Commercial insurance article archive

High End Property and the Credit Crunch

Abodes on the high end of the market are being caught up in the current economic downturn, with the credit crunch being felt all over the UK, however various factors point to prime property still being very much in demand.

London and Edinburgh have been in the spotlight for how their high-end markets are withstanding financial difficulties, with the English and Scottish capitals experiencing quite different circumstances in the way of buyer confidence and how assets are being affected by the credit crunch.

Research from Knight Frank recently revealed the super-prime property market in London is showing a strong performance, with it now being second only to Monaco in global rankings. According to the estate agent, this part of the sector is running somewhat detached from the rest of the UK market. There has also been an influx of wealthy buyers from Russia influencing pricing and demand in London, the company claims.

Despite the result, the city has been struck by "the credit crunch fallout", head of residential research Liam Bailey says, with prices for the best properties averaging £3,290 per sq ft, compared to £3,760 per sq ft in Monaco.
The Times recently commented the economic "slump" affects the well-off and is not solely confined to the lower-paid, referring to the repossession of a £11.6 million mansion in Holland Park belonging to businessman Robert Bonnier.

According to the newspaper, industry experts consider this example to be a sign of things to come, with Mayfair-based estate agent Tim Blenkin saying: "There are five potential repossessions in Mayfair this year, which is unheard of."

However, the Telegraph has highlighted that there are "bargains" to be found in the city, with ten per cent price drops experienced by £1-2 million properties since last September and five per cent reductions on £5 million abodes since June.

Tamzin Prout of Douglas and Gordon in Battersea told the publication: "There's a group of buyers who thought they would never be able to get back on to the ladder again. And now they are putting in offers on houses." These are mainly individuals who sold houses last year with the intention to upgrade, but were at the time priced out of the market.

Meanwhile, prices in the super-prime London market are "accelerating", with ten to 20 per cent increases on £10 million properties observed in the part 12 months. Knight Frank told the newspaper properties in desirable areas such as Mayfair and Regents Park will remain "robust" because of lack of stock and solid demand.

In Edinburgh, research from property consultants CKD Galbraith revealed prime property has mostly withstood the credit crunch, with investors with their eye on the mid to high-end market staying confident.
One major factor in the revelation is that 78 per cent of potential purchasers in the city are not obliged to sell a property in order to be able to afford an acquisition in this sector, leaving them largely unaffected by restricted mortgage lending.

Alasdair Mackenzie, head of the firm's Edinburgh residential department, said: "Results from our survey are extremely encouraging and indicate that there remains a large number of potential buyers ... for whom funding and confidence are of no concern."

Other findings from the survey showed while purchasers remain upbeat, 40 per cent said the economic downturn has made them more cautious of timing and 30 per cent expressed they would be looking for "bargain" acquisitions.

The company considers the near future will be a good time for buyers before the habitual slowdown in the run-up to Christmas, with half of buyers looking between the £500,000 and £1 million price range.

Various experts have given their opinion on people in possession of high-end homes wondering whether to sell and how they will be viewing the current market.

For instance, Philip Selway, managing partner of property consultancy for high-net worth individuals The Buying Solution, commented while he considers the high-end market to be generally unaffected by the credit crunch, proprietors "are going to be extremely unlikely" to be putting their abodes into the present market.

This is because of recent headline drops in prices and more people "buying out of necessity than maybe buying for leisure", Mr Selway said.

Where desirability factors are concerned, the expert brought in the example of up-and-coming areas which may rival the millionaire-laden property hub of Sandbanks in Dorset.

These included areas in the Cotswolds and the corridor of the M4 from Newbury down to Marlborough. He described the latter location as "hot" due to accessibility afforded by the nearby motorway to the towns "which is what most people want".

High-end houses in "near-perfect" locations are a forerunner demand-wise at the top end of the market, Mr Selway also commented, describing these abodes as "unblemished".

This description would cover properties unaffected by air traffic noise, pylons, footpaths, being any external factors which would make their presence felt from the point of view of the buyer.

He said: "In the current market, anything that has such a blemish makes it that much more difficult to sell and if it's unblemished, it will attract an awful lot of interest. As always, it's always the very best stuff that's unaffected by the ups and downs of the market."

Meanwhile, property investment specialists 1st Asset have remarked on the timing for those investors who have money in the bank or are looking for smaller loans to secure housing.

Andy Smith, managing director of the firm, said: "For investors that have cash in the bank or are looking for smaller loans, this has got to be one of the best times ever to buy property over the last 20 to 30 years."

Investors who are looking to buy property to lease out to tenants, can be secure in the fact the demand for high-spec rental abodes is on the up, as those who rent rather than buy are increasingly expecting more for their money and want to see their homes, whether rented or owned, "as a reflection of themselves", according to architectural services provider Architect Your Home.

Nina Longstaff, head of marketing and PR for the firm, said: "The 'Ikea generation' has now passed and people are demanding something individual rather than homogeneous design that was adequate for rented properties in the past."

So, with demand from both investors, home-buyers and high-end tenants on the up it will be interesting to see how this end of the property market will weather the economic climate and who will eventually come out on top.

21 Oct 2008