Property Vision market report - Winter 2009

Groundhog Day
Here we are again: bidding wars for the best houses and contract races for one-bedroom flats touching a million pounds that would have struggled to command half that five years ago. Just twelve months ago the hatches were being battened down, budgets slashed and estate agents laying off staff. A year later and the same estate agents are rubbing their hands in anticipation of the bonus season and there is moaning about the lack of anything good to buy. About as many people predicted this state of affairs as saw the credit crunch coming…

It is the prime central London market that has been the main recipient of all those euros burning holes in bank accounts that hardly acknowledged their existence by paying any interest. In an international market like London, currencies have always played a large role: a collapse in sterling in 1992, as we noted this time last year, was the catalyst that prompted the cavalry, in the form of Asian investors, to ride the rescue of the market after four long years of stagnation. History doesn’t repeat itself – though it sometimes rhymes; this recovery is after a downturn that you might have missed if you’d been on a long holiday. Currencies cut both ways, however: the currency tailwind in London had been a headwind in the French market where the traditional English buyer is finding things very expensive.

Other parts of the UK market are less gung-ho. Though the country market, always more domestic and sterling-dominated, has recovered from its nadir in March, it is much more patchy and difficult to gauge as there seems to be little pattern in what is going to sell well and what is going to stick. There have been numerous houses that we would have said were compromised by the usual suspects – road noise, pig farms, pylons, etc – and overpriced, but which have sold for what appeared to be a big premium. Others, with ticks in all the boxes, have been more sticky than we would have anticipated.

Overall there is a real lack of supply in the country – which is odd as the principal drivers of supply in that market are the four Ds: death, debt, divorce and downsizing. The common nominator of all of these, except perhaps the last, is that they occur randomly and they should, in theory, produce a steady flow of houses onto the market that is less correlated to the ups and downs in sentiment and the economy that characterises London. Logically, the first three Ds are unlikely to be held at bay forever and it would be a reasonable bet that the supply side should improve next year – though we will probably have to wait until January to find out as this is not a traditional time of year for selling country houses.

Anyone hoping for a return to early nineties' valuations, forced down by the credit crunch, has been sorely disappointed. Prices may be a slightly below the all-time peak – but not by much. A look at prices per square foot is instructive – but only for houses. Why houses? Simply that houses provide a much better comparison of apples with apples than flats: the price of a first-floor flat can often be double that of the basement in the same building. Houses, on the other hand, are all more-or-less the same mix of staircases, attics and drawing rooms and nearly all have gardens. The differentiation is in location, quality of finish and size. 

The best central London houses are back at around £2000 per square foot with the trophy items nearer £3000.  Smaller houses – mews and three-bedroom 'cottages' are making around £1400. Fulham – a domestic rather than international market – is nudging £850 for the best family houses on the Peterborough Estate – down from £950 at the peak – and south of the river in the smarter areas of Putney and Wandsworth, the story is the same with 'Joe Average' houses trading between £550 and £700 per square foot. Decent, but not exceptional, houses in North London are selling at £1000 – £1300 and the 'gems' at £2000 with St John’s Wood as the most expensive area.

The country house market is much more difficult to shoehorn into a price-per-square-foot box as there are so many more variables. Long-term readers of our market comments will recall that we are fond of monitoring the difference between London and country markets with reference to Scarsdale Villas in Kensington – a pleasant street of family houses. If you were moving out of one of these houses (in the roughly £2000 per square foot category) you would traditionally expect to get a nice rectory or manor house in the Home Counties in return. This correlation seems to have remained remarkably constant over twenty-five years – and seems to hold true today with both items costing around £5 million.

Provincial cities and towns also provide an interesting comparison. There are not many of these in the south of England that our clients would trade a London existence for. However, at the risk of infuriating someone, we would suggest that the pick would be the two university cities, Oxford and Cambridge; some cathedral cities – Salisbury, Winchester and Exeter; and the spas – Bath and Cheltenham.

The best of Oxford has hit £1150 per square foot in north Oxford – but this might be an anomaly as previous sales have been at nearer £800. The point to grasp is that the buyers of these houses have their equivalent in Chelsea; Oxford, with its schools and culture, is the natural ‘second city’ for the south of England. Winchester and Salisbury, with their Trollopian closes, are both picturesque and quiet – yet with an urban buzz that commands £450 to £500 per square foot.  Bath, interestingly, is similar to the cathedral cities but less than Cheltenham at over £600 per square foot. This is probably due to an abundant supply of handsome Georgian houses that would command a premium in any other city.

What is coming out of all this is that reports of the death of the top end of the property market have been much exaggerated. Even if you believe fervently in a W-shaped domestic recession, it is hard to see that having much effect on the ability of BRIC buyers with their pumped-up currencies to buy what they want. It is a sign of the times that it was a Russian and a Chinese buyer who were recently slugging it out for a house in Eaton Square at north of £30 million. Further down the value chain, for a market that had moved so far and so fast over the middle years of the decade, it still seems remarkable how little it has been affected by the financial trauma of the last two years. While it’s certainly not 2007, with its sense of a fin de siècle final blowout, it has no resemblance at all to the grinding misery of 1992 where any excesses were well and truly wrung out of the market. But then interest rates are as low as they have ever been.  When that changes, things might be different.