The very top end of the London residential market showed greater growth in Q2 of 2010 over Q1 thanks to a strengthening dollar and increased activity from Middle East investors, according to major regional and international real estate services firm Asteco.
“Over the past year sterling peaked at $1.69 in August 2009 and has steadily declined against the dollar to a 12 month low of $1.43 in May this year. It has climbed in recent weeks fluctuating around the $1.50 mark. However with the UK’s national debt of over £1 trillion growing by £167.9 billion (11% of GDP) this year alone and interest payments next year of £42 billion, it is easy to understand the pressure sterling is under,” said Richard Angel, Head of International Investment at Dubai-based Asteco.
International buyers are the lifeblood of this market sector, accounting for 63% of all prime central London buyers, since 2006, on purchases of £5 million and over. These high net worth individuals have rebuilt their wealth by around 20% over the past year. Comparing exchange rates year-on-year, investors from the GCC will save a cool £1 million on a property priced at £6 million.
“With the continued strength of the dollar and stable real estate prices in the capital, now is the ideal time for many regional investors to purchase a second home in London,” said Angel.
The latest analysis from property adviser Savills – Asteco’s UK partner – found super prime properties, which average around £5 million, rose by 1.3% and are now just 5.5% from peak, suggesting a resilience that is based almost exclusively on low stock levels and the sector’s appeal to international buyers. Ultra prime properties, which average £15 million and above, grew by 1.5%, but that is on the basis of a delayed recovery (following later falls), and values remain –15.8% from peak.
“In these globally uncertain times, London attracts overseas buyers and there are still a host of reasons for overseas buyers to come to London. Volatility is inevitable in a low turnover market that is heavily dependent on highly discretionary equity buyers and demand will remain fragile against the background of economic and fiscal uncertainty in the UK, euro zone and beyond. That said, the fundamentals of the prime central London market, remain sound provided London retains its status as a major world city and financial centre,” says Yolande Barnes, head of residential research at Savills.
Overall, prime central London residential property price growth has slowed almost to zero over the past three months, a dramatic slowdown after four consecutive quarters of growth.
Savills’ quarterly indices show that values rose by a marginal 0.6% between April and June, arresting the previous growth which stood at 3% in the first three months of the year and 4.3% in the closing quarter of 2009. This brings annual growth to 12.3%, and means that values are minus 10.1% from peak.
Savill’s strength of market indicator for the prime markets of SW London (which include Fulham, Wandsworth, Richmond, Barnes, Putney), remained strong throughout May when the central prime areas were weakening. This strength was largely the result of continued low levels of supply coming to market and reflected in sustained price growth in these areas over the quarter. Values rose by 2.6%, taking year-on-year growth to 22%, and leaving prices just 3.7% off peak.
Going forward, Savills expects these locations to begin falling alongside the central locations as more stock comes forward and demand, which has already appeared to soften over June for all but the £1million family home, remains subdued.
“With the majority of Savills UK web visitors living within the GCC, we are expecting a steady flow of enquiries from prospective investors throughout the region over next few months,” added Angel.
