Real Estates Realities Podcast
London Prime Property
This podcast was originally commissioned for Barclays Private Bank. It has been modified for our International clients.
Join property journalist Zoe Dare Hall in the first episode of Real Estate Realities, the podcast devoted to prime property, from Barclays Private Bank. In this series we’ll explore the state of luxury residential markets around Europe, and ask the experts for their thoughts on the trends, luxury opportunities and prices in the wake of the COVID-19 pandemic.
Starting in London, Zoe is joined by Jo Eccles, founder and MD of the private luxury real estate buying agency, SP Property Group; Tim Hyatt, Head of UK residential at Knight Frank; and Stephen Moroukian, Product and Proposition Director at Barclays Private Bank.
Whether you’re buying, selling or investing in prime property…is now the right time?
Are we headed for a downturn in prices? And which markets will remain the most resilient? Tune into Real Estate Realities, the new podcast series from Barclays Private Bank. Where we give you the inside track on prime and super-prime residential markets. We uncover the trends…and the opportunities. As global events evolve, we analyse the data and ask the experts for their opinions and insights into what’s next for prime property.
Moderator: Welcome to Real Estate Realities from Barclays Private Bank, the podcast series that gives the inside track on prime residential property in a post pandemic world and beyond. In this, our first episode, we look at some of the trends emerging as London leaves lockdown and reopens for business, including the trends among home movers. I'm your host, Zoe Dare Hall and joining me today in London are Jo Eccles, Founder and Managing Director of the private luxury real estate buying agency, SP Property Group.
Jo Eccles: Hi Zoe, thanks for having me.
Moderator: We also have Tim Hyatt, who is Head of UK Residential at Knight Frank Estate Agency.
Tim Hyatt: Hello Zoe, nice to be with you.
Moderator: We also welcome Stephen Moroukian, Product and Proposition Director at Barclays Private Bank.
Stephen Moroukian: Thank you Zoe, great to be here.
Moderator: Welcome to you all, thank you all for joining us in our virtual studio. Before we get started, let's put all this in context a bit. In January of this year, which seems like a different world now, a high-profile Chinese property magnate agreed a sale of more than £200 million for a mansion on Rutland Gate in Knightsbridge. It was the most expensive property ever sold in the UK.
According to Knight Frank, while 2019 was the strongest year for transactions since the peak of the market in 2014, the recovery really began to accelerate in three months between last December's general election and the lockdown. As we all know, Prime Minister Boris Johnson announced a nationwide lockdown on the 23rd of March putting some 373,000 property transactions on hold. Then, on the 12th of May the housing market in England was given the green light to start up again.
According to HMRC, in May of this year there was a 16% increase in sales, compared with the previous month, but to put that in a broader context, sales of residential properties were still down 50% year on year. Jo Eccles, do these figures reflect your experience?
Jo Eccles: Absolutely. I think it's too early to say whether the demand will continue, but it's certainly been much busier than I think everyone expected since the property market reopened in England and we've seen demand from two types of buyer. One is the buyer who came out and was looking in early this year, so after the December election and they spent January to mid-March looking for a property they hadn't found.
So when the market reopened, they were out with a vengeance try to secure something, but equally that demand has been coupled with buyers who have spent lockdown reflecting on where they live now and realise that they need something different. So we've got both of those pools of buyer coming in with, with very, you know, very pointed motivation to acquire a property and even during lockdown we had a call from a client saying, 'We want to buy a £10 million house in Notting Hill, can we get started now?'
And that was when viewings weren't even allowed and I think the market is now feeling very optimistic. We don't know how long that will continue for, but certainly we've got just over £45 million of client transactions in progress, and the London market is showing very clear signs of resilience.
Moderator: That's interesting. There, I mean, there does seem to be a certain optimism in the London property market at present. Estate agents are using words such as “pent-up demand”, they're reporting their busiest weeks in a long time, even bidding wars in some cases for the most in demand properties. Does it apply to prime Central London though?
Jo Eccles: Yes, it definitely applies to prime Central London. We've seen three episodes of either sealed bids recently in the past weeks, or we've seen a property which under offer pre-lockdown, which fell apart during lockdown and since the market's reopened it's actually been agreed for a higher price than was achieved previously.
Moderator: Tim Hyatt, hello and welcome. You're routinely dealing with the high value transactions in London, the highest value transactions in London. What's the general feeling among the buyers and sellers you're talking to? Does this air of optimism resonate with them?
Tim Hyatt: Hello Zoe, yes. I mean, look, I've got to not sound like the eternal optimistic estate agent, but from our perspective we've been reopened now for ten weeks and I think the market, after being through what I would describe as a sort of sense of suspension, is back, it's alive and it's kicking, and the number of offers accepted in our UK branches, we've got 61 across the UK, is at an all-time record high.
Even with the 50% pre-lockdown transactions that we were expecting to fall through, the reality is that only 10% actually hit the fall-through rates, of which we managed to recover 5%. So, it took a dive, no doubt about it, it came to a complete halt, but now that, sort of, momentum of what was starting in the first three months of the financial year or the calendar year, seems to have continued.
Moderator: Let's bring in Stephen Moroukian from Barclays Private Bank. How did the busy start of the year translate to borrowing? Were you seeing a spike in applications from wealthy buyers?
Stephen Moroukian: Yes, thanks Zoe, absolutely. Real up-tick in the market. We saw a lot of demand coming through. Our client strategies for real estate have always been fairly consistent. That's trading up in London, trading out, out of London to find something in the country, or diversifying. So extracting value out of properties in London to then buy a property abroad. All of those client strategies remain absolutely consistent through this period. What we are seeing is a shift away from certain strategies to favour others.
Moderator: Let's talk about prices. Are we seeing any dramatic changes? Tim, what's the data telling you?
Tim Hyatt: The data at the moment is telling us that no, we're not. In prime Central London and in Greater London we were predicting a 5% fall in property prices for the year and further afield across the rest of the country we were predicting 7%.
The reality is that most of that has been absorbed within the first two or three weeks of reopening, which is over ten weeks ago now and it's too early to tell, but the market is busy enough for us to think that some of those price drops might actually be absorbed and we might get back to zero before we know it.
Moderator: At a time like this, you might expect to see some heavy discounting going on with people who need to sell in particular. Jo, are you seeing that kind of thing happening? Are people discounting their properties substantially?
Jo Eccles: I think everyone was expecting significant discounts post-lockdown, but it actually hasn't happened. We haven't seen any mortgage down evaluations at all with our clients and so far we've only seen one distressed opportunity, which is a repossession. So, whilst that represents a genuine discount, the bank selling the repossession still has a duty of care to ensure that the property achieves a fair price.
We have seen some cases of very wealthy sellers who are accepting lower prices than they were hoping for, but in these cases they're often doing so for practical reasons.
For example, if the property is now surplus to requirements and they simply don't want the hassle of owning it anymore, or they're using the proceeds for other things such as distributing wealth to children, or buying property elsewhere. So, in those cases is it a discount? Yes.
But is it just a genuine distressed opportunity? No. It's just simply a case that these sellers or certain sellers are wealthy enough to sell at a discount to facilitate a prompt sale and I think it's quite similar to the financial crash back in 2008 and 2009, where again we didn't see much distressed or discounted selling.
Many sellers back then were able to hold out and wait to see what would happen with prices, and as transaction volumes fell as a result and we saw lots of would-be sellers choosing to hold onto their properties and rent them out rather sell at a discount, and I suspect we might see something quite similar here.
Moderator: At a time like this, a lot of people might think there are bargains to be found. Tim, has Knight Frank seen any significant price reductions in the past couple of months? Are there any multimillion-pound properties out there that could be considered bargains?
Tim Hyatt: No, I wish. That would be an interesting one, but look, I think it's quite the opposite to be honest. We, we've seen the 5-7% drops that we were predicting during the lockdown. They've either been already absorbed or getting close to it, and in fact, if I'm really being positive about things, I think that drop of the 5-7% will fall away and we might be back to, to just matching prices as expected.
We've seen sealed bids in some cases, something that we haven't seen for a long time, but look, there might be the odd deal where there's a 10% discount, but that will be driven and led by the vendors requirements. If people are forced to sell, certainly as a result of the lockdown and they need to do it quickly, then yes, but we're not seeing too many people like that and the people that we are seeing are being very resilient about pricing. They're not being over optimistic, but they are being resilient.
So I think the market is strong, without it being a buyers' market yet.
Moderator: And I suppose that buyer’s market is smaller – at least temporarily – because international buyers simply haven’t been able to get to London to see properties. Jo, have you seen a substantial decline in enquiries from overseas clients?
Jo Eccles: Yes, absolutely Zoe. There has been a big decline and obviously they just can't get here. There will always be some international buyers who will buy remotely or will do it via video FaceTime and as a buying agency our clients retain us. So when they do that, they are very committed. So some will go ahead, without physically seeing it, but a lot of them just can't get here, so they're absent from the market right now and this has caused a lot of opportunity for domestic buyers who are in the UK.
For example, we've got a client under offer on a property in Marylebone, which ordinarily would see a huge amount of competition from overseas buyers, but we have clear run at it because they're just simply not here. Where we are very busy is with the domestic, particularly the family house market, where buyers are looking to upsize.
Most of them have realised during lockdown that they just need more space and some have either spent out in the country or they've been cooped up where they're living now and they're looking to upsize.
So, the family house market certainly, the £5 million to £15 million price bracket is very busy, particularly those who are looking to make a longer term commitment of five to seven years, as that's the time scale they'll really need to be aiming at in order to recoup the transaction costs that go with buying a property here in England.
Moderator: So yes, and I suppose stamp duty is something that many prime London agents are seeing as perhaps the biggest hindrance to the market, bigger than Brexit even in the last few years. Stephen, any thoughts on what the longer-term implications might be with regards to stamp duty, including the introduction of a new 2% surcharge for foreign investors from next April?
Stephen Moroukian: Yes, thanks Zoe. Well, at the prime and super-prime market level, the chancellor’s recent changes have a smaller impact and indeed, the surcharge you mentioned will undoubtedly be of greater impact and will likely drive transactions onto this side of that deadline, especially for international buyers.
And look, whether a first-time buyer or a home mover, a stamp duty holiday is undoubtedly positive for overall sentiment, and I would expect to see a cascade effect of that sentiment across the market – and that’ll drive activity at those appropriate price points.
Moderator: Another big talking point at the moment is the number of Londoners who are thinking leaving the city and heading to the countryside, now that something like 60% of us are working from home and it's proving manageable. Jo, are you putting on your green wellies more these days and showing a lot of Londoners the joys of a more rural lifestyle?
Jo Eccles: Not, not quite Zoe. There's definitely more interest in, in the UK countryside though. I think with international buyers, there's always an appetite and I think if you can buy an estate for example, a shooting estate or an equestrian estate, it can be a very population option for wealthy internationals wanting to demonstrate a status symbol or buy their way into high society, but in terms of Londoners, we're definitely seeing people reconsidering their option and realising that they need to get much more from where they live.
Some people are in the fortunate position where they can upsize within London and I think a lot of people would like to do that, particularly if they have children who are happily at schools or they're city people.
But there are others where they're saying, “Actually, you know what? We're not anchored to a commute anymore, so we can consider areas that otherwise just wouldn't be viable,” but I don't think we're going to see a huge exodus that some people might have been talking about because there is so much in London that does underpin people staying here, like schools or other things.
So I think we will definitely see more people moving out and reconsidering their options, but I think London will still be in high demand.
Moderator: Tim, what's your view on city versus country?
Tim Hyatt: Not too dissimilar to what Jo was saying. Have we seen an exodus? No, we haven't, but we are beginning to see more and more people looking to exit from London, be it for a primary or secondary home. So, I would describe it as a slow growing pattern. If you look at the numbers of new prospective buyers in May and June compared to the same grade last year, the UK as a whole is up 36%, London is up 27% and the country is up 43%.
I think our country offices over the last, sort of, four years would all agree that they've had it pretty hard, but at the moment the number of new people registering, the number of instructions coming to the market and the general activity is probably the greatest it’s ever been and if you take two hubs, two cities, Oxford and Cambridge, the prices in Cambridge shot up by 60% over the last decade. So they've seen huge growth.
Both cities have reputations as emerging science and tech hubs and that kind of business growth attracts talent, and I think the challenge will be the availability of quality stock more so for the younger buyers and young families, as opposed to people looking to relocate out of London.
Moderator: For that ultra-premium buyer, those areas such as Knightsbridge and Mayfair, the traditional prime post codes are gold. I wonder though, post-COVID and now that so many more people are working from home, whether we'll begin to see prime Central London redrawing its boundaries a bit. Tim, are there any areas emerging on your prime property map of London?
Tim Hyatt: What tends to happen is that if the property market is flourishing, people will look further afield. Greater London, Putney, Barnes, Richmond for example. At the moment, you've got a blended mix of local domestic buyers all moving within those areas and the younger buyers tending, if they can afford it, to go into new build. There are pockets of Greater London beginning to emerge that can offer being relatively classed as prime Central London.
So if we take White City as an example, some people would say that White City is a, sort of, South Holland Park. It's not. It's Shepherd's Bush, but it's right on the doorstep of one of the largest shopping centres in the world right now. There's a premium that comes with that.
Transportation is quite good. The Central Line can get you into the city pretty quickly. It's going to be connected with Thameslink and also going further into the city of East London, Canary Wharf, Stratford, Royal Arsenal and Woolwich all selective younger generation price points and they're creating their own communities.
Moderator: There are also huge generation projects that have totally transformed areas of London beyond recognition, King's Cross, Nine Elms, those sort of places. So I think it's interesting that it seems maybe new builds in up-and-coming areas could be a new focus for future super-wealthy buyers. Stephen, is this sort of further afield new builds as attractive as established prime enclaves do you think?
Stephen Moroukian: Well, it's an interesting question. I think I agree with Tim. The map of prime has changed over the last twenty years and I think one thing we can guarantee safely is that that will continue to happen. We've talked about the Richmonds, the Putneys, the Wimbledons, but also the Oxford and the Cambridge. So I think it really comes down to some of the other drivers - again, we've touched on those - education, healthcare, and the commute and the connectivity to London, but also the connectivity to that green space.
So let's take that point separately. I think in terms of the buy-to-let driver and clearly that has always been around chasing yield and long-term sustainable capital growth. So, where those two-, those two particular factors overlap, I think property experts will continue to talk about for the next 50 years. So I think it's a watch in brief on all of that.
We all know we have a housing shortage in the UK at the moment, that the construction of good quality housing stock that's accessible for everyone is important, remains on the agenda. Clearly over the last three or four months that's something that we've seen delayed.
Moderator: Let's talk about lettings a moment, specifically super prime rentals which has been a burgeoning area of the market in recent years, partly because people have been adopting a wait and see approach throughout the Brexit negotiations and now with COVID. Tim Hyatt, what's happening in the super prime rentals sphere that you're seeing?
Tim Hyatt: You're right Zoe, that rent before you buy take-up over the course of the last five or six years in the super prime end of the market and that for us is £10,000 a week and over, has grown considerably. Right now, if you take one small example, you've got the Premier League teams opening up their transfer markets and we've got some big ticket players coming in as a consequence. So there's some, some very large super prime deals being done.
Also, we relocate corporate heads from around the world and they tend to prefer to have that flexibility, especially in light of the current economic situation, to rent and be able to get out quickly if they need to.
But if you look at the stats, the appetite shows at the moment that there's been a 36% increase in the number of enquiries just between the 11th of May and the 21st of June compared to the same time last year.
And I can tell you that not in the super prime market, but regarding lettings applicants as a whole, even they are 26% up which has surprised us, bearing in mind that if you go around the city at the moment it is completely empty and we still haven't got an emerging picture yet of what is going to happen with office take-up.
So we have the city as a barometer for rentals.
So the thing that's taken us by surprise on the rental piece is that we were expecting a lot of international tenants that we had to give notice and relocate, and in fact that's just not the case. Most of the tenants that we have are staying put and extending their leases, or they're moving out and looking for different type of property. They're either scaling down or in some cases they're scaling up, but not a mass exodus as we first feared.
Moderator: There's, there's clearly a lot of change to come in the residential market on the sales side, the letting side. What about in the commercial property market? Stephen Moroukian, how do you think this climate we're in now, these new behaviours will reshape the commercial property market?
Stephen Moroukian: Yes Zoe, it's, it's difficult to predict. Social distancing, we're in uncharted territory and of course employers will need to make some big changes to the office space, to retail space and probably invest in more technology. A serious situation, I think we'll only really understand the long-term effects over time.
Moderator: It's a fast changing landscape, but what are the new opportunities in prime Central London? Jo Eccles, what should be on the radar of buyers who have, say, £10 million or more?
Jo Eccles: For that price bracket there's been a lot of demand in areas such as St John's Wood and Hampstead where you can buy a really generous sized family house which for those people who don't want to move out of London, can tick a lot of boxes.
We’re acting for clients where suddenly they've realised they need two studies because both spouses work and they need a big garden, and they need live-in nannies and, and so much more and in those areas for £10 million plus, you can get some fantastic houses. So they've been very popular pockets of London.
At the super prime level, there have been some very big transactions, some of which have hit the press, others haven't. For example there's a rumoured notable deal in Regent's Park for north of £100 million, but there are NDAs all over that, so no one can really say much more, but various trophy homes have changed hands.
We have a settling in team who have spent most of last week unpacking a client's new £18 million house in Chelsea handling absolutely everything for her, from unpacking shoes to getting utilities changed over and much more.
And we've seen some really interesting super prime developments being launched regardless of the landscape that we find ourselves in.
Moderator: That's interesting, there's obviously high demand for those kinds of high-end developments that offer lots of amenities, but also this has been a time when we've all rethought a bit, perhaps, how we see communal spaces. Jo Eccles, what sort of new technology and amenities do you think we'll see on the horizon and, and, and how are designers re-jigging schemes and coming up with new ideas in the light of this COVID era?
Jo Eccles: I've been having monthly calls with some of the top interior designers throughout lockdown and it's been really fascinating to see the situation through their eyes and I think, they've had projects stalled because manufacturing has been forced to stop, and their clients couldn't travel and progress projects, but over the past month their reporting activity is starting to pick up and with that has come new grand plans and requests that weren't even discussed previously.
So, of course on top of needing to have home gyms and, and impressive and very functional studies and home offices, but I think the others will be technology based,
So for example, air purifying systems or motion sensor holograms instead of lift buttons, so that you don't have to touch so many surfaces. I think we'll see a huge increase in innovative technology surrounding that and also an interior designer I was speaking to the other day, she's just been asked by a client at a very high-end project, to install wardrobes which sanitise the clothes inside them.
So we're going to see some really interesting new innovations that come in and I think it might be quite an exciting time.
Moderator: What else are buyers looking for now as a result of lockdown? Tim, what do you think?
Tim Hyatt: Well the obvious one now is outside space and, and greenery. If you are in prime Central London you can be paying a considerable amount of money, but getting a very small postage stamp as, as a bit of outside space. So that’s there. The idea of security as well, going into the unknown of how often people are going to be coming in and out of the country.
If you're an international buyer at the top end of the market, people need to know that property that they've got is going to be safe. So they're looking at either what's coming within the development itself or they're bringing their own security, which they're housing off site and then the final bid, which is what I think we've all talked about, digital modernisation.
Some of the features that are coming through in some of these high tech properties are, are extraordinary, but what people really want is a property that can take away the hassle of having to do very little. They want to have it as a home where they can just come in, relax, work if need be and have everything at their disposal 24/7.
Moderator: It remains to be seen whether the prime Central London property market can whether the COVID storm and the likelihood of a No Deal Brexit. Stephen Moroukian, I'd like you to make a prediction there if you would, will mortgage rates remain at these record lows?
Stephen Moroukian: So in the UK Zoe, we've, we've moved from a low interest rate environment to a nil interest rate environment.
That's important because it's a fundamental change and a different chapter to where we were.
We can look at the Euro zone and we can look at countries like Japan to give us a glimpse into the future for long-term funding costs, but it's probably safe to say that those rates will remain low in the marketplace today, and certainly there's less distance to travel now to go from a nil interest rate environment to a negative interest rate environment, and I guess that's the conversation that a lot of people are having at the moment.
Moderator: Of course, another conversation people have been having – for four years now – is the one about Brexit. Tim Hyatt, do you think COVID has made us forget about Brexit for a while? Which situation has had the bigger impact on the property market and the way we live?
Tim Hyatt: Brexit has created a long-term lull. COVID's created a short-term block. I've learnt, actually going through the last few months - and we always surprise ourselves on this - that London is a very resilient place. It can take just about anything that's been thrown at it.
There are a few big differences between what's happening now and what happened during the global financial crisis: Number one, the amount of infrastructure that's come into London post the global financial crisis and number two, is the number of developments in housing that's being built at the moment, both commercially and residentially.
It's dramatically different to when it was back then and third, thanks to the government's furlough intervention we've had far more opportunities to protect talent, whereas in the global financial crisis it was just gone, and very quickly.
What Brexit has created is uncertainty. COVID hasn't. Brexit created uncertainty month, after month, after month. You've got to be a bold person when you're looking to make a decision about buying a property. There's no doubt that throughout both, people have to move. What stopped the market was the potential damage of Brexit combined with the high stamp duty rates.
So if you got it wrong and you paid 12% on stamp duty and then the market dropped by 20%, that's a hell of a gamble, whereas with COVID people are fighting back to say, 'We're just going to get on with this.'
Moderator: There are certainly some reasons to, to be optimistic, there are also lots of reasons to be cautious at the moment. Big thank you to all our experts for taking part today. Jo Eccles, who's the Managing Director of SP Property Group, Tim Hyatt, who is Head of UK Residential at Knight Frank and Stephen Moroukian, Product and Proposition Director at Barclays Private Bank.
I hope you've enjoyed this first episode of Real Estate Realities. Join us next time when UK prime property experts outside London will share their views on their corner of the market. Thank you for listening.