As interest and mortgage rates begin their descent, the UK mainstream market is steadily showing signs of growth following the short-lived – but damaging – Truss mini-era. However, for London’s prime/super-prime central markets there is still one more political hurdle to come: Labour’s first Budget on Wednesday 30 October. The UK Prime Minister has warned that “it’s going to be painful” and “those with the broadest shoulders should bear the heavier burden”. Much has been signposted or ruled out, but the devil will be in the detail – especially for the UK’s non-dom community.
Having dutifully doffed my cap to the ‘elephant in the room’, I would proffer that the reality on the ground is more nuanced and optimistic than some would suggest. Our year thus far, like many others, has felt somewhat erratic: Q1 was busy and boisterous; Q2 was quieter and somewhat unsettling as the election loomed; and then the summer was our most active and frenetic on record! In this we are not alone. In fact, one leading sales agency has confirmed that they transacted on over £100m of sales between the election and the end of August, following what they say was a ‘torrid few months’.
The real challenge for commentators currently is to review market conditions in context – post-Corbyn, post-Covid, post-Conservatism, what is a normal market these days?! We have been so dogged by political disturbances since 2014, that it is increasingly difficult to establish norms and assess fluctuations. In volume terms, London’s £5m+ market is certainly down on the peak of 2022, but still much busier than the pre-pandemic years. Meanwhile, indices and averages would suggest that market values have fallen by single digits year-on-year but, in reality, the market remains quality sensitive and property specific.
Indeed, we continue to see exceptional turnkey period properties arbitraging super prime new build pricing, with one exceptional Mayfair flat breaking past £5,300 per square foot (psf) and an Eaton Square penthouse achieving over £8,000 psf. With the new build planning pipeline decimated by recent changes to planning policy, owners of the best lateral apartments in the super prime schemes continue to push pricing into unchartered waters. The pinnacle of this is perhaps Caudwell’s One Mayfair where the Penthouse is guiding at circa £200m or £13,000 psf (note that Savills estimates that only 16% of London’s prime market achieves over £3,000 psf). Even the nascent secondary new-build market is showing resilience, with the best units in the leading schemes holding their premiums.
Conversely, values for second tier properties, where quality and/or location are compromised, are softening, and likely have further to fall. This is particularly true of tired properties, where a gulf remains between seller and buyer expectations, driven largely by misunderstandings on the real cost of doing refurbishment works in the post-pandemic era. As for sellers of compromised properties (including the more vanilla new-build apartments) that have traded in the last decade and who want “what I paid plus my stamp duty and costs back”, they may be waiting a long time!
The danger for buyers in this market is knowing what is exceptional, and what is second tier and compromised, and then making sure you have access to the very best-in-class properties and the right comparable data. The majority of properties with any pedigree are now traded off market and buyers have little visibility on trades and trading data, especially in relation to the super prime new-build developments where land registry delays mean data is still not public and developers are extremely guarded. We have this knowledge, this data, which can bring clarity to clients in an opaque environment. Candidly, this is why we believe good buying advisors are worth their weight in gold: creating access, understanding values and demonstrating deliverability to win out in competitive situations.
In terms of forecasts and projections, there seems little point gazing into the crystal ball until we see what the Budget brings. Sentiment is fundamental to our market, perhaps as much as supply, and the Budget has the potential to impact buyer and seller mentality, at least in the near term. Our impression so far this year, and despite the changing landscape, is that buyer demand has remained resilient, driven by a cohort of buyers less impacted by any proposed tax changes: buyers who are UK domiciled; non-resident; new to these shores; have a level of wealth where life insurance remains viable; or for whom lifestyle choices are ultimately more important than taxation. In August and September, we closed a number of deals at £10m+ for discretionary buyers who fall squarely in these camps.
Of course, if Labour do take the sword to the tax treatment of non-doms and their successors, as well as to carried interest for private equity principals, and throw in a wealth tax for good measure, then sentiment will take a significant hit. However, even if this were to happen, it is likely that owners will hold on to their London properties, either because they want to retain a base in London (even if they become non-resident), or because they may perceive it as ‘the wrong time’ to sell in a challenged market. Once again, the impact of political interference will likely be felt in transactional volumes rather than values but then, plus ça change!?
As interest and mortgage rates begin their descent, the UK mainstream market is steadily showing signs of growth following the short-lived – but damaging – Truss mini-era. However, for London’s prime/super-prime central markets there is still one more political hurdle to come: Labour’s first Budget on Wednesday 30 October. The UK Prime Minister has warned that “it’s going to be painful” and “those with the broadest shoulders should bear the heavier burden”. Much has been signposted or ruled out, but the devil will be in the detail – especially for the UK’s non-dom community.
Having dutifully doffed my cap to the ‘elephant in the room’, I would proffer that the reality on the ground is more nuanced and optimistic than some would suggest. Our year thus far, like many others, has felt somewhat erratic: Q1 was busy and boisterous; Q2 was quieter and somewhat unsettling as the election loomed; and then the summer was our most active and frenetic on record! In this we are not alone. In fact, one leading sales agency has confirmed that they transacted on over £100m of sales between the election and the end of August, following what they say was a ‘torrid few months’.
The real challenge for commentators currently is to review market conditions in context – post-Corbyn, post-Covid, post-Conservatism, what is a normal market these days?! We have been so dogged by political disturbances since 2014, that it is increasingly difficult to establish norms and assess fluctuations. In volume terms, London’s £5m+ market is certainly down on the peak of 2022, but still much busier than the pre-pandemic years. Meanwhile, indices and averages would suggest that market values have fallen by single digits year-on-year but, in reality, the market remains quality sensitive and property specific.
Indeed, we continue to see exceptional turnkey period properties arbitraging super prime new build pricing, with one exceptional Mayfair flat breaking past £5,300 per square foot (psf) and an Eaton Square penthouse achieving over £8,000 psf. With the new build planning pipeline decimated by recent changes to planning policy, owners of the best lateral apartments in the super prime schemes continue to push pricing into unchartered waters. The pinnacle of this is perhaps Caudwell’s One Mayfair where the Penthouse is guiding at circa £200m or £13,000 psf (note that Savills estimates that only 16% of London’s prime market achieves over £3,000 psf). Even the nascent secondary new-build market is showing resilience, with the best units in the leading schemes holding their premiums.
Conversely, values for second tier properties, where quality and/or location are compromised, are softening, and likely have further to fall. This is particularly true of tired properties, where a gulf remains between seller and buyer expectations, driven largely by misunderstandings on the real cost of doing refurbishment works in the post-pandemic era. As for sellers of compromised properties (including the more vanilla new-build apartments) that have traded in the last decade and who want “what I paid plus my stamp duty and costs back”, they may be waiting a long time!
The danger for buyers in this market is knowing what is exceptional, and what is second tier and compromised, and then making sure you have access to the very best-in-class properties and the right comparable data. The majority of properties with any pedigree are now traded off market and buyers have little visibility on trades and trading data, especially in relation to the super prime new-build developments where land registry delays mean data is still not public and developers are extremely guarded. We have this knowledge, this data, which can bring clarity to clients in an opaque environment. Candidly, this is why we believe good buying advisors are worth their weight in gold: creating access, understanding values and demonstrating deliverability to win out in competitive situations.
In terms of forecasts and projections, there seems little point gazing into the crystal ball until we see what the Budget brings. Sentiment is fundamental to our market, perhaps as much as supply, and the Budget has the potential to impact buyer and seller mentality, at least in the near term. Our impression so far this year, and despite the changing landscape, is that buyer demand has remained resilient, driven by a cohort of buyers less impacted by any proposed tax changes: buyers who are UK domiciled; non-resident; new to these shores; have a level of wealth where life insurance remains viable; or for whom lifestyle choices are ultimately more important than taxation. In August and September, we closed a number of deals at £10m+ for discretionary buyers who fall squarely in these camps.
Of course, if Labour do take the sword to the tax treatment of non-doms and their successors, as well as to carried interest for private equity principals, and throw in a wealth tax for good measure, then sentiment will take a significant hit. However, even if this were to happen, it is likely that owners will hold on to their London properties, either because they want to retain a base in London (even if they become non-resident), or because they may perceive it as ‘the wrong time’ to sell in a challenged market. Once again, the impact of political interference will likely be felt in transactional volumes rather than values but then, plus ça change!?
