Location, location, location

High-end property in global hotspots continues to attract the ultra-wealthy – and sky-high prices don’t seem to be cancelling out the lure of city living

Those lucky and wealthy enough to own an apartment overlooking Central Park or a Georgian pied-à-terre in Holland Park are unlikely ever to lose a penny (or cent) on their investment. London and New York have been prime locations for years – at least in ‘des res’ post codes – and nothing looks set to change.

Some places simply never lose their allure. In London, Fulham, Kensington and Chelsea tick all the boxes on the ‘address to impress’ list. You’ll need deep pockets though – a six-bed terrace house in Chelsea will currently cost you around a cool £26 million.

Or if you’re looking for up-and-coming areas and more brick for your buck, then regenerated Stratford (post-Olympics) can offer you a five-bedroom, Grade II-listed house for a much more reasonable £1.5 million. 

Alternatively, if you fancy having Robert de Niro as a neighbour in the trendy Tribeca area of New York, a modest-sized, two-bedroom loft apartment will set you back around $5 million. 

As TV property programmes will tell you, location is everything and the most in-demand areas should, in theory, insulate you from the worst of any market correction.

Not that any major correction is imminent. The fact is that despite talk of bubbles, in recent years the global market in prime locations has held up well, with foreign investors continuing to see property as an asset class offering security and long-term potential.  

Change in sight?

But no matter how buoyant and lucrative a market appears, history tells us that the landscape can change quite suddenly. Think Fanny Mae and Freddie Mac in the US and the Asian property bubble of 1997. There are always triggers that can instigate a shift in market confidence and direction.  
  
 One obvious concern presently is Brexit and how it’s affecting the London market. The central London skyline may well be filled with the silhouettes of tower cranes, but this doesn’t paint the whole picture of what’s going on in the capital. 

As Johnny Morris, Head of Hamptons International Research team, points out, specific prime sites in the London market might be attracting healthy interest, but elsewhere the market is showing signs of softening. 

There’s also been a subtle change in where buyer interest is coming from in the run-up to Brexit. The proportion of homes sold to international buyers in London generally fell slightly in the second half of 2017. However, the proportion of homes sold to international buyers in prime central London increased, up eight per cent on the first half of the year and up 16 per cent compared with the second half of 2016.  

What’s fascinating is where the interest is coming from. “The rise was due to a pick-up in Middle Eastern buyers, who bought 15 per cent of homes in prime central London in the second half of 2017, up five per cent on the first half,” Morris explains. “Even though EU buyers still make up the second biggest group of international buyers in prime central London, they’ve been gradually withdrawing as a proportion of total sales since the Brexit vote in June 2016.”

Joel Hernandez, Partner at Mourant Ozannes, agrees that Brexit has had an impact on the UK property market – with a softening in the commercial property market having a knock-on effect on the residential side of things. “Logically, if companies are moving headquarters away from London due to Brexit, then the demand for residential housing will reduce,” he says. 

Prime prices 

Given that London in general is a softening market in terms of volumes of sales, why are prime central London residential properties still selling so well? Partly, it’s because they remain more attractive areas to be based, but also because of price, as Liam Bailey, Knight Frank’s Global Head of Research, explains. 

“Prices in London peaked in 2014. Since then, the average prices in prime London locations have come down five to 15 per cent,” he says. “We saw price falls in 2016 and 2017, with sellers adjusting prices to make the market more accessible for buyers.” 

Bailey explains that the increase in stamp duty on higher value property in the UK also had a major impact in terms of cooling valuations. He agrees with Harris that EU investor interest may have dipped due to the UK referendum on Europe, but he’s keen to point out that the wrangling over Brexit did, unwittingly, offer indirect benefits to other investors.  

“The weakening UK currency post-Brexit vote did have an impact. For those investors from countries pegged to the US dollar, a weak sterling provided a good opportunity to buy,” Bailey says.  

In terms of geographical locations, Bailey insists prime urban markets are still proving the biggest pull. “Key cities such as New York, London, Berlin and Frankfurt have been strong over the past five years and continue to hold up pretty well. 

They remain strong because of investment potential and the ability to let out and earn good income, particularly in areas where tech and financial services companies are concentrated.” 

As one of the world’s biggest financial centres, New York has undoubtedly enjoyed a period of strong growth. In 2016, the average price of a Manhattan apartment rose above $2 million for the first time. So, clearly not an area for bargain hunters – unless your idea of a bargain starts at £2 million and rising. 

As with London, the Manhattan skyline has seen significant change, typified by the opening in 2016 of 432 Park Avenue, a 96-storey tower hailed as the tallest residential building in the US. Prestigious developments such as this forced prices in Manhattan even higher.

On completion of the tower, the most expensive units were sold for an eye-watering $87.6 million, $60.9 million and $50.1 million. 

Since the completion of 432 Park Avenue, the New York property market has cooled a little. According to a report in the New York Times, less than half of apartments in the city sold at or above list price from the tail end of 2016 – the first downward trend since 2014.

This isn’t to say that property prices are unduly under pressure, or that prime location rents are being squeezed. The average one-bedroom city centre apartment will set you back $3,184 per month. To put that in context, the average monthly salary in New York (after tax) stands at $3,947. 

While you’re unlikely to make a killing in the Manhattan property market in terms of capital appreciation, central locations are still highly sought after, and rental demand and yields remain strong. 

Ich bin ein Berliner

On the other side of the pond, the residential market in Europe has recovered well since 2009, when confidence levels fell and sales volumes dropped on the back of the financial crisis. “Berlin and Paris, in particular, have come back strongly since then, partly due to the fact that the Eurozone economy has improved over this period,” Bailey says. 

Certainly, if you’re looking for better value and greater potential for price appreciation, then Berlin might be the place to be. According to a recent European property survey, an apartment in Berlin costs around five times less than in London and up to three times less than in Paris for an equivalent location and quality of property. 

The real estate market in Berlin has seen double-digit price growth (10.1 per cent in 2015, 9.6 per cent in 2016 and 12.7 per cent in 2017), supported by high residential housing demand. 

Berlin has traditionally been a city where renting rather than owning has been the norm, but that’s starting to change – especially as foreign investors have seen the potential in a lively, cosmopolitan city. Since property ownership in Berlin is starting from such a low level, most market watchers predict that the city still has much to offer investors.  

Show me the money

So who’s doing the buying in Europe? Is it Russian oligarchs getting money out of the country? While there’s no doubt there’s interest from these quarters, Bailey says the biggest demand is from Asia, specifically China. He explains that Chinese investors are looking for good income returns from European capitals and major cities that have a track record of good yields. 

Harris agrees that Asia is a key driver. “Buyers from Asia have also taken advantage of sterling’s depreciation following the Brexit vote. The proportion of sales to Asian buyers in prime central London has risen from nine per cent in the first half of 2016 to 16 per cent in the second half of 2017.

However, the interest from Asian investors doesn’t extend to southern Europe, where most money into property there still comes from northern European investors. 

This point is echoed by Miguel Girbes, Director at Finca Cortesín, a development near Marbella in Spain targeting the ultra-high-net-wealth market. “We have clients from Spain, Belgium, Germany, Poland, Italy, Switzerland, the Czech Republic, Holland and, obviously, the UK,” he says.

Girbes points out that, in the main, investors are buying for personal use, though the opportunity to rent out is available. Finca Cortesín is at the top-end of Spanish property development, with prices starting at €3.7 million and rising to €7.5 million-plus.  

He explains that the high-end of the Spanish property market is more robust than mid-to-lower price developments. Finca Cortesín currently has 32 villas under construction and has already sold 15 units off plan.

Investors in developments like this demand high spec. Architects are hand-picked from across the world to ensure that villas are distinctive rather than uniform in design. Sea views, top-level security, access to hotels with Michelin-star restaurants usually figure in most ‘must-have’ lists. 

Finca Cortesín has the added advantage of having a nationally ranked top four golf course located within the hotel and villa estate. Girbes is confident the top-end of the Spanish property market will remain strong so long as locations tick the right boxes and the developments continue to provide a feeling of exclusivity.

Building the future

Without the benefit of a crystal ball, and given the level of geopolitical uncertainty right now, predicting long-term property trends isn’t straightforward. However, Bailey believes the residential property market will remain stable over the next five to 10 years, although we’re unlikely to see strong price growth. 

“For those buying property as an investment and wanting to outperform average returns, location comes in to focus much more. Not just central city locations, but property close to main business zones and improved infrastructure – for instance, Crossrail in London,” he says.

Joel Hernandez agrees that the property market will continue to soften, but thinks that post-Brexit there will be a pick-up. “European foreign investors remain wary as things stand as there are too many variables with regards to Brexit,” he says. “When there’s a clearer picture post-2019, interest is likely to increase.”   

All of this said, if you’ve got the money and you want to live in some of the world’s busiest and most vibrant cities, there’s plenty of choice and little to stop you.