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Abu Dhabi, UAEMonday 18 June 2018

London falling? Tough times for luxury property in the capital

Political uncertainty continues to weigh on London’s luxury residential market

The Clockhouse is a stark example of the slowdown in London’s prime property market. Courtesy-Sotheby's
The Clockhouse is a stark example of the slowdown in London’s prime property market. Courtesy-Sotheby's

When a sprawling central London mansion known as the Clockhouse was put on sale back in 2013, no one batted an eyelid at the £8 million (Dh39.3m) price tag.

At the time, London was in the grip of a property buying frenzy. Houses put on the market were being snapped up within a matter of weeks, and often for well above their asking price.

Fast forward four years, and the Clockhouse – a 5,000 square feet Victorian building formerly owned by businessman Ivan Massow – is still up for sale. And its asking price has halved to £4m.

The Clockhouse is a stark example of the slowdown in London’s prime property market. Last week, it was reported that house prices in the capital have fallen for the first time since 2009. According to mortgage lender Nationwide, prices in London dropped to an average of £471,761 in September, down 0.6 per cent compared with the same month last year.

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That makes the British capital – which has attracted property investors around the world – the weakest performing region in the country for the first time since 2005.

“London has seen a particularly marked slowdown,” remarked Robert Gardner, Nationwide’s chief economist, citing pressure on household incomes, political uncertainty and stamp duty changes (a UK property transaction tax) as reasons for the slump.

The top end of the market had been expected to fare better. Indeed, after last year’s Brexit referendum, the prime London property market was expected to be one of the biggest beneficiaries of the vote to leave. The theory was that the collapse in the value of sterling would make a luxury abode in Knightsbridge, Mayfair or Chelsea more appealing for foreign buyers.

It hasn’t worked out like that.

In a recent report, upmarket estate agent Savills said prices of multimillion properties in central London slumped by 3.2 per cent in the first nine months of this year, as an inconclusive general election and the start of Brexit negotiations dampened buying activity. Values are now 15.2 per cent below their peak three years ago.

Political uncertainty is to blame, as the “complexity of Brexit” becomes increasingly apparent.

“Uncertainty fuelled by Brexit and a weakened government mandate since the June election means sentiment is fragile,” said Lucian Cook, the head of UK residential research at Savills.

The real estate services provider is forecasting prices in prime central locations to flatline for nearly two more years before staging a small recovery at the end of 2019.

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All of this helps to explain why the Clockhouse is still languishing on the market.

“It’s just not finding a buyer,” said Marco Fugaccia, sales dir­­ector at Clerkenwell agents Hurford Salvi Carr, who sold the red-brick ­building to Mr Massow back in 2009.

The price has “made its way down”, he said, as a combination of factors, including Brexit fears and tax changes, weighed on demand.

Nevertheless, for those prepared to play the long game, London retains many of its attractions and continues to appeal to investors –especially the super-rich.

Certainly, there has been no let-up in the frenzy of high-rise construction in central London. And demand for luxury trophy assets is still there, according to Niccolo Barattieri di San Pietro, the chief executive of London property developer Northacre, which is majority-owned by Abu Dhabi Financial Group.

“Yes, since 2014, property prices in London have started coming off, but what we’ve seen is a flight to quality,” Mr Barattieri told The National.

“Whenever the market slows down, quality is always gold.”

Mr Barattieri was talking ahead of the firm’s launch of its Broadway project in the Middle East this week. The £1 billion mixed-use project, located on the site of New Scotland Yard (formerly the headquarters of London’s Metropolitan Police) has 268 units for sale. Northacre is also still marketing its other luxury projects in London, including No 1 Palace Street, where units facing Buckingham Palace are reportedly being priced at up to £30m each.

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The developer remains confident about demand at both properties.

“We started selling at Palace Street in 2015,” Mr Barattieri said. “It wasn’t the best time in the market, but we have already sold 52 out of 72 units, because people really liked the product.

“As for Broadway, sales have started really well – it was very well received in Asia,” he said. “I am confident that there will be demand in the Middle East as well, for the simple reason that we have a great product. At the end, a great product always pays off.”

Dubai’s real estate developer Damac Properties has also recently entered the London market, building a 50-storey skyscraper in partnership with Italian fashion house Versace called Aykon London One.

The luxury tower, in the Nine Elms area of south-west London, features 360 units with a starting price of £900,000, and will include a gym, indoor swimming pool and spa. A second, interlinking tower contains a further 90 affordable units.

It is due for completion in 2020, and the company insists that demand “remains the same” despite political uncertainty and a slowing market.

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“Investors continue to show interest for this exclusive property,” said Niall McLoughlin, senior vice president at Damac, in an email response to The National.

“The currency fluctuations during the summer have had an impact on the UK’s property market, but demand for our project there remains the same and has not been adversely affected.”

The tower is currently 45 per cent pre-sold, he said.

Mr Fugaccia agrees that there is still a demand for London luxury homes, even if the bull market of the past 20 years is well and truly over.

“We are still seeing international buyers coming to London, especially from China and the Middle East,” he said.

“The city is seen as very cosmopolitan, it’s very diverse. You can see why there will always be demand – especially in what I call the ‘magical postcodes’ of W1 and SW1.”

Indeed, it was in one such “magical postcode” that, last week, an Omani investor spent a cool £25m on two Knightsbridge flats – one costing £17m, as his family’s new residence, and a nearby £8m apartment overlooking Hyde Park for his guests and staff.

At more than £3,200 per sq ft all in, that is the highest price secured in the area since the Brexit vote, and will raise hopes that the slowdown in London’s super-prime market could be coming to an end.

“It shows people are still coming to buy luxury trophy assets,” Mr Fugaccia said. “Despite politics and market turbulence, overseas buyers will always have a love affair with London.”