by David MacLean Watt
At the end of this year one must remind oneself that prior to the collapse of the world stock markets on October 19 there was almost a full year of sales and purchases in the London residential market. Any report, therefore, naturally falls into two parts — pre-Black Monday and post-Black Monday.
In general terms, there was continuing growth in the central London market for the first half of the year with a steady market emerging in August and September. This was sustained by the general bull market in the City, the confidence of investors in the growth of the property market and the strength of the furnished rental demand during this period.
January itself managed to survive some appalling weather, an indication of the strength of the market at this time.
The summer election, somehow now forgotten, had an interesting influence on the pace of the market. A flurry of “terms” being agreed in advance of election day might have led us to suppose that should the Conservatives be returned there would be a tremendous surge in the market. This proved not to be the case since, when the result was the expected return of the Conservatives although many prospective vendors endeavoured to increase prices this was resisted by purchasers with the result that prices remained at much the same level.
The summer season is traditionally quiet and it was perhaps no surprise that the warning signs from the City were missed. The banks and brokers, financial service houses and institutions, particularly some of the large American ones, had, long before October, begun to rationalise staffing requirements with regard to both their market share and future prospects. However, the continued shortage of good houses and general sense of euphoria in the country with a bouyant stock market helped the property market to sustain its strength.
The following is a review of specific areas of the market pre-October.
Mayfair and Belgravia
The outstanding features were the spectacular sales of what can only be referred to as the re-establishment of the London mansion, when Ancaster House in Mayfair and Nuffield House in St. John’s Lodge, two fine Regency houses situated in their own grounds in Regent’s Park, were sold for figures approaching £10m. Supporting these sales was the strength of the house market in Regent’s Park, Belgravia and Mayfair. In Regent’s Park, houses in Hanover Terrace (including the mews properties and on a long lease) have been selling at over £1.5m and in Chester Terrace prices are between £800,000 and £900,000.
In Mayfair, period residences which have been refurbished and provide around five bedrooms have attracted buyers in the region of £1m, with particular competition for freehold properties. There have also been sales of more substantial properties at more than £2m. Chester Square in Belgravia provided an example of the substantial demand for period terrace houses providing between five and eight bedrooms with appropriate impressive reception rooms. These have either been sold on 50-year or shorter leases and have established a figure on the longer leases in the region of £1.5m. The smaller houses in Belgravia have been obtaining figures in the region of £800,000, while there is evidence that small but attractive two-bedroomed mews houses, with garage and the advantage of being freehold, have been attaining £300,000.
Throughout the year, the flat market in Knightsbridge and Belgravia has been particularly buoyant, with the strongest demand being for three- to four-bedroomed flats with en suite bathrooms, which have been refurbished to a high standard. Not uncommonly, figures between £600,000 and £700,000 have been achieved for long-leasehold interests.
Kensington and Chelsea
Demand for properties in good order and well presented continued. Throughout the whole of the Royal Borough a shortage of such properties ensured a continued rise in their values with prices around £1m or more being achieved for houses in areas such as Sumner Place, Chelsea Square, Alexander Square and Egerton Terrace (pictured).
Slightly more modest houses also achieved very high prices and there continued to be a major shortage of houses anywhere in the area in the £650,000 to £1m price bracket. The consequence of this demand was that the sums achieved for properties in need of refurbishment reflected the prices that many purchasers expected to pay for the finished article, and there was a continual market in unmodernised houses in both prime and secondary locations.
With reference to flats, the continued excellence of developments provided a full range of conversions and refurbishments which were quickly purchased, reflecting the confidence of purchasers in the growth rate and in the rental incomes which such flats might generate. The market was fuelled by the residential property funds who attracted substantial amounts from subscribers for investment in such properties, particularly in the newly discovered area of South Kensington, where a programme of renovation and refurbishment has led to the almost total disappearance of the rooming houses and the emergence of excellent flats well converted and presented.
Another example of this demand for the “finished” article was the successful sale of flats in Bullingham Mansions, Kensington, where a previously fairly unloved mansion block was painstakingly, refurbished to create attractive flats much in demand despite the absence of lifts.
Docklands
Until “Black Monday” the demand for all types and sizes of residential accommodation in the Docklands area continued unabated. Prices continued to rise and there wa a healthy demand by renants wishing to ent furnished accommodation bought by investors, both home-based and expatriate.
In addition, the trend of buying from plans apartments which will not be ready for two or three years had continued unabated, and there must now be a significant futures residential market in Docklands. It is difficult to say at the moment who the buyers in this market are — certainly there is a significant number of expatriate investors who are buying to let out, to both domestic and other expatriate tenants.
From our management of buildings in this area, we know that there are numerous young people working in the City who have bought, in addition to a number of company purchasers of flats as residences for visitors to London. Finally, people wishing to commute to London weekly have been buying.
Post-October
The reaction to the stock market crash was that prices must come down. However, this was not our experience. Deals agreed continued to completion, with a few notable exceptions, but the fall-through rate of sales was not noticeably different from the rest of the year, and there continued to be back-up bids in some of the cases where offers appeared “shaky”.
Nevertheless, it cannot be denied that activity dropped considerably, with fewer applicants in the market. Those looking, however, were serious purchasers and were rewarded with a change in attitude by vendors keen to conclude deals although not, as yet, willing to make large percentage reductions in prices.
Other commentators talk of the froth going from the market or of the properties overheating. What this really means is that pre-October it was possible to increase the asking price for a property over and above the price arrived at by reasoned valuation and market evidence.
To conclude, the market has at this stage returned to the normal level where the advice of agents is sought and listened to rather than the somewhat “illogical” market of the first part of the year. The ability of the market to sustain its present level will depend on the will of vendors to achieve their asking prices and the general confidence of the country. In particular it will depend on the employment policy and level of activity of international banks and City firms whose reorganisation and realignments, resources and reaction cannot but have some effect on the central London property market in 1988.
