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Wall Street Journal: Red-Hot Property Markets Cool As Rich Investors Retrench

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- http://www.wsj.com/articles/oil-stock-slides-cool-red-hot-luxury-property-markets-1453308699

LONDON—In August 2014, when the housing market here was on a tear, a two-bedroom condominium in one of the most expensive neighborhoods went up for sale at £3.25 million ($4.64 million), a 67% premium to its purchase price six months earlier.

The redbrick home on Cadogan Gardens in Knightsbridge is still unsold, and expectations have been revised. The price has been cut three times, the latest at the start of this year, to £2.5 million.

“It’s a great property,” said Sam Spring, a sales broker at the Chelsea office of estate agency Faron Sutaria, of the 1,250-square-foot home with dark walnut floors and high-end appliances. “It’s just a very price-sensitive market these days.”

In London’s priciest neighborhoods, the housing boom is over.

Wealthy investors, most prominently from Russia, China and the Mideast, swooped in on cities like London, New York and Vancouver to buy high-end homes in the years following the 2008 financial crisis. Real estate appeared to be a safe investment. Returns looked robust against ultralow interest rates.

Now, demand is slowing not just in London, but in prime housing markets around the world.

Average prices of luxury homes in 10 global cities analyzed by real-estate broker Knight Frank LLP are expected to rise 1.7% this year, down from 3% growth in 2015.

Foreign investors that helped drive the boom have had to contend with weakened currencies, stock-market shocks and the collapse in oil prices. Meanwhile, a major overhaul of a U.K. transaction tax known as stamp duty increased the charge on high-price sales, and new taxes on second homes and rental properties will take effect this spring.

In New York, demand for high-end homes cooled last year, brokers said. In Miami, South American and European buyers could pull back this year due to a stronger dollar, and prices are expected to fall in Hong Kong, Singapore and Paris, Knight Frank said. Swiss lender UBS Group AG said in October that housing markets in Sydney, Vancouver, San Francisco and Amsterdam appear “significantly overvalued.”

Luxury housing in London became one of the world’s hottest assets. But “the frenzy is gone completely,” said Manish Chande, senior partner at U.K. real-estate firm Clearbell Capital LLC. About 18 months ago “everything was going like hot cakes. Today it’s the total opposite,” Mr. Chande said.

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Prices in prime central London, which includes high-end properties in posh districts like Mayfair and Chelsea, fell 1.4% during 2015, according to data-provider Lonres. Some neighborhoods fared worse. In Knightsbridge, prices dropped 5.6% in November compared with the year earlier, according to broker Knight Frank.

Those slides may understate what is going on: Data on high-end homes are hard to compare, because there are few of them and sellers may have the wherewithal to simply hold off rather than accept a lowered price. Transaction volumes at the top end of the London market were as much as 40% lower in December from a year earlier, according to U.K. buying agent Property Vision, and inventories of prime properties are mounting.

The standoff between buyers and sellers resulted in 2,712 homes over £1 million for sale in prime central London at the end of November, 81% more than in January 2014, according to buying adviser Huntly Hooper Ltd.

Even so, in a sign of the liquidity crunch, the gap between asking prices and sales prices is widening.

The difference between initial asking prices and average sales prices in prime central London was at a record 19% in the three months to November, Huntly Hooper data show. The disparity was 9% in the same period last year.

Noble estate

Cadogan Gardens—four streets ringing a shared garden—sits on the Cadogan Estate, a 93-acre central London plot that has been in the same family for nearly 300 years.

The estate is on the border of Chelsea and Knightsbridge, parts of London now synonymous with fancy cars, luxury shopping and high-price penthouses.

Its origins are noble. The English aristocracy once had summer palaces around the fields and marshes of Chelsea. In the 1770s, the first large-scale housing development started when Charles Sloan, the Earl Cadogan, granted a lease to architect Henry Holland to build terraced homes for moderately affluent people.

In the 1800s, the area started to be swallowed by expanding London. Sloane Square tube station opened in 1868. Much of the Cadogan Estate was redeveloped in the late 1800s after falling into decline.

Last year, just a quarter of the 34 homes put up for sale on Cadogan Gardens sold, and almost half were taken off the market, according to Nathaniel Wilde, head of the Sloane Square office for estate agent Hamptons International. On Eaton Place in neighboring Belgravia, home to billionaires and diplomats, only a quarter of the around 50 homes offered were sold, he said.

It was a “tough year on that patch,” Mr. Wilde said. “Lots of homes are still sitting there.”

The Cadogan Gardens condo for sale at £2.5 million was last sold in February 2014 for £1.95 million, according to Land Registry records. The property developer selling the condo has been renting it out, Mr. Spring said.

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New York’s 90-story One57 building, where a four-bedroom condo purchased by a European investor for $20.3 million in April recently sold for $17.75 million. PHOTO: RAMSAY DE GIVE FOR THE WALL STREET JOURNAL

Superrich buyers from countries in the Mideast and Asia helped drive prices higher. But financial circumstances in those countries have changed drastically in the past year.

Oil prices, slipping under $30 a barrel, are about half the price they were in May. Demand from some investors in oil-producing countries around the Middle East and Africa has waned, property agents said.

Mideast investors made up 4% of prime central London buyers last year, compared with 15% in 2014, according to data from broker Savills PLC.

Weaker currencies have kept investors in Asia and other emerging markets at bay. The portion of buyers from the Pacific-Asia region fell to 2% in 2015 from 4%, Savills data show. In China, stock market routs amid concerns about economic growth have had an impact on buyers. Most investors from China have focused on new-build properties away from London’s historic center, agents said.

In New York’s high-end property market, the Federal Reserve noted “softer demand and a supply glut” in its December regional survey of economic conditions known as the beige book.

“There has been a dramatic slowdown at the superluxury end of the market,” saidAndrew Gerringer, managing director of the Marketing Directors, new-development consultants. “When you see what’s happened in the financial markets it just puts a bit more of a chill.”

In the 90-story One57, just a couple of blocks from Central Park, a four-bedroom condo purchased by a European investor for $20.3 million in April recently sold for $17.75 million, according to the broker, James Cox of real-estate firm Compass.

While overall the New York real-estate market remains strong, Mr. Gerringer said that demand for trophy properties over $20 million has cooled substantially over the past year, and there has been some impact on the $5 million-$10 million market.

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1 mile

1 km

Regent’s Park

CENTRAL

LONDON

Notting Hill

Mayfair

Hyde Park

Knightsbridge

Belgravia

Westminster

Abbey

Chelsea

LONDON

At 50 United Nations Plaza, which has views of the Empire State Building, the developers, Zeckendorf Development LLC and Global Holdings Inc., said they cut prices by 5% on some units, although they said less expensive units on the lower floors have sold for close to the asking price.

In Sydney, upscale home prices raced 15% higher in 2015, according to Knight Frank. But growth is expected to slow to 10% this year.

Rich Simeon, director of real-estate firmSimeon Manners, is waiting to see if the recent China stock market shakeout chokes off demand from Asian buyers. “It is too early to tell what is going to happen right now,” Mr. Simeon said.

Jo Eccles at London buying agent Sourcing Property said foreign buyers made up half of her business over a year ago. But now the vast majority of her clients live in London, with many working at investment banks. “The demographic has changed massively,” Ms. Eccles said.

Access to capital has also become increasingly difficult for foreign buyers exposed to falling oil prices, said Camilla Dell, managing partner at buying agency Black Brick. She said wealthy buyers from oil-rich African countries like Nigeria have struggled with liquidity in the past six to 12 months.

Stamp duty

In the U.K., the change in stamp duty in December 2014 made homes valued over £937,000 more expensive for buyers. Stamp duty charges rise in steps to a maximum of 12% on the portion of sales over £1.5 million. The previous regime charged a flat rate based on the value of the home, with the duty rising to 7% on homes over £2 million. Last year, to compensate for the change, some sellers adjusted their prices lower, agents said.

Wealthy buyers can generally afford the outlay, said Alex Newall, managing director at Hanover Private Office. But the new tax has made people wanting to trade up to a bigger home hold off on transactions, “instead opting to do renovations or additions to their existing properties,” he said.

While the prime central London market is stuttering, prices are still pushing higher in the rest of London amid a housing shortage. The average dwelling in November sold for £506,724, up 11.2% from the year before, according to Land Registry data.

Adding to demand are buyers that a few years ago would have focused exclusively on prime central neighborhoods. For instance, some wealthy Middle Eastern buyers have started to see better value in new-build projects away from the center.

“These clients are now willing to look 10 miles out,” said Jo Leverett, head of international residential markets at estate agent Cluttons LLP. “That’s new.”

BN-ME372_LONPRO_P_20160119191546.jpgENLARGE
Homes in Cadogan Gardens in Knightsbridge, one of London’s most expensive neighborhoods. PHOTO: ART PATNAUDE/THE WALL STREET JOURNAL

Overall, London has become drastically less affordable. When UBS warned in October that the city was at risk of a housing bubble, it noted that real earnings have fallen 7% since 2007.

“We’re due a price correction,” said Robert Nichols, managing director at London estate agent Portico. “When you can’t think of anyone who can afford to live on your street, you know there is something wrong.”

For now, areas dependent on the superrich are the ones suffering.

St. George’s Hill, a gated community in the suburbs of Surrey, became popular with wealthy Russians during the boom.

Now, around a quarter of the over 400 homes in the area are for sale or set to come onto the market, according to Hanover Private Office. Just 13 homes were sold there last year.

Wealthy Russians have pulled back from the London market amid international sanctions, the depreciation of the ruble and political pressure to rein in foreign spending, buying agents representing Russians said.

Saddle Stones, a six-bedroom mansion in St. George’s Hill, was listed in August 2014 at £9.5 million. The asking price is now £7.5 million. The home, complete with a cinema room, elevator and swimming pool, was designed with a Russian buyer in mind, saidNatalia Rotenberg, founder of design firm NR Group.

Ms. Rotenberg said homes in the area remain for sale despite lavish parties thrown for potential buyers. “We’ve won awards for our interiors. But they still don’t sell,” Ms. Rotenberg said in a September interview.

—Laura Kusisto in New York and James Glynn in Sydney contributed to this article.

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The first property mentioned was bought at £2m 6 months ago.

They might have started marketing at £3.25m and repeatedly reduced but its still marketed at 25% more than they paid.

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100 homes for sale in St George's Hill - and only 13 sold last year. Due a price correction I should think - followed by the rest of Weybridge and then a ripple out effect.

I guess Wentworth is likely to follow shortly.

Who wants to live in a Russian gated community?

Perhaps we need a 'Prime Surrey/Berkshire' thread?

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The Cadogan Gardens condo for sale at £2.5 million was last sold in February 2014 for £1.95 million, according to Land Registry records. The property developer selling the condo has been renting it out, Mr. Spring said.

I reckon this is the one they are referencing.

http://www.rightmove.co.uk/property-for-sale/property-51647017.html?premiumA=true

I had been watching this one. Walked past it a months or so ago and it looked like it was being rented out. This statement appears to confirm that.

Edited by Sawitcoming

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What about all the Iranian high-roller investors expected to arrive soon to buy London property? I've read top-end London EA's are already dealing with enquiries..

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What about all the Iranian high-roller investors expected to arrive soon to buy London property? I've read top-end London EA's are already dealing with enquiries..

If they really exist, they will get Shah-fted!!

Sorry it just seems to be one of those nights on HPC :ph34r:

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If they really exist, they will get Shah-fted!!

Sorry it just seems to be one of those nights on HPC :ph34r:

Do you think the Iranians will buy into the new build high rise market in areas like SW8?

They do seem to like things Aya and Tollah?!

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I reckon this is the one they are referencing.

http://www.rightmove.co.uk/property-for-sale/property-51647017.html?premiumA=true

I had been watching this one. Walked past it a months or so ago and it looked like it was being rented out. This statement appears to confirm that.

You know you've made it to the big time .... earning £250k a year, have saved up (or inherited) £1.5m (yes one point five million pounds). Tot up your readies .... come on darling, let's buy a home, its time to start a family ... we have a budget of £2.5m ... off to the EA we go...

"Sorry?"

"Say what?"

"Pardon?"

"There must be some mistake?"

"A 2 bed f*****g flat?"

Who pays those prices and things they're getting VALUE FOR MONEY.

Oh yes, people who presume they can sell at a profit .... TW*TS.

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The first property mentioned was bought at £2m 6 months ago.

They might have started marketing at £3.25m and repeatedly reduced but its still marketed at 25% more than they paid.

This one http://www.rightmove.co.uk/property-for-sale/property-51647017.html?premiumA=truewas on at £3m in about November 2014. Then I saw it at £2.75m now its at £2.5m and still not selling so its been rented out to cover the finance costs while the flipper waits to get his price.

I am 90% certain this flipper is someone I know. If it is him, then there is about £2m financed at least. So he has interest to pay on about 2 years, plus the redevelopment costs. Sure he is probably ahead now if he sells it at £2.5, but if it has to come down much more surely its getting into squeaky bum territory. Obviously the market will come back as you cant go wrong with bricks and mortar.

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Do you think the Iranians will buy into the new build high rise market in areas like SW8?

They do seem to like things Aya and Tollah?!

They believe in the fundamentals. So should avoid losses.

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On 1/22/2016 at 11:29 AM, Sawitcoming said:

This one http://www.rightmove.co.uk/property-for-sale/property-51647017.html?premiumA=truewas on at £3m in about November 2014. Then I saw it at £2.75m now its at £2.5m and still not selling so its been rented out to cover the finance costs while the flipper waits to get his price.

I am 90% certain this flipper is someone I know. If it is him, then there is about £2m financed at least. So he has interest to pay on about 2 years, plus the redevelopment costs. Sure he is probably ahead now if he sells it at £2.5, but if it has to come down much more surely its getting into squeaky bum territory. Obviously the market will come back as you cant go wrong with bricks and mortar.

http://www.rightmove.co.uk/property-for-sale/property-58005763.html

Ha! Indeed it has finally come down to £2m then! Lovely!

Edited by Sawitcoming

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On 23/01/2016 at 11:04 AM, thewig said:

Holy fck that interior looks... satanic?

If I lived in that flat I'd probably spend my entire time sat in the shower, gently rocking. :wacko:

I feel like I need to take a shower just after looking at those pictures.  I generally think that property flippers are scum of the earth, but the current owners have done humanity a favour by redecorating that place.

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On 1/23/2016 at 11:04 AM, thewig said:

Holy fck that interior looks... satanic?

If I lived in that flat I'd probably spend my entire time sat in the shower, gently rocking. :wacko:

Nonsense! You would love it as soon as you moved in and life would be marvellous. Until, you started noticing drops of blood on the worktops, but you'd look again and they would not be there so you would just laugh it off as tiredness. Fast forward through many more creepy incidents until you had to stab your favourite dog with seven bronze daggers because it had turned into a werewolf. Finally you'd be barricaded in the wardrobe as howling swarms of dark things fought for your soul. I've seen that movie. Save your £2M

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Property type: Flat | Tenure: Leasehold | Last sale: £1,950,000 | Sale date: 3rd Feb 2014
Property type: Flat | Tenure: Leasehold | Previous sale: £710,000 | Sale date: 18th Mar 2005 
Property type: Flat | Tenure: Leasehold | Previous sale: £735,000 | Sale date: 14th Nov 2003 
Property type: Flat | Tenure: Leasehold | Previous sale: £477,500 | Sale date: 30th Nov 2000 
Property type: Flat | Tenure: Leasehold | Previous sale: £403,000 | Sale date: 10th Oct 1999 
|

Paid 1,950,000 when it looked like this 

http://www.zoopla.co.uk/property-history/flat-2/16-cadogan-gardens/london/sw3-2rs/30169944

Spent oodles doing it up. Had at least 4 void months, possibly 11 if it was empty during development up until the first rental listing. It looks like this one has been a poor investment.

 

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1 hour ago, Funn3r said:

Nonsense! You would love it as soon as you moved in and life would be marvellous. Until, you started noticing drops of blood on the worktops, but you'd look again and they would not be there so you would just laugh it off as tiredness. Fast forward through many more creepy incidents until you had to stab your favourite dog with seven bronze daggers because it had turned into a werewolf. Finally you'd be barricaded in the wardrobe as howling swarms of dark things fought for your soul. I've seen that movie. Save your £2M

Haha wtf :lol:

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On 21/01/2016 at 9:24 AM, CunningPlan said:

100 homes for sale in St George's Hill - and only 13 sold last year. Due a price correction I should think - followed by the rest of Weybridge and then a ripple out effect.

I guess Wentworth is likely to follow shortly.

Who wants to live in a Russian gated community?

Perhaps we need a 'Prime Surrey/Berkshire' thread?

Ages ago now, but a daughter had a schoolfriend who lived in St George's Hill.  I had to take her there once to a birthday party - bloody nightmare trying to find the house in the dark, and once I did find someone to ask they very sniffily asked me (mere peasant in old Ford) what business I had there anyway.  

The kids were about 11 at the time, but the other girl was never allowed to go anywhere on her own, had to be driven everywhere. 

The mother was a PITA (non Brit European) snob, who according to my dd was very sniffy about neighbours' planters and window boxes, as 'not up to St. George's Hill standards'. (!) 

But even she told me it was so dark there at night she had to take a torch when walking the dog.  

Ghastly place.  However much money I had, I'd never choose to live there.  I bet it's even ghastlier now. 

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Foreign billionaires in London choosing to rent rather than pay stamp duty!

Quote

Foreign billionaires are renting rather than buying luxury homes in London following increases in tax bills on upmarket properties. Lettings that cost more than £3,000 a week – £156,000 a year – increased by 28% in the last three months of 2016, according to research by the property data service LonRes.

The number of prime central lettings in the capital has risen steadily since the introduction in April 2016 of a 15% stamp duty tax on properties bought via offshore trusts, and a three percentage point surcharge on stamp duty on second homes.

Marcus Dixon, LonRes’s head of research, said that rich foreigners who previously would have shelled out £10m or more on a London home are choosing to rent to avoid paying the tax.

“The stamp duty cost at the very top end is significant,” he said. “Especially as you have to consider that a majority of these people would be buying it as an additional property so would be paying the additional 3% second-home tax as well.”

https://www.theguardian.com/business/2017/feb/12/foreign-billionaires-london-choosing-rent-avoid-stamp-duty

 

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6 hours ago, zugzwang said:

Foreign billionaires in London choosing to rent rather than pay stamp duty!

 

Well put yourself in their place.

I would think its more of a wait and see how things go (brexit/interest rates/trump/Chinese capital controls) rather than stamp duty as at the end of the day if something is 100% guaranteed to go to the moon in price stamp duty is not the end of the world.

At least some of these billionaires must have the money due to being savvy

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On ‎21‎/‎01‎/‎2016 at 8:01 AM, Wurzel Of Highbridge said:

Good job not included in the inflation figures. Like everything else the central banks have been intentionally inflating to cover the tracks of the mess they made before whilst manipulating markets.

 

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