ENBD Prime Central London Review - Emirates NBD...Prime Central London Residential Property Review...

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Prime Central London Residential Property Review Quarter 1 2013 WEALTH MANAGEMENT

Transcript of ENBD Prime Central London Review - Emirates NBD...Prime Central London Residential Property Review...

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Prime Central LondonResidential Property Review

Quarter 1 2013

WEALTH MANAGEMENT

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Prime Central London Residential Property Review Q1 2013 > Page 1

> Prime central London house prices rose by 7.7% over the last year. Wider UK housing market risen by 4.1%over the same period

> After 4 years of near continuous rises, Prime central London prices are now 19% above previous 2008 peak;though weak GBP has benefited USD and USD-related investors

> Prime rents have significantly underperformed versus the mainstream though> Significant tax changes recently introduced for prime residential property. Impact varied depending on

property value> London remains an attractive destination for overseas investors despite new tax laws

Summary

Prime Central London residential property continues to follow avery different path to the wider UK housing market. Averageprices for Prime Central London rose by 7.7% in the 12 monthsto April 2013 and are now 56.1% higher than the most recenttrough in values in March 20091. By contrast, average UK houseprices, which are much more closely correlated to mortgageavailability, have risen by just 4.1% over the same period2.

Prime Central London values are now 18.8% higher than theirmost recent peak in March 2008, though the weak pound sterlinghas benefitted many overseas buyers, particularly those with USDor USD-pegged currencies.

Despite a revision to the UK tax regime on property with a valuegreater than GBP 2m in the 2012 UK Budget and furtheramendments in 2013 (see below), Prime Central Londonresidential values, still rose by an average of 8.7% in the 12-mthsto 31 December 2012 buoyed by strong overseas demand.

The ongoing crisis in the Eurozone has led to a marked increasein European buyers. Italian and French nationals were the mostactive purchasers from the Continent last year with SouthKensington a popular destination. The adjoining prime areas ofKnightsbridge, Hyde Park and Belgravia were also in demand bywealthy overseas buyers. This has led to robust price growth inthese areas: Belgravia and Knightsbridge property values grew by12.4% and 14.6% respectively whilst Hyde Park and Kensingtonrose by 9.3% and 8.4%3.

Who is buying?

Prime London sales by nationality 2012, £1m+

1 Source: Knight Frank, 20132 Source: Lloyds Banking Group, 20133 Source: Knight Frank, 2013

Market Review

Rank Country %

1 United Kingdom 50.7%

2 Russia 6.6%

3 United States 4.8%

4 India 4.4%

5 France 3.3%

6 Italy 2.6%

7 South Africa 2.2%

8 Greece 1.8%

9 United Arab Emirates 1.5%

10 Australia 1.5%

11 Germany 1.5%

12 Switzerland 1.1%

13 Oman 1.1%

14 Turkey 1.1%

15 Saudi Arabia 1.1%

Source: Knight Frank, Bank of England, Emirates NBD, 2013

Source: Knight Frank, 2013

Prime London vs. UK Residential and Net Mortgage LendingIn

dex

, Jan

-08

= 1

00

Net M

ortg

age Len

din

g G

BPb

n

Net Mortgage Lending (RHS) Prime Central London (LHS)UK House Prices (LHS)

Jan-08

Jun

-08

No

v-08

Ap

r-09

Sep-09

Feb-10

Jul-10

Dec-10

May-11

Oct-11

Mar-12

Au

g-12

Jan-13

-1012345678

7580859095

100105110115120125

Source: Knight Frank, 2013

Prime Central London Residential Values Mar-13 vs Mar-08, Currency Adjusted

GBP

EUR

USD

AED

HKD

RUB

CNY

SGD

INR

CHF

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

19%

9%

-11%

-11%

-11%

18%

-21%

-20%

21%

-14%

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Prime Central London Residential Property Review Q1 2013 > Page 2

Last year, a 7% stamp duty land tax (“SDLT”) rate was introducedby the UK authorities on purchases of residential property with avalue > GBP 2m (previously 5%). In addition, a 15% SDLT ratewas introduced on the purchase of higher value property by“non-natural” persons – principally offshore special purposevehicles (“SPVs”).

From 1 April 2013, a new annual residential property tax (“ARPT”)applies on residential property with a value > GBP 2m. ARPT ispayable at the following rates:

Uncertainty in the run up to the introduction of the new tax lawsand the establishment of the taxes themselves has, unsurprisingly,had a significant impact on transactions of prime residentialproperty in London. Transactions of property in the GBP 2m toGBP 3m range declined significantly in the 12-mths to end March2013 and this capital is now likely targeting property that fallsbelow the GBP 2m threshold. What has been surprising, however,is that the impact of the changes has been more or less negligibleon GBP 5m+ properties.

Furthermore, residential property sold after 6 April 2013 (i.e. taxyear 2013/14) is now subject to a capital gains tax at a rate of 28%on the gain attributable to the period on or after 6 April 2013.

Whilst prime property values have continued to surge, primeLondon rents have struggled and are now 3.2% lower than theequivalent period last year with falls in 10 out of the 12 monthsin 2012.

Prime Central London rents do have a strong correlation with thelocal jobs market, particularly at the top end of the financial andother professional services sector (as the main tenants in theseareas). The detrimental effect of the ongoing global financial crisison City of London employment is therefore feeding through intoprime London rents though demand due to employment growthin the media and technology sectors has provided some relief.

By contrast, rental growth in the ‘non-prime’ areas of CentralLondon (and indeed most of the UK) has been strong, rising7.9%, due to limited supply and a lack of mortgage availabilityhindering first-time buyers.

Despite some short term downward pressure on rents, London’scontinued position as a leading global city and the upcomingcompletion of major infrastructure improvements, such asCrossRail, means that London rents are forecast to grow at 3.0%this year, outperforming the wider UK market by 0.5%4.

4 Source: Savills, 2013

Source: LSL Property Services, Savills, 2013

Source: Knight Frank, 2013

Summary of Key UK Tax Changes5

Rents

Property ARPTValue (from 1 Apr 2013)

GBP 2m to GBP 5m GBP 15,000

GBP 5m to GBP 10m GBP 35,000

GBP 10m to GBP 20m GBP 70,000

Over GBP 20m GBP 140,000

Prime Sales Volumes in Central London12 mth to end of Mar 2013 vs. same period to Mar 2012

Sub £2m £2m - £3m £3m - £5m £5m +-20%

-15%

-10%

-5%

0%

5%

10%

Prime Central London 12-mth Rental Growth vs. Rest of London and UK, as at Q1 2013

12 m

th r

enta

l gro

wth

%

Prime Central London London England & Wales-4%

-2%

0%

2%

4%

6%

8%

-3.20%

7.90%

4.20%

5 Summary courtesy of Foot Anstey LLP, 2013. NOTE: Emirates NBD are not professional tax advisers. Each prospective investor in UK residential property should have their situations reviewed by professional advisers familiar with the investor’s owntax situation and with the tax laws and regulations applicable to their country of residence and domicile.

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Prime Central London Residential Property Review Q1 2013 > Page 3

Super Prime Market

Overseas demand is by far the strongest in the ‘Super Prime’(properties valued at GBP 10m+) market. As per previous, thetaxation impact was lower in this segment and Super Primeproperty values rose by 6.9% over the year and completions inDecember 2012 were double the equivalent period in 20116.However, the use of SPVs for purchases has, unsurprisingly,reduced from 32% of total transactions to just 3.8%7.

The demand for property in this price band was mainly fromRussia and the Middle East; though there has been a markedincrease in activity from South African buyers.

Summary and Looking Ahead

Prime Central London Residential continues to outperform thewider UK housing market, though rents have relativelyunderperformed due to pressure on financial services jobs in theCity of London.

Even with the revised tax regime, London property continues toattract large numbers of overseas investors due to the perceived‘safe haven’ status of bricks and mortar in the current uncertaineconomic and political climates. A weak pound sterling has alsoproved beneficial. We expect a gradual increase in market activityover the year as the new tax laws becomes more accepted.

Fatima AliReal Estate Advisor

Telephone: +44 (0)207 838 2235Email: [email protected]

6 Source: Knight Frank, 20137 Source: Knight Frank, 2013

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Headline Sales Transactions

The tables below details select sales in Prime Central London for the period:

Knightsbridge

Location Number Asking Achieved Sales Achieved Salesof Beds Price Price Price per sq ft

Hans Crescent, SW3 2 GBP 3,700,000 GBP 3,550,000 GBP 3,142 per sq ft

Hans Place, SW1X 2 GBP 6,750,000 GBP 6,400,000 GBP 3,516 per sq ft

Parkside, SW1X 2 GBP 3,595,000 GBP 3,500,000 GBP 3,162 per sq ft

Location Number Asking Achieved Sales Achieved Salesof Beds Price Price Price per sq ft

Roxburghe Mansions, W8 4 GBP 3,950,000 GBP 3,650,000 GBP 1,710 per sq ft

Palace Gate, W8 3 GBP 2,750,000 GBP 2,750,000 GBP 1,612 per sq ft

Tamarind Gardens, W8 3 GBP 3,300,000 GBP 3,050,000 GBP 2,114 per sq ft

Kensington

Location Number Asking Achieved Sales Achieved Salesof Beds Price Price Price per sq ft

Mount Street, W1 9 GBP 32,000,000 GBP 32,000,000 GBP 3,890 per sq ft

Grosvenor Square, W1 4 GBP 15,950,000 GBP 15,500,000 GBP 4,248 per sq ft

South Audley Street, W1 3 GBP 6,500,000 GBP 6,500,000 GBP 3,178 per sq ft

Mayfair

Location Number Asking Achieved Sales Achieved Salesof Beds Price Price Price per sq ft

Eaton Square, SW1 2 GBP 3,750,000 GBP 3,750,000 GBP 3,890 per sq ft

Chesham Place, SW1 6 GBP 14,100,000 GBP 13,250,000 GBP 3,721 per sq ft.

Eaton Place, SW1 2 GBP 3,500,000 GBP 3,450,000 GBP 3,203 per sq ft

Belgravia

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Current and Upcoming Developments, May 2013

Block 5, 375 Kensington High Street, W14

Promoter: Savills / Jones Lang LaSalle

Launch date: May 2013

Completion date: TBC

Prices: from GBP 849,950

Key Unique Selling Points:

> Prime Kensington location

> One of central London’s best-selling developments

> Block 5 is the premier building in the scheme

> Off road and garden square facing

> Extensive luxury facilities

Chiltern Street, Marylebone, W1

Promoter: Knight Frank / Jones Lang LaSalle

Launch date: Autumn 2013

Completion date: TBC

Prices: TBC

Key Unique Selling Points:

> The first significant new scheme to be launched inMarylebone for many years

> Boutique development of 42 luxury apartments

> Close to Marylebone High Street and Selfridges

3 Merchant Square, Paddington, W2

Promoter: Jones Lang LaSalle

Launch date: For sale

Completion date: Estimated Summer 2014

Prices: 2 bedrooms from GBP 1,030,0003 bedrooms from GBP 1,525,000

Key Unique Selling Points:

> 16th floor now available to purchase

> Central London location

> Close to Paddington Station (Underground, Railway,Cross Rail and Heathrow Express)

> Part of wider Paddington basin regeneration

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Disclaimer

This publication has been produced by Emirates NBD, London Branch. The opinions given are not part of the FCA regulated businessof Emirates NBD, London Branch.

Information contained herein is believed by Emirates NBD Bank PJSC (“ENBD”) to be accurate and true but ENBD accepts noresponsibility whatsoever for any loss or damage caused by any act or omission taken as a result of the information contained in thispublication.

This publication is provided on a confidential basis and is for informational uses only and is not intended for trading purposes.Data/information provided herein is intended to serve for illustrative purposes. The data/information contained in this publication isnot designed to initiate or conclude any transaction. In addition, the data/information contained in this publication is prepared as ofa particular date and time and will not reflect subsequent changes in the market or changes in any other factors relevant to thedetermination of whether a particular activity is advisable. This publication includes data/information taken from third party sourcesand ENBD does not guarantee the sequence, accuracy, completeness, or timeliness of information contained in this publication providedthereto by unaffiliated third parties. Moreover, the provision of certain data/information in this publication is subject to the terms andconditions of other agreements to which ENBD is a party.

None of the content in this publication constitutes a solicitation, offer, opinion, or recommendation by ENBD to buy or sell any securityor investment, or to provide legal, tax, accounting, or investment advice or services regarding the profitability or suitability of anysecurity or investment. This publication is not intended for use by, or distribution to, any person or entity in any jurisdiction or countrywhere such use or distribution would be contrary to law or regulation. Accordingly, anything to the contrary herein set forthnotwithstanding, ENBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiariesshall not, directly or indirectly, be liable, in any way, to you or any other person for any: (a) inaccuracies or errors in or omissions fromthe this publication including, but not limited to, quotes and financial data; (b) loss or damage arising from the use of this publication,including, but not limited to any investment decision occasioned thereby. (c) under no circumstances, including but not limited tonegligence, shall ENBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiariesbe liable to you for direct, indirect, incidental, consequential, special, punitive, or exemplary damages even if ENBD has been advisedspecifically of the possibility of such damages, arising from the use of this publication, including but not limited to, loss of revenue,opportunity, or anticipated profits or lost business.

The information contained in this publication does not purport to contain all matters relevant to any particular property or class ofproperty and all statements as to future matters are not guaranteed to be accurate. Anyone proposing to rely on or use the informationcontained in this publication should independently verify and check the accuracy, completeness, reliability and suitability of theinformation and should obtain independent and specific advice from appropriate professionals or experts. Further, references to anyfinancial instrument or investment product are not intended to imply that an actual trading market exists for such instrument or product.In addition, before entering into any transaction, the risks should be fully understood and a determination made as to whether atransaction is appropriate given the person’s investment objectives, financial and operational resources, experiences and other relevantcircumstances. The obligations relating to a particular transaction (and contractual relationship) including, without limitation, the natureand extent of their exposure to risk should be known as well as any regulatory requirements and restrictions applicable thereto.

In publishing this document ENBD is not acting in the capacity of a fiduciary or financial advisor.

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WEALTH MANAGEMENT

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At Private Banking from Emirates NBD, we analyse and adapt to an ever-changing world,

and steer your wealth to its full potential.

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