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"london's Midsummer Madness"


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London's midsummer madness

Last Updated: 12:01am BST 26/06/2007

Capital gains

How not to do it...

What's a sensible buyer to do, asks Caroline McGhie, when the only sales these days are for crazy money?

Dark, dingy studios going for a quarter of a million pounds, flats selling at 40 per cent more than the asking price, budding families unable to move, price records broken street by street, first-time buyers with "cash dumps" from parents - these are the harsh realities of London's property market.

'Prices in prime central London are 33·3 per cent higher than a year ago'

They are the conditions in which crazy things happen. That London is one of the most expensive places to live in the world was unequivocally confirmed last week in Mercer's Worldwide Cost of Living Survey, in which it climbed three places to rank second only to Moscow, ahead of Seoul, Tokyo and Hong Kong in the top five. At the same time, a report from Knight Frank showed that the capital's top properties had risen by over 33·3 per cent in the past year, more than three times as fast as the rest of the country.

In Lowndes Square, Belgravia, a two-storey flat of 3,720 sq ft was being titivated before a lavish marketing campaign planned by James Forbes of Strutt & Parker when someone walked in off the street and said they had a client who wanted to buy. What was the price? James scratched his head and added 40 per cent to the figure he first thought of. How about £16 million, or £4,301 per sq ft? The deal was done. James is still in shock. "It must be the highest price ever for a ready-to-move-into Knightsbridge flat."

Equally extraordinary is the sale of a tiny studio in Hans Crescent in Knightsbridge, almost in the back pocket of Harrods, priced at £215,000. It measures just 17ft by 10ft, with a little extra triangle that includes the front door and the kitchen-in-a-cupboard. It has a single window and is on the lower ground floor. In truth, it needs a new bathroom, a lick of paint and a new miniature kitchen. Yet there have been 40 email enquiries and 25 viewings. It has gone to sealed bids and a price, "considerably more", has been agreed. "It has a good long lease of 967 years," says Will Stebbing of Strutt & Parker, who is handling the sale. "And it is a wonderful address." Indeed, houses nearby sell at £4 million to £7 million. In Sloane Square, Douglas & Gordon has just sold a studio of 20ft by 14ft with an asking price of £200,000 at £250,000.

As there are sometimes flocks of buyers chasing the same property, and as prices move by the day, agents are resorting to sealed bids. In Chelsea, James Pace of Knight Frank says that in the past three months, 79 per cent of properties that have gone under offer have been at or above the guide price, despite the fact that prices have already risen by 50 per cent in 18 months. "One property had 107 viewings in a month and almost 20 offers, four of which were 30 per cent over the guide price," he says. In Wandsworth and Kensington, agents say that 25 per cent of sales go to best bids. "It is impossible to say how much above the sale price these deals are agreed at - it is rather like the lottery," says Tom Tangney at Knight Frank. In certain areas, such as Narrow Street in Docklands, houses sell in a week. Rumour is rife: mews houses that sold at 50 per cent over the asking price, the house in west London that sold in three hours. The list goes on…

advertisementA problem all over London is that buyers get so frenetic that they make desperate bids, then get cold feet and pull out. There are also "spoilers" who ring up after the close of play for sealed bids, ask what the property sold for, make a higher offer which the agent is duty-bound to pass on, steal the purchase, then knock their own bid down later.

Families are particularly hard hit. "The family house market is really scrappy," says Jenny Basham, head of marketing at Winkworth. "Even with £650,000 you can only buy a three-bedroom house in Battersea, and there is a desperate shortage of them. These are people with children who want to be near a nursery, they don't have £200,000 bonuses and their salaries aren't going to double overnight, they work hard and find they can't get a house."

In Ealing, where family houses cost £500,000 to £750,000, there are 216 applicants looking and just 10 houses in Winkworth's window. "Of those, 168 have been looking for more than four months," says Andrew Gilbert, who runs the office. "Those who started six months ago looking with a budget of £500,000 now need £600,000 to buy the same thing."

Capital gains

1 Prices in prime central London are 33·3 per cent higher than a year ago

2 In Knightsbridge and Belgravia, they are 45 per cent higher

3 Houses have done better than flats because families are desperate

4 A house worth £100,000 in 1976 would now fetch £4·2 million

5 The slow-down may start as summer arrives (Source: Knight Frank)

How not to do it...

It will surely be the house removal of the year: shifting the Blair chattels from Downing Street to Connaught Square (via Chequers whilst renovations are carried out). For the Blairs themselves, the move will come as a reminder of their poor record in property investment, which started when they sold their home in Richmond Crescent, Islington, in 1997, for £615,000, only to see its value rocket by £1 million by the time a neighbouring property was sold in 2004.

The Connaught Square house, bought in July 2004 for £3·65 million, at first seemed to be a turkey of an investment. For six months it failed to find a tenant. Then, possibly out of pity, Labour-supporting film director Michael Caton-Jones and his partner Laura Viederman agreed to rent it, but only at £8,000 a month, giving the Blairs a miserly gross rental yield of 3·8 per cent. Moreover, for a year or so it seemed as if prices locally were sliding. No other completed sale in Connaught Square has yet matched the Blairs’ transaction: number 1 sold for £2·85 million in June last year, and a month later number 27 sold for £3·25 million.

At last, however, there is some good news for the Blairs. Number 25, a similar size to the Blairs’ house, has exchanged for what agent Jeremy Karpel of TK International describes as "in excess of £4·25 million". But the house went on the market last autumn for £4·45 million. "Prices have risen over the past three years, but perhaps not as much as they should have done," says Karpel. "There is still a slight resistance to buying property off the top end of Edgware Road. It is a colourful part of town, which seems to suppress prices. At £1,000 per square foot, the house we have just sold is a lot cheaper than St John’s Wood, where prices begin at £1,200 to £1,300 per square foot."

Shrewder investors might have headed for Clarendon Road or Lansdowne Road in Notting Hill. The large "low-built" houses in those two streets, according to Peter Mackie of buying agents Primelocation, have recorded price rises over the past three years as great as any in London. The Blairs could easily have afforded, for example, 76 Lansdowne Road, which sold for £2·92 million in November 2004. No house had sold for more than £3 million before last year, since when there have been a couple of sales, at £3·45 million and £4·5 million.

Other streets where the Blairs could have done better, says Mackie, are Cottesmore Gardens and Victoria Road in Kensington, Hamilton Terrace in St John’s Wood, and Chelsea Square, Chelsea. "It is the shorter, wider houses which have been doing best," he says, "and the taller, thinner more commoditised houses such as those in Connaught Square which have been doing less well."

Ross Clark

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Guest DissipatedYouthIsValuable
London is broken

I blame every one of you stupid greedy twats in London for being such monumental *****.

If you live in London and you've bought an overpriced house you'll never be able to sell without massive loss, as a beneficial reality exercise, look yourself in the mirror each morning and say to yourself, "I have no-one to blame except myself for being a stupid tosser."

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I blame every one of you stupid greedy twats in London for being such monumental *****.

If you live in London and you've bought an overpriced house you'll never be able to sell without massive loss, as a beneficial reality exercise, look yourself in the mirror each morning and say to yourself, "I have no-one to blame except myself for being a stupid tosser."

Ah, the sound of a dummy being thrown out of a pram :D

I always thought high prices in London were a result of a bouyant economy, high levels of immigration, and its status as Europe's first city and a global financial hub. Seems I'm wrong. Apparently it's because we Londoners are, erm, "stupid" :huh:

EDIT: I should also add that land is at a premium. There aren't any significant patches of land to release for building in London, meaning large scale projects are limited to "fringe areas" such as Thames Mead and Hounslow. Naturally not that popular with buyers

Edited by Europa
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I have inserted quite a few celubrious post codes for the London area e.g W1, EC1, SW11 (Battersea), WC1. I am seeing alot of discounted prices. I had the impression in London people were falling over each buying anything, but looking at propertysnake.co.uk there alot of London properties on the market for months and with lowering asking prices. One of the worrying things about London is that it has alot of foreign investment in property there, this can easily be pulled out. Remember the rich Arabs in the 70s buying up everything, they sold out when things got bad. God help us if the banks go into crisis, remember the financial jobs going in the late 80s. Though the famous cliche "Its Different This Time".

Edited by joey
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Guest DissipatedYouthIsValuable
Ah, the sound of a dummy being thrown out of a pram :D

I always thought high prices in London were a result of a bouyant economy, high levels of immigration, and its status as Europe's first city and a global financial hub. Seems I'm wrong. Apparently it's because we Londoners are, erm, "stupid" :huh:

EDIT: I should also add that land is at a premium. There aren't any significant patches of land to release for building in London, meaning large scale projects are limited to "fringe areas" such as Thames Mead and Hounslow. Naturally not that popular with buyers

Game theory tends to suggest that when there are complex networks of interdependence within systems, cannibalising intraspecies competition may not always be the best long term strategy. But that will be apparent soon enough.

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Guest DissipatedYouthIsValuable
I have inserted quite a few celubrious post codes for the London area e.g W1, EC1, SW11 (Battersea), WC1. I am seeing alot of discounted prices. I had the impression in London people were falling over each buying anything, but looking at propertysnake.co.uk there alot of London properties on the market for months and with lowering asking prices. One of the worrying things about London is that it has alot of foreign investment in property there, this can easily be pulled out. Remember the rich Arabs in the 70s buying up everything, they sold out when things got bad. God help us if the banks go into crisis, remember the financial jobs going in the late 80s. Though the famous cliche "Its Different This Time".

Price have 'nevah gone down in Putneh.'

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Ah, the sound of a dummy being thrown out of a pram :D

I always thought high prices in London were a result of a bouyant economy, high levels of immigration, and its status as Europe's first city and a global financial hub. Seems I'm wrong. Apparently it's because we Londoners are, erm, "stupid" :huh:

No - stupid is correct.

http://www.pimco.com/LeftNav/Global+Market...es+Dec+2006.htm

European Perspectives

Emanuele Ravano | December 2006

The Winner’s Curse

The last phase of the boom is the most interesting one. Harrison appropriately calls it the ‘Winner’s Curse’. During the Winner’s Curse phase, trading in real estate and land becomes frenetic and the dominant psychology is that properties must be purchased at all cost. The activity in the real estate market during this stage is almost exclusively driven by speculation. Fred Harrison describes it as follows:

In the market for houses in Britain, the Winner’s Curse is signalled by the advent of ‘gazumping’. Vendors double-cross people to whom they have already agreed to sell, in favour of a latecomer who trumps the price that the previous bidder last thought of. This is the process of random errors in action on the doorstep. The winner’s success is a curse to him and everyone else: the price is unbelievably high.

Eventually this frenzy gives way to a leveling off as doubts start to creep in. At some point, ‘the horror dawns’ as investors realize that the yield on the properties bears no relationship to the price paid for them. The bust phase follows.

Back to the Future

Looking at 2007 and beyond, there is no question that parts of the U.K. property market bear the hallmarks of the Winner’s Curse phase. Three aspects in particular seem to stand out as symptoms of the curse. Firstly, affordability is declining fast, particularly for first time buyers. Secondly, buy-to-let schemes, which have been increasing in importance, are now facing negative cash flows. Finally, the valuations in areas of London are truly out of sync with economic reality.

The final aspect of the U.K. real estate market that seems to bear the hallmarks of the Winner’s Curse is London property prices. Estate agents qualify recent activity as a ‘frenzy’ and the current level of prices appears to justify their characterization.

The point still holds, however, that London is rapidly getting to levels where the best comparison seems to be Tokyo in the heydays of the late 1980s. At that point, the Japanese model looked rock solid and nobody questioned the logic of real estate prices because that was the place where the business was happening. The transient nature of liquidity flows did not seem to have any impact on the valuations of housing at that point, and it does not seem to be much of a factor when looking at Kensington or Chelsea prices today. This is a paradise for the ‘gazumpers’ referred to by Harrison.

Once the frenzy is over, however, we could see the winners face the same curse that Harrison refers to in looking at 400 years of U.K. real estate cycles. What then? With household debt at all time highs, real disposable income hardly growing, sterling close to the $2 level and the government out of firing power on the spending side, the only option is likely to be a reversal of monetary policy. Watch out - the next 18 month

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Ah, the sound of a dummy being thrown out of a pram :D

I always thought high prices in London were a result of a bouyant economy, high levels of immigration, and its status as Europe's first city and a global financial hub. Seems I'm wrong. Apparently it's because we Londoners are, erm, "stupid" :huh:

EDIT: I should also add that land is at a premium. There aren't any significant patches of land to release for building in London, meaning large scale projects are limited to "fringe areas" such as Thames Mead and Hounslow. Naturally not that popular with buyers

Only part of what you say is true, Londons population hasn't increased by 300% in the last 10 years, neither has average earnings and the last time I looked at a map the size of greater London hadn't shrunk by 300%, so why then have houses prices risen by 300%. Simple answer, rich foreigners are clever, our government and most Londoners are stupid

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Only part of what you say is true, Londons population hasn't increased by 300% in the last 10 years, neither has average earnings and the last time I looked at a map the size of greater London hadn't shrunk by 300%, so why then have houses prices risen by 300%. Simple answer, rich foreigners are clever, our government and most Londoners are stupid

you've got him there, JimJim. However, seeing as he masterfully persuaded his own kids to buy just after the 'bull trap' that presages the crash, he will no doubt prefer to stick to his blinkered vision of London as 'Europes first city'

(crime? drugs? Filth? house prices? Its first for something, all right).

Put him on ignore. he has nothing more to say except 'Ill be back (in 2015)'

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you've got him there, JimJim. However, seeing as he masterfully persuaded his own kids to buy just after the 'bull trap' that presages the crash, he will no doubt prefer to stick to his blinkered vision of London as 'Europes first city'

(crime? drugs? Filth? house prices? Its first for something, all right).

Put him on ignore. he has nothing more to say except 'Ill be back (in 2015)'

Ah, a thread wouldn't be the same without a contribution from our pauper prince :rolleyes:

Going back to the other posters' point, I am not suggesting that the population or housing stock of London has changed by 300 per cent. There are, of course, many other factors at play (cheap credit, etc).

My point was that the suggestion that the London boom (and I'm glad so many posters now recognise that London has taken off, because such a view was dismissed as VI spin in early 06) is based on stupidity is rather lacking in credibility.

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The property market doesnt seem to be particularly frantic to me here in a nice part of SE london.

You must be hibernating. Its time to wake up. Prices in the whole of London are going ape. The East End is barking. Olympics?

I popped into a presentation by a property comany (selling flats in SE). The company had vague plans in place, not even formally approved by the local authority yet. I arrived late at the presentation because I wasn't seriously interested but wanted to get an idea of whats going on. By the time I got to the presentation, about six hours into it, only 5 flats were left (out of 160 odd) according to the grinning salesmen.

I'm in two minds about whats happening -

1) London will separate off from the rest of the UK and property prices will keep going up until the Olympics are over, Wall St starts getting its clout back or a terrorist event makes the super-rich think twice about buying there (etc etc)

2) That buyers have lost the plot.

Unfortunately I think there are good reasons to think that 1) is true - London always has been out of reach to normal people (apart from crappy crime-ridden areas). Now that the rich are getting richer and the super rich are getting super richer the phenominal difference between London and the rest of the UK can only get bigger.

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Ah, the sound of a dummy being thrown out of a pram :D

I always thought high prices in London were a result of a bouyant economy, high levels of immigration, and its status as Europe's first city and a global financial hub. Seems I'm wrong. Apparently it's because we Londoners are, erm, "stupid" :huh:

EDIT: I should also add that land is at a premium. There aren't any significant patches of land to release for building in London, meaning large scale projects are limited to "fringe areas" such as Thames Mead and Hounslow. Naturally not that popular with buyers

Have to agree - see allot of anger and jealousy against us Londoners in this thread, just pity them, - they can not accept that some of us that live and work here are not stretching themselves to breaking point, as they are enjoying the financial benefits and rewards of working in the financial capital of Europe. Funny that <_<

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