 50%income tax rate.Non-dom tax changes came second, and withthe most recent official data for the 2008-09StronglyGovernment housing Have an established Debt businessnetwork of contacts(i.e. in other countries)availability security concernsThe weak pound already in LondonGeo-political / Economic performance / GDP growthMortgage nance Inationand consumer Debt sovereign market intervention The UKs changing tax environment negativeyear suggesting that the number of residents inthe UK claiming non-dom status fell by 14,000that year, there does seem to be a reasonablebasis for this concern.With the exception of one-off wealth taxes,which tend to undermine the UKs reputationSource: Knight Frank Residential Research03 4. Super-Prime London Survey 2011If there was a surge of negative reasons forFigure 2sale the tax burden or Londons perceived Status anxietyWhich of these statements most closely fits your views regarding the following potential risks todemise in 2008 and 2009 it appears that overLondons attraction as a future wealth hub?the past 12 months this has dissipated. Whilethere does seem to be a growth of downsizing80requirements from existing owners and some70surplus property disposal, our experience is that60there will be no lack of demand from buyers forthese properties, as we explain below. 50% 40Future outlook3020In terms of the elements which bode well forLondons ongoing success in attracting wealthy 10residents (figure 4), our contributors pointed0to the continued benefit provided by Londons Higher rates of Non-dom One-o wealth Loss of broadLoss of niche Security threats general taxation tax changes taxes (e.g. nancial service nancial service (e.g. terrorism)financial and business cluster. (e.g. 50%bonus taxes)sector activity sector activity income tax)to Asia to SwitzerlandThe underlying story from the results infigure 4, are that it is the lifestyle andA real and signicantA real concern nowA concern for the futureNot a signicant issueconcern nowbusiness offering which largely explainLondons attraction, followed by educationSource: Knight Frank Residential Researchand political (if not tax) stability.This high regard for Londons businessinexorable rise in international demand and theand lifestyle cluster is important. Several breadth of this demand, with over 50 different Despite somecontributors noted that they had clientswho had considered moving to Switzerland,nationalities buying property through KnightFrank in 2010, compared to only 30 or so two relocations, Londonprimarily pushed by Londons changing years previously.still retains overtax environment.This widening of international demand 800 hedge fundsThe clients determination to pursue such a points to prescience of the view noted in themanaging 300move were stymied by the need to weigh up introduction of this report, that the impact ofbillion of assets,the availability of the right infrastructure, global wealth creation is felt very keenly inemployment prospects, family and friends, central London, and in the super-prime market compared to 140schooling etc. For most people the conclusion in particular. or so in Switzerlandis that Geneva can not replace Londonscluster of contacts and lifestyle opportunities.Looking to the future, we asked our panelmanaging anThe other issue revealed in comments madeand our own sales agents to identify the estimated 15during our survey, relates to housing andnationalities they believed would begin togrow in market share in the future. billion.even office shortages. There appears tobe a general agreement from those withDespite an already significant share of theclients who have looked to make the movesuper-prime market, at 14% in 2010, there wasto Switzerland, and even other centres, a consensus that buyers from Russia and thethat these smaller, and admittedly more tax former CIS states would become even moreefficient locations, are simply unable to match important to the London marketplace. Demandthe attraction and integration of international from Chinese nationals, which was negligiblemelting pots like New York or London. until 2010 was expected to continue its recentBy way of an example of the ongoing rapid growth, followed by Indian and Middleattraction of London, our research uncoveredEastern demand.the estimate that despite some relocations, Of the newer nationalities tipped for growth,London still retains over 800 hedge funds anticipated demand from Turkey, Egyptmanaging 300 billion of assets, comparedand Lebanon ranked highly, pointing to theto 140 or so in Switzerland managing ancombination of growing wealth here and also,estimated 15 billion.unfortunately, to growing political tensionsThe biggest single trend in demand forwhich have been such a regular precursor toproperty in central London is the seemingly property demand in London.04 5. We asked our agents to define new locations Figure 3or at least locations where demand wasI am selling becauseConsidering the various reasons for sale given by super-prime vendors, have any changed ingrowing rapidly from prospective buyers.importance over the past year?The response from our agents was clear,demand for super-prime property is still led More frequentby locations in close proximity to Hyde Park,but also extends north through St JohnsWood to Hampstead, west to Chelsea andwith some demand extending to locationslike the South Bank.No changeThe potential for growing demand in thesuper-prime market along the northernedge of Hyde Park, Bayswater through toMarylebone, was noted by several agents,as was the ongoing expansion of interest inMayfair and St Jamess following the ongoingprocess of office to residential conversionsstaying in LondonI am moving from I am downsizing butThis property is surplusto requirements I am upsizing but due to the Citys loss of prestigeincreasing tax burdenstaying in LondonI am moving from LondonLondon due to an Less frequentbeing undertaken.In figure 6 we asked our agents to createa top 10 list of property requirements, basedon their work in the super-prime sector.The importance, and value, attached toprivacy in an urban environment comes out Source: Knight Frank Residential Researchvery strongly. It also reflects the opportunityoffered to super-prime buyers, allowing Figure 4them to benefit from the clustering and A healthy future?networking offered by a big world city whilst Which of these statements most closely fits your views regarding the following potentialretaining a private retreat at its heart. opportunities to London as a future wealth hub?80Conclusion 70secure demand 6050Focusing on the long-term, our survey40work confirmed that there are questionmarks over the impact of some high level30tax changes on Londons enduring appeal.20These should not be overstated, demand foraccommodation in London bounced back 10after the 2008 crisis fairly quickly and the0lifestyle oering Londons retail,restaurant andEducation London taxation status schooling The survival, albeitrevised, of the non-domEducation Londonsproperty titleHM Land Registry strength and clarity of universities political stability UKs relativeLondons nancialand business clustermarket has re-established itself.The one issue which does seem worthhighlighting is the number of times theword uncertainty was mentioned by ourpanel. One of the UKs real attractions forinternational investors and residents hasalways been its reputation for stability inlegal, political and tax affairs. This is oneA real and signicantA real concern nowA concern for the futureNot a signicant issue concern nowissue worth watching over time.Source: Knight Frank Residential ResearchDespite that proviso, as we confirm nextin our market outlook, the positivesentiment regarding the future demandfor Londons super-prime properties isreinforced by activity in the market.05 6. Super-Prime London Survey 2011super-prime marketperformanceThe central London residential market recovery over the past 18 months has faroutpaced the performance seen in the wider UK, and the super-prime markethas been at the head of this recovery.After falling sharply in 2008, super-primeand 2009, there was a sharp rise in activity inTable 1London prices began to rise from earlythe final quarter of the year. Volumes were on National Champions2009, and the market momentum drove a par with the very strong final quarter resultsthem higher up until the middle of 2010.in 2009, with over 20 10m+ sales each month Which foreign nationals doThe post-...</p>