Has PCL turned a corner?
All of a sudden, over the past few weeks, we have started seeing property transactions in prime central London (PCL) pick up again. At NVP, there is a sense of excitement, which we haven’t felt in quite some time. Covid is not going to go away but we are learning to live with it. In gloomier moments, we may have questioned the resilience of our Knightsbridge patch but we are reassured that the fundamentals remain and are starting to capitalise.
It is well reported that the country house market has been booming for some time, thanks to the stamp duty holiday and desire for more space, coupled with less need to be in the office every day. PCL is a different story; price growth has been negative and it is only in the first quarter of this year that the tide has turned, with price growth turning positive. We are seeing properties, some of which have sat on our books for 12 to 18 months, starting to go under offer.
With a lack of international buyers, thanks to travel restrictions brought about by the pandemic, domestic and international domestic (international buyers who reside in the UK) are taking advantage. Chelsea and Notting Hill have been performing better than Mayfair, Knightsbridge, Belgravia and St James. These last four areas have been the hardest hit and where buyers have the biggest opportunity to purchase at a substantial discount to asking prices.
There is perceived value because property prices have gone nowhere over the past seven years. Low interest rates are resulting in attractive mortgage deals for those who need, or want, to borrow. We have just completed a deal which is a case in point – the purchase of six flats in a single building on Lyall Street on behalf of a client. These flats have been on the market for three years but we secured them for just under £1,500 per square foot, which is good value for SW1X.
However, those hanging on in the hope of buying at the bottom of the market in PCL may have missed it. We are seeing transactions in Kensington & Chelsea, for example, which are not a million miles from where we were at the peak of the market, driven by a lack of stock, pent-up demand and the vaccine rollout.
Waiting in the wings
We have clients poised to return as soon as travel restrictions are lifted. In the meantime, we are acting on behalf of clients who can’t yet get here. One client bid on a flat in Cranley Gardens in South Kensington subject to being able to come and see it as soon as he can. We have been buying assets for Middle Eastern clients who haven’t come to town in the past year but who trust us to act on their behalf.
As soon as international travel resumes, we will have a good critical mass of demand, underpinned by the usual low stock. Chinese buyers have been the biggest purchasers of period freehold properties in Knightsbridge over the past few years and we believe they are set to step back in now that the currency is no longer working in their favour. Strong growth in the Chinese economy in the last quarter (18.3 per cent), coupled with continued pressure and restrictions from mainland China in Hong Kong, will also persuade them to return in force to buy in PCL and Knightsbridge in particular.
While stock levels remain low, we have earned some good instructions on some important properties recently and have interesting stock coming to market. We were recently instructed on an incredible flat in Ennismore Gardens; the vendor said that while the numbers we gave him made sense, it was the passion and excitement we both bring that was the deciding factor. It is good to know that is still in evidence six years after we first set up NVP.
Post-pandemic living: blip or permanent shift?
In PCL, flats have carried a premium compared with houses for a while, with the latter proving to be much better value. Yet lockdown has meant that demand for houses with big gardens has risen, although this is more of a feature for those buying across prime London, in Putney, Richmond, Barnes and Clapham, than PCL. The desire to have a garden or work from home may well be a lasting effect of the pandemic but we believe the popularity of flats will return as the young, who mostly can’t afford or need large houses, prefer to live in cities.
International buyers, who use London as one stop among their global destinations, neither want nor need a big house. They like the concierge, gym and underground parking that comes with their flat and that won’t change. For foreigners who have made the UK their home, and have done for many years, they are highly unlikely to move to say, Hampshire. For them, it may be lovely for a weekend but a permanent move is not on the cards.
Indeed, our experience is that the direction of traffic is the other way, with people in the country looking to step back into London, wanting a smaller place to complement their larger country property. We had a call from a client earlier this year who did just that; despite the UK being in lockdown, he was convinced it was a good time to buy. We viewed several flats in January and February before securing a fantastic one for him which, eight weeks down the line, we would not have been able to get for the same price. His timing was spot on.
Rents in PCL have fallen by around 15 per cent over the past year due to the lack of international tenants, so there is perceived value to be had. Those who may have rented in the periphery of prime London – for example, paying £650 per week in Clapham, can now rent just off the King’s Road for similar. However, this is unlikely to last and there will be upwards pressure on rents when international students start to return in the summer.
At NVP, it feels good to say that we are positive on PCL. With the Brexit debacle and the threat of a Corbyn government but a distant memory, and the vaccine rollout helping us get to grips with Covid, we feel the bottom of the market has been and gone. For those investing in bricks and mortar who are prepared to consider Europe as a whole, PCL remains the destination of choice for many, even if they can’t quite get here just yet.