10 Lessons from London’s Property Market and what t...

Black Brick has been advising professional property investors, buyers, sellers and developers since 2007.

It says it’s advised, sourced and acquired almost every type of property from luxury penthouse apartments to family houses, single buy to let properties to freehold blocks, unmodernised property to plots of land, new build, off plan and period property to large country estates.

Now it’s giving its views on how London’s market fared in 2023 and what this means for the 12 months ahead.

1. What price crash?

Doom-mongers spent the tail end of 2022 predicting London, and indeed the entire UK, was heading towards an inevitable 2023 house price crash.

In reality average Prime Central London (PCL) prices barely faltered, dropping a negligible 0.9 per cent last year according to the latest research from estate agent Savills.

This resilience is mainly down to the fact that 70 per cent of homes in PCL are owned outright and their owners have been completely unaffected by the series of Bank of England base rate hikes which have pushed prices down elsewhere.

Black Brick expects to see more of the same this year. Unless some dramatic and truly unexpected event occurs, it is as hard to imagine a sudden boom in prices as it is a shock collapse.

Estate agent forecasts for how the market will perform in 2024 have - so far - been unanimously lacklustre. JLL and Savills both think prices will flatline during 2024 before starting to climb again in 2025. By 2028 the firms predict cumulative PCL price growth of around 19 per cent.

2. First amongst equals.

London’s property market is incredibly nuanced. The overall picture in last year was rather beige but there have been some pops of colour.

Best in class homes – from luxe lateral apartments on picturesque garden squares to impeccable family houses in sought-after suburbs – have shone.

“This kind of property is rare, and demand is always high no matter what the rest of the market is like,” said Dell.

Caspar Harvard-Walls, a partner of Black Brick, thinks this kind of dream home attract premium prices and constant demand partly because buyers are thinking long term when they invest in a property nowadays. “Increased acquisition costs mean that people now consider their moves much more carefully,” he said.

Two of Black Brick’s recent deals illustrate just how hot London’s market can get when a real treasure comes up. In August we helped French clients upsize to a larger home in Chelsea Green. We found them a super double-fronted house on Burnsall Street. Other buyers were also interested, and we advised them to bid £6.3m (slightly over the asking price) in order to secure the deal.

Another client was after a lateral flat with a prestigious address. We helped them find a two bedroom property on Cadogan Square – arguably London’s best garden square – and helped them navigate a competitive buying process. Since homes like this don’t come up very often, we advised our clients to offer £4.55m and they were thrilled when their bid was accepted by the owner.

Homes like these will continue to attract premium prices this year.

3. Cut and run.

While standout trophy houses have attracted multiple bidders, owners of ever so slightly imperfect properties have had to face some cold, hard truths in 2023.

Prices they might have achieved at the peak of the post-pandemic property gold rush are no longer an option. Many have been forced to cut their asking prices substantially just to tempt price-conscious buyers over the threshold.

Dell feels that most vendors have – slowly – woken up to the fact that they can’t expect record breaking prices for their homes (although some will inevitably still give it a go, particularly if they opt to try and sell off-market).

“It a long time for sellers to get on the same page as buyers, but I think that we are finally there,” she said. “Those sellers that still have their homes on the market have accepted reality, and I hope that in 2024 we will see more of a meeting of minds.”

4. Cash is king.

Another hallmark of the 2023 London property market was a surge in the number of buyers paying cash for properties. In 2022, 34 per cent of Black Brick’s deals were cash sales. Last year that almost doubled, to 66 per cent.

This change, clearly, is all thanks to the rise in interest rates. They jumped from 0% in 2021 to 5.25 per cent and show no sign of dropping back.

“When interest rates were low even some of our wealthy high net worth buyers would take finance because it was a simple way of protecting them from inheritance tax,” explained Dell. “It is only charged on the equity you own in a property. Now clients, particularly younger clients, are rethinking.”

Older clients who are more concerned about legacy planning are also considering paying cash for property, although they are increasingly turning to jumbo life insurance policies to help protect their heirs from massive future tax bills.

5. Political agendas.

We have entered into an election year and General Elections have a nasty habit of causing temporary property slowdowns as buyers and sellers wait for the votes to be counted before making big life decisions.

The Labour Party, the clear front runner, has been dribbling out information about its manifesto plans. So far there hasn’t been too much to scare the horses, although the news for overseas buyers has not been good.

The Labour Party’s previous leader Jeremy Corbyn rattled affluent Brits with talk of wealth and mansion taxes.

Keir Starmer is taking a different approach, with reassuring comments around income tax and wealth tax. But Labour will dismantle the non-dom tax regime which allows people to live in the UK without having to pay tax on global earnings.

And it will increase the Stamp Duty surcharge for international buyers of secondary homes by three per cent (on top of the extra five per cent they already pay).

“It starts to make Stamp Duty extremely expensive for overseas buyers,” said Dell. “History shows that when Stamp Duty goes up prices in PCL go down by the same amount, and that could mean a three-point drop in parts of London that are popular with overseas buyers.”

The impact of a crackdown on non doms is harder to foresee, but it is inevitable that Britain’s 68,300 non doms will already be considering their futures.

The Conservative Party has been more circumspect about its manifesto, although Stamp Duty and tax cuts have both been mooted as ways to shore up its flagging position in the opinion polls.

6. Deal or no deal.

If the resilience of London’s property market was the good news of 2023, the collapse of transaction numbers was the bad.

Different sources offer different pictures of the severity of the downturn. Estate agent Knight Frank said PCL sales are down 15 per cent year on year, while house price analyst LonRes put the annual drop across the wider prime London area at almost 30 per cent.

The surge in interest rates is the obvious reason for the crash in deal numbers. This year the fact that inflation is dropping, and the Bank of England opted to keep rates steady over the autumn may help bring buyers back to the table going forward.

But buying costs remain high and, with little sign of price growth on the horizon, buyers will lack impetus.

Some discretionary buyers even seem to be holding out for a significant price drop before making their move.

“A lot of buyers are waiting for prices to drop like they did in the financial crisis before making a move, particularly overseas buyers,” said Dell.

7. The flat is back.

During the pandemic urban flats were a hard sell. What buyers wanted was space to work from home, gardens, and leafy surrounds.

With more workers returning to the office every month, and London back in full swing, there has now been a complete reversal of fortunes.

Six out of ten homes Black Brick bought during 2023 were flats. The most popular location was SW1 (Belgravia, St James’s, and Westminster).

And while at the height of the pandemic nobody would buy a flat without outside space now buyers tend to be more interested in air conditioning than a balcony.

Our collectively short memory about life in lockdown is one reason why flats have been rehabilitated so quickly. Some buyers also have a canny eye for future investment potential.

There are very, very few building sites in prime locations left in London and there is a growing awareness that the current crop of upscale apartment buildings will likely be amongst the last opportunities for buyers to pick up a brand new flat in a luxe building.

Westminster Council has even introduced a policy of refusing planning consent for flats bigger than150m² (1,615 sq ft).

“What this means is that there are going to be no more of these mega super prime new build flats like The Peninsula in Belgravia and Chelsea Barracks,” said Dell. “Prices are going to go up because they will become increasingly rare.”

8. Don’t do it yourself.

Cash rich time poor buyers in today’s market are showing very little appetite for buying a fixer upper – the homes which sold best during 2023 were undoubtedly those in immaculate turn-key condition.

Borrowing money to fix up a home is expensive, and research by Rated People suggests the cost of home renovations has shot up 40 per cent since 2020. Good builders are booked up months in advance.

“People will do work if a property is really special, but the idea of doing work to add value has just disappeared,” said Harvard-Walls. “It is time consuming and expensive, and there isn’t a margin.”

9. Brand value.

Across the globe, from Dubai to Miami, glamorous residences curated by luxury brands have been a huge hit with wealthy buyers who love their mix of style plus service.

London was relatively slow off the mark but during 2023 the capital gained three standout schemes. Sales at The Old War Office in Westminster (Raffles Hotels & Resorts), the Mandarin Oriental Mayfair, on Hanover Square, and The Peninsula Residences, Belgravia (The Hongkong and Shanghai Hotels) have been strong.

“The concept has been very popular, and the rents being achieved are incredible,” said Harvard-Walls.

These success stories should herald more branded residences coming London’s way over the next few years, but the lack of suitable building sites will be a challenge for the sector.

One solution would be for these blue-chip brands to start exploring slightly less-than-prime postcodes. The Mandarin Oriental Hotel Group recently unveiled a deal to create a hotel and 70 branded residences on up-and-coming Bankside, and it will be fascinating to see if buyers will pay PCL-style prices to live south of the river.

10. London, the world’s capital city.

As a global city it is not surprising that Black Brick’s client list comes from every continent on earth.

During 2023 20 per cent of our buyers came from the UK, but we also helped buyers from the USA, Nigeria, Switzerland, Canada, UAE, Singapore, Bermuda, and Italy.

These buyers are attracted to London for many reasons: work opportunities, its great schools and universities, and its cultural and social life.

Britain’s comparatively stable and moderate political system has attracted American buyers nervous about the potential for Donald Trump to return to the White House this year, and keen to take advantage of the strength of the dollar.

There are also early hints that Middle Eastern buyers, who have been property shopping in the British capital since the 1970s, will see now as a particularly good time to buy in a safe and stable location - even though a London investment is unlikely to net them strong capital gains in the immediate future.

“The wealthy value diversification, and London is a very safe option,” said Dell.