Super Prime Country Houses, 2012


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While London prices are booming, the country house market has struggled to gain traction. Liam Bailey investigates the reasons behind this divergence.

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Super Prime Country Houses, 2012

  2. 2. super-prime Countryhouse marketA diverging market While London prices are booming, the country house market has struggled to gain traction. Liam Bailey investigates the reasons behind this divergence. Prime country house prices normally start to The second issue is the economy. The impact rise around 12 months after London prices of the recession in the UK has been hugely begin to take off. As we noted in our third- amplified in the regions. London’s economy quarter update on the prime country house has outperformed and businesses have market, these are not ‘normal’ times. focused resources on London investments – driving prime property sales in the capital. The prime and super-prime (£5m+) country house markets have been tracking UK The third consideration is vendor behaviour. Liam Bailey mainstream prices for the past two years The fact that the prime country house market Head of Residential Research rather than central London prices. There are has been relatively subdued prevented some three key reasons for this divergence between of the best properties from coming to the prime London and prime country. market in 2010 and 2011, as discretionary vendors felt they would do well to wait for Firstly, international buyers are just not as stronger conditions. These properties would important to the country market as they are have been well received by purchasers and in London. Just under 65% of £5m+ country their absence has depressed trading volumes, house buyers are British, compared to barely weakening price performance as a result. 40% in London. This more domestic market has not been influenced by the weak pound Another aspect of vendor behaviour, which which has super-charged the London market became very pronounced in 2011, has been by drawing in buyers looking to spend their the issue of overly ambitious pricing. A dollars and euros. large number of properties that came to the Figure 1 Figure 2 Prime market performance Sales volumes Price change, indexed from March 2009 Difference in annual country house sales volumes compared to 2007 150 10 140 0 130 -10 120 -20 110 % -30 100 Forecast -40 90 -50 80 Jun-10 Jun-11 Mar-10 Dec-10 Mar-11 Jun-09 Sep-09 Sep-10 Sep-11 Mar-09 Dec-09 -60 2008 2009 2010 2011 Prime London £5m+ country house £5m+ under £5m Source: night Frank Residential Research K Source: night Frank Residential Research K2
  3. 3. market in 2010, just as the impact of low buyers have been unable to persuade interest rates was dissipating, were priced vendors to drop prices to realistic levels. too high and have remained on the market. But it is dangerous to generalise across the“ he issue of T As asking prices on these properties have been cut, belatedly, to more realistic levels, whole of the UK – the experience in locations overpricing has been this process has helped to push overall like Esher and Cobham is that the last 12 months have seen some of the most active as pronounced in the prices lower over the past 12 months. conditions for the last three years, with the super-prime sector as Across the whole country house market number of £10m+ sales at its highest for a the wider market.” prices fell 1.2% in Q3 and are now down 1.7% since September 2010. The traditional five-year period. picture of market ripples flowing out from London remains the case in some parts – The London opportunity prime property prices in the South East rose The impact of the above trends has by 0.4% over the past year, managing to been to see price levels in the prime climb 11.4% from the mid-2009 trough. and super-prime country house For the super-prime market, excluding the markets underperform London by best parts of Surrey, prices have been flat some margin. The upside of this at best, and have probably fallen back very process is that purchasers moving slightly in most cases, especially in the six out of London are seeing their money months to September 2011. stretch much further. The issue of overpricing has been as For example, if you were planning on selling pronounced in the super-prime sector as a £5m property in London in early 2009 the wider market, and has meant that sales and buying a similar-priced property in the volumes have been distorted as active country, delaying for two years until now Figure 3 Buyer nationality Defining the super-prime country house market £5m+ UK country house purchaser, split by world It is generally accepted that the always located within a 45-minute drive region, 2010 and 2011 of central London. prime country house market is made up of properties priced £1m+ The typical buyer in the super-prime across the UK, a little more in the country house market is an average age of South East, and a little less in the 48, with 44% of buyers being in their 40s, Midlands and the North. We define 36% in their 50s, and a perhaps surprising 13% in their 20s and 30s. the super-prime country market as that featuring properties priced £5m While cash buyers make up 40% of the and above. market, compared to 32% in the sub-£5m country market, this figure is skewed as Within this headline definition there we know that many buyers will acquire a are three key super-prime tiers. In the property in cash and then look to arrange £5m to £10m bracket, while properties a mortgage later so that they can release UK 63.4% and sales are concentrated in the South cash for other investments. Europe 13.2% East, examples at this level are found The typical property in this very untypical Russia CIS 10.1% Middle East 4.8% across the UK. Excluding a rare number £5m+ market has seven bedrooms, five Africa 2.7% of prestige estate sales, the £10m to reception rooms, five bathrooms, and Asia 2.5% £20m bracket is dominated by areas extends to 12,000 sq ft, with gardens, North America 1.8% woodland and agricultural land extending neighbouring London. The top tier of sales, Australasia 1.5% above £20m, are infrequent and are almost to 21 acres. Source: night Frank Residential Research K 3
  4. 4. super-prime Country house market would have seen your London property rise into the UK, especially at the top end of the in value to around £6.75m and the country market. The forthcoming Russian election in property rise to around £5.5m at best, leaving March has already spurred increased activity a cool £1.25m available for buying 200 acres from Russian buyers, and the ramifications of of agricultural land to add to your new country the Arab Spring are still not fully played out, pile, or for reinvesting in a weekday pad back with the strong flow of buyers from this region in London. still looking to make investments outside The compelling case for buyers to shift their home region. from London, based on the above value One of the reasons for our less than positive“ he ability of the City T relativities, has left most country agents view on the country house market over of London to start surprised that they haven’t seen more London buyers over the past two years. The lack the next 12 months is the likelihood that international buyers will remain in London creating new jobs of high-quality properties available in the and are unlikely to explore much further than after the latest round country market to attract buyers is an issue we explore below. Surrey and Berkshire. of investment bank If more international buyers decide to cuts will again directly enter the country market we may see some Outlook modest price growth. The outlook for the impact on the prime pound is a central consideration in this Current trends seem to point to and even super-prime the sluggish super-prime market regard. A strengthening of the pound will see markets in 2012.” continuing in 2012. Our headline some demand from overseas being choked off. The final outcome for the euro will be very forecast is for prices to fall slightly interesting in this regard. If there were in nominal terms in the £5m+ sector, a return to national currencies it is likely by 1%, which equates to a fall of the pound would weaken sharply against around 5% in real terms, allowing the northern European currencies and for inflation. appreciate equally sharply against the southern and peripheral currencies – the Our downbeat assessment is based on an main unknown is the direction of the pound’s assumption that the wider UK market and relationship with the dollar, which will have economy will see more troubled times. the most significant impact on the relative There is a strong likelihood that geo-political competitiveness of UK property values in an issues will continue to push overseas buyers international context. Figure 4 Online demand growth Index of UK country house property viewings on, split by price band 500 400 300 200 100 0 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 2009 2010 2011 £5m+ under £5m Source: night Frank Residential Research K 4
  5. 5. www.KnightFrank.comDomestic concerns will become more The combination of these two issues – wealthimportant over the next 12 months. taxes and financial sector performance –Taxation, for example, is likely to become will also impact on confidence. The quickermore controversial. The desire by the a political settlement on London’s long-termConservatives to abolish the 50% income role is established, the more confident wealthytax rate, and the call from the Liberal buyers will be to invest in luxury UK property.Democrats to introduce a new property For the moment we are still very far from thetax, would both have a direct impact on position elaborated by Peter Mandelsonthe demand for luxury property and on in the 1990s, of being “intensely relaxedprice performance. about people getting filthy rich”. Even whenThe ability of the City of London to start we consider the caveat that accompaniedcreating new jobs after the latest round of his statement: “as long as they pay theirinvestment bank cuts will again directly taxes”, the idea that politicians today areimpact on the prime and even super-prime even remotely relaxed about the first part hasmarkets in 2012. become increasingly debatable. The quality issue The main complaint from agents become ever more deficient in properties for the last two years has been the that match up to this. shortage of supply, by which they Our view is that the country market is set “ he volume of T mean a shortage of the highest- quality properties. These top-end for a new divide. A number of developers overpriced and properties are not coming to market are working on projects which are bringing Belgravia standards of renovation or new- slightly compromised as their owners tend to be very wealthy, are under no pressure to build into the country market. These are the properties weakened sell and see no better asset class in properties that will outperform. They are market performance. which to invest at the current time. being skillfully targeted at their international market and the difference in performance Our view is that the Time and again, when high-quality between these properties and others will country market is set properties have been offered to the market, they have sold well and often become increasingly marked. for a new divide.” with competitive bids. It is the volume Figure 5 of overpriced and slightly compromised Where the wealth comes from £5m+ UK country house purchaser, split by wealth properties in the market that has acted to source, 2010 and 2011 weaken overall market performance. Another issue in the country market, and City/Finance it is a growing one, is that buyers in the Entrepreneur super-prime London market have become Property accustomed to very high specifications. Professional In fact, the new-build and refurbishment Industry sector in London is where the super-prime Inherited sector originated. Entertainment/ Sports As buyers have become more exposed Farming to the very high level of design, Other specification and facilities on offer at the top end of the London market, the country 0% 5% 10% 15% 20% 25% market has appeared by comparison to Source: night Frank Residential Research K 5
  6. 6. super-prime Countryhouse market Super-prime insight: Mike Spink Spink Property is a multi-disciplinary property development company that acquires, designs, builds and project manages some of the UK’s most expensive residential properties in prime locations in central London and estates between Wentworth and Oxford. Founder of the company Mike Spink discusses the “new super-prime country market”, seemingly limitless budgets, and where the sector is heading. What changes have you What are the characteristics of witnessed in the country house the “new super-prime country market? market”? The demand for country property has begun Estates will have the style and finish of a to change as people’s aspirations and £100m+ London house – newly created, expectations have evolved. As different immaculate, and offering the peace and security impossible to achieve in a city. For business sectors and countries thrive, Mike Spink accessibility reasons they are most likely to new sources of extreme wealth are created Founder, Spink Property be found west of London. Buyers will typically and new owners emerge from around the own other super-prime properties, perhaps globe. It might be argued that changes of in the South of France, in a ski resort and in a this nature have always taken place – a major city such as London, but they yearn for number of estates have, in the past, been the privacy and amenities offered by a country virtually rebuilt to suit the latest fashion each estate. The budget might appear to be almost time they changed hands. But what we are limitless, but there will always be an eye on experiencing now appears to be a new super- value, even in the search for perfection. prime country market. How much demand is there for What sub-sectors have you these properties? identified in the super-prime Demand for the perfect modern estate is country market? there, but they are rare commodities. Many former estates have either had their land First there is the ‘edge of London’ market, sold off, or are blighted by road noise, public where owners benefit from proximity to rights of way, or flight paths, and all will be the M25. Good examples can be found in dated at best. I would estimate that there places like Virginia Water and Ascot. These are around 10 buyers at any one time with properties are likely to be similar to those almost unlimited funds looking to buy in the found on Bishops Avenue or in Kensington, countryside. They are looking for a primary but with more land and a secluded location. residence rather than a country retreat. Then there is the group featuring Scottish Some are looking to spend in the region of hunting lodges, Irish equestrian estates, £50m, others up to £200m, but there is rarely and traditional West Country landed estates. anything available for them. Only in exceptional cases would we consider these to be super-prime. The classical English What does it take to create country house is still in strong demand. properties at this level? This will typically be a fine Georgian mansion Refurbishment of a listed country house, set in a farmed estate, and enhanced for ancillary buildings and a landed estate is field sports over generations. These tend a time-consuming and difficult thing to do to be purchased as second homes. Part of well. Even if you find a suitable property the charm might be the faded grandeur, to work with, it will more often than not understated architecture and the long history. require a virtual rebuild to achieve the ideal The price could be £20m to £30m, or even accommodation arrangement, and planning more, but this is not part of the new super- permission is certainly not guaranteed. Many prime country market. years could be lost in fruitless negotiations.6
  7. 7. www.KnightFrank.comHow long does it typically take?Based on our experience near Henley-on-Thames, the planning and construction of animmaculate, modern country estate can easilytake six or seven years and will cost manytens of millions of pounds, even when doingnearly all of the work in-house. Years could beadded and costs could sky-rocket if elementssuch as design, planning, construction andinteriors were outsourced. It would alsopresent too many opportunities for disasterin terms of the quality of workmanship and Sold by Spink: an estate near Henleythe restricted ability to revise designs to keeppace with changes in demand, fashion andthe quirks of old buildings. different factors. But based on my meetings with Russian and CIS buyers, they typicallyWhat level of finish do buyers put more emphasis on slick and well- engineered building services specifications,normally expect? including cooling, and on immaculateSome expect the property to have been interiors, as opposed to faded charm. Theycreated to an exacting standard, carefully and would also probably seek better countryskilfully furnished down to the last Hermes views and greater privacy, but accept smallercup and saucer. Many appreciate having acreage than the traditional buyer. They and,maintenance agreements available, leaving say, Middle Eastern buyers, would probablythe option for a turnkey move in, a true ‘lock- prefer to be located just five minutes fromup-and-go’ on a grand scale. a good A-road or motorway, rather than a 15-minute drive away.Do you use your central Londonmodel for your country projects?I don’t see it as a model, we just do whatever Are there any other countries “ states will have the E that offer more at this level thanis right for that project – we create a the UK? style and finish of acompletely different specification for eachproperty to ensure it is appropriate for its In the knowledge that my clients will be £100m+ Londonmarket. That said, we do tend to attract a looking at what’s on offer elsewhere, I do house – newlytype of buyer who is looking for a subtle,restrained architectural design, and who puts monitor this, and although you can find some excellent examples outside the UK, there is no created, immaculate,great emphasis on meticulous detailing and one location that stands out. and offering theworkmanship. We are creating homes forexacting buyers who are often the leading Where do you see the sector peace and securityexperts in their own field but have neither the heading? impossible to achievetime, nor usually the experience and expertise,to carry out the projects themselves. We are increasingly encouraged by the number of people who can’t find what they in a city.” are looking for. If it could be created, theDo you receive much interest perfect product would command a significantfrom Russians? What do they price. The new challenge is this: to create alook for? piece of future heritage that incorporates theAlthough there are clearly more Russians in best modern technologies and offers excellentthe market now than before, it seems to us accommodation, entertaining and leisurethat their market dominance is exaggerated. facilities, all set in the perfect landscape,In our experience, of well over 100 projects, with no public footpaths, and offering totalwe have only sold a few to Russians. Our privacy. As a result of recent success we arebuyers come from all over the world and undertaking two more country developments,increasingly there is more interest from the including another luxury family estate in 250Middle East and China. I can only generalise, acres with over 80,000 sq ft including theand Russians – like any other nationality main house and guest houses, along with a– are individuals who place emphasis on gallery, spa and ancillary buildings. 7
  8. 8. residential researchRecent market-leading Residential Research Country Housesresearch publications Liam Bailey Andy Hay Head of Residential Research T +44 (0)20 7861 1077 T +44 (0)20 7861 5133 James Crawford T +44 (0)20 7861 1065 Rupert Sweeting T +44 (0)20 7861 1078 rupert.sweeting@knightfrank.comSecond Homes Report UK Prime Country2011 Index Q3 2011London Residential Super-Prime LondonReview Autumn 2011 Report 2011Global Development The Wealth Report Knight Frank Residential Research provides strategic advice, consultancy servicesReview 2012 2011 and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clientsKnight Frank research reports are available recognise the need for expert independent advice customised to their specific needs. © Knight Frank LLP 2012 This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England and Wales with registered number OC305934. This is a corporate body that has “members” not “partners”. Our registered office is at 55 Baker Street London, W1U 8AN where a list of members may be inspected. Any representative of Knight Frank LLP described as “partner” is either a member or an employee of Knight Frank LLP and is not a partner in a partnership. The term “partner” is used because it is an accepted way of referring to senior professionals.