On the Market - Notting Hill, Holland Park & North Kensington, Autumn 2013
Tue 17 Sep 2013
Liza-Jane Kelly looks at how the London property market is reaping the benefits of an improving economy
Following a slow start to 2013, the London property market has experienced a busy summer, with record-breaking prices now a regular occurrence. There has been much speculation in the press regarding the performance of the property market, with some fearing that we are in another property bubble reminiscent of 2008. However, 2013 is a very different market and more importantly, a different economy.
Five years ago, the UK economy, affected by the global financial crisis, was overheating so much that eventual meltdown was on a scale not seen since the end of the Second World War. Today, although far from perfect, the economy is slowly regaining strength; the Eurozone is experiencing positive growth (albeit buoyed by the French, Portuguese and German economies), not to mention the US economy, which saw 2.8% growth in 2012 and 2.5% growth in the last quarter alone. This is all good news for the London property market.
Importantly, the cornerstones of the London property market remain steadfast. There is a shortage of stock and too many buyers, along with low interest rates pulling savers out of the banks and into property where they can enjoy incredibly low fixed-rate mortgages (some under 2%).
Of huge importance is the continued attraction of London to not only foreign investors, but to overseas buyers as a place to live and work. On average, 50% of our business in Notting Hill, Holland Park and North Kensington is generated from overseas money. As well as being outside of the Eurozone, we also have a stable government, a clear monetary policy and are far from conflict-stricken regions of the Middle East and North Africa. This, combined with Londons impressive capital growth and strong rental market makes the central London property market the first choice for global investors.
Today, our Notting Hill, North Kensington and Holland Park offices collectively report a 16% increase in the number of buyers per property compared to the same period last year, so its no wonder prices have seen hikes of 8%, 10% and 21% respectively, compared to the same period last year.* UK residents represent 30 to 50% of buyers across the three areas, with the remainder being an even split of overseas investors and UK domiciled foreigners.
No doubt these headline figures will bring a smile to local homeowners. Interestingly however, when you scratch beneath the surface, its clear to see that buyer behaviour has shifted. Rental investors are able to find much better yields in traditionally less favourable area such as Queens Park and Kensal Rise, where property is substantially cheaper to buy, whilst at the same time rapidly growing in value. This has left long-term investors, who are not willing to compromise on location or bothered about rental yields, left to mop up any stock not snapped up by end users. The most prevalent buyers in this market are French and Italians, who tend to pay cash for properties on the best roads in Notting Hill, Holland Park & North Kensington.
As we move into the Autumn market, we expect to experience continued high demand for property. There is a positive feel in the air the market is now moving at the bottom aided by government initiatives including the Help to Buy scheme, which although not having a direct impact in this area, is freeing up valuable mid-ladder buyers. This will no doubt be accelerated in October with the introduction of the Help to Buy mortgage guarantees for home movers (not first time buyers). For this very reason, now is a great time to sell your property the inevitable increase in stock levels next Spring, will likely reduce the premium currently being enjoyed.
Keith Gorny looks at why a failure to recognise the nuances of the different property markets within London can create a misleading impression
As reported elsewhere in the media and indeed in our own research, the property market as a whole, has enjoyed some exceptionally positive activity. However, these figures are heavily influenced by dramatic capital appreciation in the sub £2 million category, where there has been a significant increase in both capital values and transaction levels.
Given recent press coverage you would be forgiven for thinking that Londons prime central property market has enjoyed a universally positive twelve months, with insatiable demand and limited supply conspiring to inflate prices to stratospheric levels. The general consensus is that prime central values are as much as 60% up on their Spring 2009 low and while our results support this claim, it is not a figure that can be applied uniformly to all properties within our region. Broad brush reporting is attention grabbing and indicative of wider trends, but it can often be very misleading. Nowhere is this more apparent than in the residential property market, with its multitude of diverse niche markets. Until recently more useful reviews in the main, have differentiated through geography Prime Central London, Prime South West, The South East etc. However, with the advent of intrusive tax legislation and the globe trotting nature of wealth, the price banding in which a property falls is having a greater influence on its likely performance in the market.
A reduced and more regulated financial services sector, tax concerns and uncertainty over future policy manifested itself in fewer transactions in the £2m to £10m bracket over the last two quarters. Having compared notes with my associates across the industry, weve experienced a higher percentage of properties withdrawn after failing to meet the vendors price expectations.
It has been equally as challenging a period for sales north of £10m where buyers have become increasingly price sensitive and reluctant to commit. Perhaps as stability improves elsewhere, the rush to safety becomes less frantic. Land Registry figures suggest transactions remain approx. 50% per annum down on their pre 2008 levels - I suspect the actual figure may be worse given that a number of these recorded sales were nothing more than the tax efficient reclassification of owner assets.
This all said, we have achieved some excellent results over the last six months. Intelligent pricing and careful profiling has helped us deliver precedent prices on high-end properties throughout our region. Notable sales in Holland Park and Notting Hill include larger houses that have attracted interest at over 3,000 per square foot new highs for the area.
Achieving the best results is as much of a challenge now, as it has been in my twenty years of working within the super-prime market. An agent needs to proactively win authority, develop a buyers trust and engender confidence in the price being sought. In these less certain times, the best results are only being achieved by the most competent and experienced agents.
Anna Ambrose commentson the current Lettings market
The summer lettings market in Notting Hill, Holland Park and North Kensington was awash with tenants hoping to beat the autumn rush a welcome arrival for landlords, who earlier in the year, had suffered price drops due to an imbalance of supply and demand. September, traditionally the busiest time of the year for the rental market, has brought a new round of tenants and the right property at the right price is now renting quickly.
The most interesting trend to have surfaced this year, is the apparent increase in popularity of one-bedroom properties. So much so, we are achieving (on average) almost the same rent for a good one-bedroom apartment, as a comparable two-bed. To provide an example, we have just found tenants for two very similar flats in Pinehurst Court, Notting Hill, the first a one-bedroom property, the other a two both rented for £480 per week. There are several reasons why this is happening. Firstly, there has been a surplus of two-bedroom properties on the market, due in part to the legacy of the accidental landlord. Secondly, tenants are choosing to forgo the second bedroom, in preference of the extra living space, which they feel affords them a better quality of living.
The accidental landlord phenomenon of 2007-2009 has now been replaced with intentional first-time landlords i.e. home-owners choosing to retain their first property for the rental yield and Londons incredible capital growth. In many cases, particularly in North Kensington, we have seen young professionals renting up, which involves staying on the property ladder with their existing property and renting something bigger or better or both. This is partly due to the fierce competition among buyers, but also because these intentional landlords are trying a new area before committing to a purchase. A natural path for North Kensington residents is to Kensal Rise, whereas Notting Hillers gravitate westwards to Ealing or Chiswick and Holland Park residents tend to make a bigger leap to the London suburbs. In Holland Park especially, its not uncommon for these landlords to request a simple one-year contract with the intention of selling their property when the tenancy finishes, and buying in their new area once theyre sure its for them. In addition to the intentional landlord, we have also seen an increase in the short-term landlord, these are home-owners who are taking a secondment abroad with every intention of returning in several years.
Across all areas of the London lettings market, we have seen a cultural shift in renting attitudes. Tenants are less obsessive about getting onto the property ladder, and instead are happy to use their hard earned money for great quality accommodation. The current sales market has helped to shape this shift, as well as the dominance of European residents in this pocket of London, who are culturally not as accustomed to wanting to own the property they live in.
Our Corporate & Relocations Department works with a number of relocation agents and businesses of varying sizes. The team has recently noticed a shift in the types of corporate enquiries we are receiving, with a particular increase in high-end searches, which we consider to be £1,500 per week and more (a year-on-year increase of 42%). With companies becoming increasingly global, the need for experience across all markets is seen as a key attribute for future leaders, so there is a focus on relocating their senior staff. London is, of course, at the centre of this emerging trend. Just a few years ago, these same companies were preferring to relocate more junior employees to save on ex-pat packages. This movement would also explain the rise in rental property coming onto the market, whose owners are leaving their homes, and London, to spend a few years working in foreign cities. The proportion of tenancies that have been agreed with corporate tenants has increased by 12% when compared to the same period last year and the amount of rental contracts agreed overall has increased by 25.5%.
Its clear to me that the best performing rental investments in this area are one-bedroom apartments at the upper end of the price range. Taking into account the capital appreciation, as well as the rental yield, these have captured a change in tenant focus. However, with this shift, tenants are expecting these properties to be presented in tip-top condition to compliment their lifestyle choices, so only the best presented properties are attracting the best returns.