Safe and sound
After a record-breaking year, the British capital remains attractive to investors.
London will continue to draw investors despite short-term movements in its property market, according to experts who are keen to stress that the city's fundamental economic and political strengths make it a low-risk destination.
Nevertheless, after a record-breaking year, further surges in property prices in London's luxury housing market are unlikely next year, which is expected to be a period of consolidation, according to experts.
Home values in the British capital's prime residential districts rose steadily for much of the year to reach an average of GBP1,700 (HK$21,110) per square foot in the autumn, the highest achieved, says property consulting firm Savills.
"International buyers have bought three-quarters of brand-new homes and half of secondhand homes sold in prime central London during the first six months of 2012," says Lucian Cook, research director at Savills.
"Hong Kong and other Asian buyers have increased their presence this year. In prime central London's new-build sector, 15.8 per cent of homes sold in the first half of 2012 were bought by Chinese and buyers from Asia-Pacific," Cook says.
"Core prime central districts, such as Knightsbridge, Belgravia, Mayfair and Chelsea, have had the highest price rises because this was where demand from overseas buyers was strongest."
In fringe prime central areas, such as St John's Wood, Notting Hill and Marylebone, where demand from overseas buyers is weaker, prices have risen more slowly.
As property values increased, developers have built luxury schemes to cater for the growing demand. With land in traditional prime areas scarce, these builders have moved further afield, gentrifying new areas including the City of London and South Bank.
Cook says the prime central London market is entering a lull because the pound has strengthened against other currencies, making London property less affordable, and some buyers have been put off by rising property taxes. These tax rises included an increase in stamp duty on homes worth more than GBP2 million from 5 per cent to 7 per cent, introduced last March.
However, with proposals for an additional levy on multimillion-pound homes, a so-called mansion tax, being rejected by Britain's Chancellor of the Exchequer George Osborne in the autumn, the market will start to absorb last spring's tax rises, Cook says.
Liam Bailey, head of residential research at property consultancy Knight Frank, expects 2013 to be a year of consolidation.
According to the Knight Frank Prime Central London Sales Index, property prices were 14 per cent higher in August than at their pre-credit crunch peak in March 2008.
"We believe the prime central London market is hitting a peak at the moment, and this will come to an end next year, when we forecast there will be zero growth in prices," Bailey says.
Despite an overall slowdown in the market for much of next year, there will be hot spots, Bailey says. These include Mid-town, an area centred on Holborn. Largely a commercial area for many decades, it had a small residential market, but its close proximity to the West End and City of London will make it attractive to people who want to spend less time commuting, he says.
Mid-town is also less expensive than established prime areas, such as Kensington, and will benefit from the regeneration of King's Cross on its northern boundary, where new offices, homes, shops, colleges and travel connections are being created, he adds.
Bailey says the next upward cycle in property prices will begin in late 2013 or 2014, when large transport infrastructure projects begin to make themselves felt in the housing market. These include Crossrail, a rail link connecting towns east of London with Maidenhead and Heathrow Airport to the west via key locations within the capital, such as Paddington and Canary Wharf, from 2018.
Another scheme is Transport for London's proposal to extend the Northern Line underground rail network to Nine Elms and Battersea in south London.
The journey time from these locations to the West End and City of London could be less than 15 minutes on this line extension, the transport body says. If the plans go ahead, the extension would be completed in 2019.
Property investment company IP Global is bullish about the prospects for Nine Elms and Battersea because of regeneration projects taking place in these areas, including the construction of a new United States embassy and apartment schemes on former industrial sites.
These include the Capital Building, part of the Embassy Gardens project that Ballymore is developing. Scheduled for completion in the third quarter of 2015, the Capital Building will have 227 apartments at prices starting from GBP399,000 for studios. Communal facilities will include a 24-hour concierge, private residents' club, cinema, health spa, business centre and boxing ring.
This project, and the new Battersea Power Station development, are being marketed by Jones Lang LaSalle.
North of the Thames, IP Global favours Fitzrovia, especially the area around Tottenham Court Road underground station, which will be connected to Crossrail from 2018. This will lift residential property prices there by 57 per cent, it forecasts. A number of residential developments are appearing in Fitzrovia. These include Highwood House and Cleveland House, jointly developed by Marcus Copper and Oakmayne, and marketed by Knight Frank. Combined, the two buildings have 41 apartments at prices starting from GBP499,000.
IP Global is marketing investment schemes across London. These include Tavistock Crescent in the Royal Borough of Kensington and Chelsea, where the company says investors can achieve yields of 5.1 per cent. Prices for apartments at the completed project start at US$860,000.
Michael Bickerton, head of new homes, global residential, at property consultancy DTZ, expects London's new-build residential market to continue performing strongly next year.
"Despite the euro-zone crisis, London remains in many buyers' eyes a relatively safe haven for property investment," he says.
"London has the advantage of standing outside the euro currency and this, coupled with a continued shortage of housing starts and exceptionally strong rental demand from city workers and students, has resulted in rising house prices. Central London continues to outperform the wider British market in this regard, with the regions more reliant on local economic factors and employment levels being a key consideration."
Among other new schemes coming on the market is Goodman's Fields, located on Leman Street, just outside the City of London's eastern boundary.
Here, Berkeley Homes is building 920 apartments with communal facilities, including a gym, spa, treatment rooms, private cinema and an 18-metre-long swimming pool, set in 0.81 of a hectare of landscaped gardens and public space. Completion is scheduled for the middle of 2015. On sale through sales agents Colliers International, apartment prices start from GBP435,000 for a studio.
Rosaline Lam, executive director for international properties at Colliers International, says Goodman's Fields is conveniently located for getting around London because of its central location and close proximity to underground stations.
"Within walking distance of the City, the area around Goodman's Fields is also home to some of the world's leading multinational companies, world-class schools and universities and some of the most trendy areas, including Whitechapel, Shoreditch, Old Street and Hoxton," Lam says.
Wong Mei-han, regional director of international property at Jones Lang LaSalle, expects prices in London to go up by 5 to 8 per cent in 2014.
"London is the number one market within the UK." Buyers consider London's property market as a safe investment, Wong adds. A crucial factor that buyers take into account is that London is the place to be to get an outstanding education, and Hongkongers are familiar with "the British education system. Many parents buy homes for their children".
Another important factor is that the "British pound is relatively weak, making the capital's property an attractive investment.
"The rental market is mature, offering an average yield of about 5 per cent. Banks are advertising a 75 per cent mortgage, although our clients usually take a 65 to 70 per cent mortgage".
Mainland investors are also beginning to take an interest in London. "With all the restrictions mainland buyers face when buying property in China [including Hong Kong, because of government cooling measures], they are looking at London properties to invest in bricks and mortar," Wong says.
LURE FOR WEALTHY BUYERS
The arrival of increasing numbers of high-net-worth individuals in London has created a boom in the construction of high-specification homes targeted specially at them. Developers building for this segment of the market include Morpheus, which has built the Chelsea Townhouses, a set of three homes in Chelsea that are on the market at prices starting from GBP10.25 million.