RESIDENTIALRESEARCH      the World’s       M        ost Desirable      	       Residential Market          The Super-Prime...
Super-Prime London Survey 2011                                 introduction                                 It wasn’t very...
is the super-prime londonmarket secure?Our super-prime London survey addresses the current and future risks andopportuniti...
Super-Prime London Survey 2011If there was a surge of negative reasons for        Figure 2sale – the tax burden or London’...
We asked our agents to define new locations       Figure 3or at least locations where demand was            “I am selling ...
Super-Prime London Survey 2011super-prime marketperformanceThe central London residential market recovery over the past 18...
particularly, a lack of ‘turn-key’, newly            Figure 6refurbished properties for sale in the               Main req...
ResidentialResearchResidential Research                                         London SalesLiam Bailey                   ...
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Super-Prime London Property Report 2011


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There is no hard and fast definition to the prime London market, although £1m has generally been accepted as the entry point. Similarly the super-prime market lacks a formal definition.

Our view is that £10m is the appropriate starting point, which effectively means this segment encompasses the top 1% of the whole of the central
London marketplace.

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Super-Prime London Property Report 2011

  1. 1. RESIDENTIALRESEARCH the World’s M ost Desirable Residential Market The Super-Prime London Report 2011 SPRING 2011 MARKET SECURITY Page 3 SUPER-PRIME MARKET PERFORMANCE Page 6
  2. 2. Super-Prime London Survey 2011 introduction It wasn’t very long ago that London’s status as the world’s only true global capital was received wisdom by just about every economist and wealth analyst the world over. Back in 2007, at the top of the bull market, it While not limited to the UK, a fusion ofWhen does Prime was generally accepted, especially by those resentments against mega-bonuses, bankbecome Super-Prime? in London’s business world, that while Asia’s bailouts, MP’s expenses and of course theThere is no hard and fast economies would no doubt do great things recession, has certainly given this trend adefinition to the prime London over the next few years – and that Brazil and particular resonance in, although £1m has Russia were looking very interesting – it was London that would be the real beneficiary of The combination of the new 50% income tax,generally been accepted this surge in global wealth creation. the bonus tax, tighter non-dom rules and theas the entry point. Similarly ongoing sniping at the City and bankers fromthe super-prime market At that time it seemed that every emerging politicians has created questions not only overlacks a formal definition. market oligarch was heading into central the ability of London to remain as a globalOur view is that £10m is the London to confirm their arrival on the global wealth centre, but even the desirability, in theappropriate starting point, rich list, by securing the only real ‘must eyes of politicians, for this status to continue.which effectively means this have’ item; a super-prime London residentialsegment encompasses the top property, ideally within a five minute drive of The outcome of this debate is critical for the1% of the whole of the central Hyde Park. future health of London’s super-prime market.London marketplace. For anyone in the central London property In this report we have attempted to provide market at the time, there was a wonderful a robust analysis of the current health of sense of being at the centre of world trends. the sector, but also an informed view on the Rather guiltily, I remember delivering outlook for the market. a presentation close to Wall Street, in During January 2011 we interviewed 30 of the summer of 2007, to a room of rather London’s leading wealth advisors, tax lawyers disgruntled US wealth managers as I breezily and tax accountants to gather their insight explained the difference between London’s into their clients’ views on London as a ‘global residential market’ and Manhattan’s residential location. We have supplemented rather more ‘domestic appeal’. this survey with feedback direct from the Of course everyone knows what happened market, from a dozen of Knight Frank’s agents next, with the market crash in 2008 puncturing who deal almost exclusively in the super- any sense of prime market immunity. prime £10m+ marketplace. Despite the recent resilience of London’s Even if you don’t concur with all of our findings, housing market, there has been a growing I hope that you will agree that we have at least question mark over London’s ability to retain provided a starting point for the debate. its top city status. The Y/Zen Global Financial Centres Index confirmed in late 2010 that while London remained the world’s top financial centre, closely followed by New York it’s lead over Hong Kong and Singapore is rapidly being eroded. More concerning for London has been the Liam Bailey broader popular backlash against wealth. Head of Residential Research02
  3. 3. is the super-prime londonmarket secure?Our super-prime London survey addresses the current and future risks andopportunities for the market.The first issue we asked our wealth, legal as a stable tax location, all of the other issuesand accountancy experts to consider was put to our panel were viewed as issues for the Global economicthe influence of key issues on their clients’ future which could potentially be averted by growth is nowdecision to buy in London’s super-prime policy intervention.residential market. In figure 1 we have running at pre-summarised the results. Other comments provided by our panel referred recession levels to concerns over the increasingly punitiveAt the top of the list of reasons for purchase tax treatment of trusts. In addition, while the contributing toare the intangible elements, led by the fact new Government’s stated desire to simplify wealth creationthat these buyers often have an existing the UK tax system was accepted as a positive around the worldnetwork of friends, family and business step, there were several concerns over theassociates in London. fact that there is a growing tendency for HMRC which is pouringLondon’s reputation as a ‘safe-haven’ guidelines to be overturned retrospectively into London again. by parliament or the courts, and that the mostinvestment location, combined with geo- beneficial development would be if a degree ofpolitical concerns elsewhere around the world, certainty could be reintroduced to the system.most recently for example in Egypt and Tunisia,have helped draw buyers into the market. Our agents active in the super-prime market have given us an insight into the attitudesAlso revealed in figure 1 is the fact that with expressed by vendors when they are lookingglobal economic growth now running at pre- to sell, and we have compared these over time.recession levels, this factor is contributing to In figure 3 we have compressed this feedbackwealth creation around the world which is now by considering the changing importance ofpouring into London once again. different reasons given for deciding to sellWith inflation rising in Asia, the desire to a property.add tangible assets to wealth portfolios isproving itself to be a key driver of demand.It is only the UK government’s intervention Figure 1in the housing market (higher stamp duty for Why are they buying? How important are the following factors in influencing wealthy people when buying property in London?£1m+ properties for example) and the UK’schanging tax environment which are perceived Strongly positiveas serious negatives; the latter point weexpand on next.The second issue we asked our expert panelto consider was the impact of recent tax andfinancial sector changes on London’s futureattraction as a wealth hub (figure 2). By somemargin the most damaging issue was felt tobe higher rates of taxation – especially the 50%income tax rate.Non-dom tax changes came second, and withthe most recent official data for the 2008-09 Strongly Government housing Have an established Debt – business network of contacts (i.e. in other countries) availability security concerns The weak pound already in London Geo-political / Economic performance / GDP growth Mortgage finance Inflation and consumer Debt – sovereign market intervention The UK’s changing tax environment negativeyear suggesting that the number of residents inthe UK claiming non-dom status fell by 14,000that year, there does seem to be a reasonablebasis for this concern.With the exception of one-off wealth taxes,which tend to undermine the UK’s reputation Source: Knight Frank Residential Research 03
  4. 4. Super-Prime London Survey 2011If there was a surge of negative reasons for Figure 2sale – the tax burden or London’s perceived Status anxiety Which of these statements most closely fits your views regarding the following potential risks todemise in 2008 and 2009 – it appears that over London’s attraction as a future wealth hub?the past 12 months this has dissipated. Whilethere does seem to be a growth of downsizing 80requirements from existing owners and some 70surplus property disposal, our experience is that 60there will be no lack of demand from buyers forthese properties, as we explain below. 50 % 40Future outlook 30 20In terms of the elements which bode well forLondon’s ongoing success in attracting wealthy 10residents (figure 4), our contributors pointed 0to the continued benefit provided by London’s Higher rates of Non-dom One-off wealth Loss of broad Loss of niche Security threats general taxation tax changes taxes (e.g. financial service financial service (e.g. terrorism)financial and business cluster. (e.g. 50% bonus taxes) sector activity sector activity income tax) to Asia to SwitzerlandThe underlying story from the results infigure 4, are that it is the lifestyle and A real and significant A real concern now A concern for the future Not a significant issue concern nowbusiness offering which largely explainLondon’s attraction, followed by education Source: Knight Frank Residential Researchand political (if not tax) stability.This high regard for London’s business inexorable rise in international demand and theand lifestyle cluster is important. Several breadth of this demand, with over 50 different Despite somecontributors noted that they had clientswho had considered moving to Switzerland, nationalities buying property through Knight Frank in 2010, compared to only 30 or so two relocations, Londonprimarily pushed by London’s changing years previously. still retains overtax environment. This widening of international demand 800 hedge fundsThe client’s determination to pursue such a points to prescience of the view noted in the managing £300move were stymied by the need to weigh up introduction of this report, that the impact of billion of assets,the availability of the right infrastructure, global wealth creation is felt very keenly inemployment prospects, family and friends, central London, and in the super-prime market compared to 140schooling etc. For most people the conclusion in particular. or so in Switzerlandis that Geneva can not replace London’scluster of contacts and lifestyle opportunities. Looking to the future, we asked our panel managing anThe other issue revealed in comments made and our own sales agents to identify the estimated £15during our survey, relates to housing and nationalities they believed would begin to grow in market share in the future. billion.even office shortages. There appears tobe a general agreement from those with Despite an already significant share of theclients who have looked to make the move super-prime market, at 14% in 2010, there wasto Switzerland, and even other centres, a consensus that buyers from Russia and thethat these smaller, and admittedly more tax former CIS states would become even moreefficient locations, are simply unable to match important to the London marketplace. Demandthe attraction and integration of international from Chinese nationals, which was negligiblemelting pots like New York or London. until 2010 was expected to continue its recentBy way of an example of the ongoing rapid growth, followed by Indian and Middleattraction of London, our research uncovered Eastern demand.the estimate that despite some relocations, Of the newer nationalities tipped for growth,London still retains over 800 hedge funds anticipated demand from Turkey, Egyptmanaging £300 billion of assets, compared and Lebanon ranked highly, pointing to theto 140 or so in Switzerland managing an combination of growing wealth here and also,estimated £15 billion. unfortunately, to growing political tensionsThe biggest single trend in demand for which have been such a regular precursor toproperty in central London is the seemingly property demand in London.04
  5. 5. We asked our agents to define new locations Figure 3or at least locations where demand was “I am selling because…” Considering the various reasons for sale given by super-prime vendors, have any changed ingrowing rapidly from prospective buyers. importance over the past year?The response from our agents was clear,demand for super-prime property is still led More frequentby locations in close proximity to Hyde Park,but also extends north through St John’sWood to Hampstead, west to Chelsea andwith some demand extending to locationslike the South Bank. No changeThe potential for growing demand in thesuper-prime market along the northernedge of Hyde Park, Bayswater through toMarylebone, was noted by several agents,as was the ongoing expansion of interest inMayfair and St James’s following the ongoingprocess of office to residential conversions staying in London I am moving from I am downsizing but This property is surplus to requirements I am upsizing but due to the City’s loss of prestige increasing tax burden staying in London I am moving from London London due to an Less frequentbeing undertaken.In figure 6 we asked our agents to createa top 10 list of property requirements, basedon their work in the super-prime sector.The importance, and value, attached toprivacy in an urban environment comes out Source: Knight Frank Residential Researchvery strongly. It also reflects the opportunityoffered to super-prime buyers, allowing Figure 4them to benefit from the clustering and A healthy future?networking offered by a big world city whilst Which of these statements most closely fits your views regarding the following potentialretaining a private retreat at its heart. opportunities to London as a future wealth hub? 80Conclusion – 70secure demand 60 50Focusing on the long-term, our survey 40work confirmed that there are questionmarks over the impact of some high level 30tax changes on London’s enduring appeal. 20These should not be overstated, demand foraccommodation in London bounced back 10after the 2008 crisis fairly quickly and the 0 lifestyle offering London’s retail, restaurant and Education – London taxation status schooling The survival, albeit revised, of the non-dom Education – London’s property title HM Land Registry – strength and clarity of universities political stability UK’s relative London’s financial and business clustermarket has re-established itself.The one issue which does seem worthhighlighting is the number of times theword “uncertainty” was mentioned by ourpanel. One of the UK’s real attractions forinternational investors and residents hasalways been its reputation for stability inlegal, political and tax affairs. This is one A real and significant A real concern now A concern for the future Not a significant issue concern nowissue worth watching over time. Source: Knight Frank Residential ResearchDespite that proviso, as we confirm nextin our market outlook, the positivesentiment regarding the future demandfor London’s super-prime properties isreinforced by activity in the market. 05
  6. 6. Super-Prime London Survey 2011super-prime marketperformanceThe central London residential market recovery over the past 18 months has faroutpaced the performance seen in the wider UK, and the super-prime markethas been at the head of this recovery.After falling sharply in 2008, super-prime and 2009, there was a sharp rise in activity in Table 1London prices began to rise from early the final quarter of the year. Volumes were on National Champions2009, and the market momentum drove a par with the very strong final quarter resultsthem higher up until the middle of 2010. in 2009, with over 20 £10m+ sales each month Which foreign nationals doThe post-UK election period saw a weakening in across the whole central London market. you expect to expand theirthe UK housing market, which was reflected in share of super-prime London?London with small price falls across the market. How to explain the recovery in high-end 1 Russian sales? In a word – confidence. An exampleBy the end of last year prices began to rise is the Knight Frank Kensington and Notting 2 Chineseagain, with low supply helping to maintain Hill offices, who alone completed five sales 3 Indianstrong price performance. over £10m in a single six week period towards 4 UAEThe drivers for this strength in performance the end of 2010. 5 Other Middle Eastin the central London market are firstly strong 6 Egypt Although a significant proportion of sales indemand (buyer registrations in the final three 2010 were made to new, international buyers, 7 Italianmonths of 2010 were 18% higher than the a large number also went to existing London 8 Lebanesesame period in 2009) set against weak supply, residents who were looking to improve on theirwith the volume of available properties only 9 Turkish5% higher in December 2010 compared to a existing accommodation. 10 Brazilianyear earlier. Over the course of 2010 prices in the super-This strong demand has been underpinned prime sector rose by around 8%, but examples Source: Knight Frank Residential Researchby the ongoing weak pound still delivering of individual properties seeing growth of 15%,discounts for dollar-based buyers of 25% or even 20%, were not uncommon.compared to London property pricing at the One of the key reasons for the strength inpeak of the market in September 2008. performance was the low volume of availableAdded to this the Eurozone crisis has driven properties, and in the super-prime marketnew demand from European buyers, lookingfor a perceived “safe-haven” investment inthe central London property market – withEuropean purchaser registrations rising 25%in the final three months of last year on ayear-on-year basis.In short, the central London market iscontinuing to buck the wider UK trend ofweaker sales volumes and prices. The abilityfor this trend to continue depends very muchon the unique factors in London continuing toplay out during 2011.In the super-prime market, the really significantindicator of robust performance, has not beenprice growth, but rather healthy sales rates.After a dearth of £10m+ sales last summer,volumes were down 80% in July and Augustcompared with the levels seen in both 200806
  7. 7. particularly, a lack of ‘turn-key’, newly Figure 6refurbished properties for sale in the Main requirements How important to buyers are the following features in the super-prime market?better markets. The ongoing difficulties for Moredevelopers to secure bank funding for larger importantsingle-unit schemes partially explains thelow level of available stock.Outlook for 2011The performance of the market in 2011 will bepartially driven by ongoing tight supply andas January has progressed evidence suggeststhat this factor will not reverse. We asked oursales agents to comment on the contributoryimpact of key macro factors (figure 7) on price Less Period property Security steam room, gym etc New-build property Swimming pool Renovation opportunity Off-street parking Private garden Leisure facilities – spa, importantperformance last year and their expectationfor this year.The expectation is that the super-primemarket will see an additional boost thisyear from London’s ‘safe-haven’ role as Source: Knight Frank Residential Researchpolitical difficulties play out in more locationsaround the world over the next 12 months. Figure 7In addition, rising inflation should begin to Market driverscreate higher demand for tangible assets, How important are the following in influencing super-prime price performance?benefiting the market. Strongly positiveOn the negative side, the gathering concernsover the UK’s economic recovery and theongoing problems in the Eurozone, togetherwith ongoing debt problems, point to potentialdifficulties in the year ahead from some areas.While our central view is that the primeLondon market will see prices unchanged in2011, we believe that there is real potentialfor price growth of between 5% and 10% inthe super-prime sector this year. There havebeen a number of very significant sales in Government housing availability / GDP growth Debt – business tax environment security concerns Geo-political / Economic performance Inflation Mortgage finance and consumer Debt – sovereign The UK’s changing The weak pound market intervention (i.e. in other countries) Stronglythe first few weeks of the year, which point to negativethe depth of wealth which is looking to buyinto the top end of the London market. Thisfact taken together with the ongoing lack ofsupply could help to push prices higher. Past 12 months Next 12 months Source: Knight Frank Residential Research 07
  8. 8. ResidentialResearchResidential Research London SalesLiam Bailey Noel FlintHead of Residential Research T 020 7591 8600T 020 7861 5133 Tim WrightGlobal Property Wealth T 020 7361 0181Philip Selway tim.wright@knightfrank.comT 0207 861 1112 Eliza T 020 7861 1778 eliza.leigh@knightfrank.comRecent market leading research publicationsThe London Review Global Residential The Wealth Report 2010Autumn 2010 Market Forecast 2010-11Private View 2010 The Rural Report 2010 Global Property Wealth Survey 2010Knight Frank Research Reports are available cover image: One Hyde Park internal photograph reproduced with kind permissionof Candy CandyKnight Frank Residential Research provides strategic advice, consultancyservices and forecasting to a wide range of clients worldwide includingdevelopers, investors, funding organisations, corporate institutions andthe public sector. All our clients recognise the need for expert independentadvice customised to their specific needs.© Knight Frank LLP 2011This report is published for general information only and not to be relied upon in any way. Althoughhigh standards have been used in the preparation of the information, analysis, views and projectionspresented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP forany 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 relationto particular properties or projects. Reproduction of this report in whole or in part is not allowed withoutprior 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 registerednumber OC305934. This is a corporate body that has “members” not “partners”. Our registered officeis at 55 Baker Street London, W1U 8AN where a list of members may be inspected. Any representative ofKnight Frank LLP described as “partner” is either a member or an employee of Knight Frank LLP and isnot a partner in a partnership. The term “partner” is used because it is an accepted way of referring tosenior professionals.