Super Prime: Life at the top

Spotlight: Prime London & Country 2017
 
Life at the top

26 April 2017 - Frances Clacy

We investigate the performance and outlook of the £10 million-plus market in Central London, the private estates of the Home Counties, and the country estate.

 

Central London

The top end of the prime London market is one of the most exclusive in the world. Like much of the rest of the prime market, it has seen prices adjust to a new environment. Properties worth more than £10 million have seen prices fall by a little over 15% since the 2014 peak of the market. But it continues to attract significant investment.

Our analysis shows there were around 120 sales of property worth more than £10 million in London in 2016. While transactions were a little down on the previous year, slightly more was spent on these properties. In fact, some £2.5 billion of property worth more than £10 million sold last year, of which £1.5 billion was invested in properties worth more than £20 million, where each square foot of living accommodation costs more than £3,600 on average.

During the past five years, almost £14 billion has been spent in the £10 million-plus market, across a combination of established addresses and new-build developments, such as One Hyde Park, Holland Green and Cornwall Terrace.

In that period, more than £500 million was spent  on properties worth more than £10 million in Eaton Square. In addition, there were four other addresses (Avenue Road, Chester Square, Belgrave Square and Tregunter Road), where investment at this end of the market was more than £200 million, contributing  to a spend of more than £1.5 billion in super prime property at just five addresses. A further £650 million was invested by buyers of super prime housing at Cadogan Square, Chesham Place, Lowndes Square, Ilchester Place and Princes Gate.

This reflects the ongoing appeal of trophy homes  in central London’s most exclusive locations. But it’s not the only show in town. 

 

 
Super prime: Private estates of the Home Counties

Private estates of the Home Counties

The private estate markets of the Home Counties, epitomised by the neighbourhoods of St Georges Hill and Wentworth, in Surrey, have similar characteristics to prime central London. The stock is rarefied and the buyer profiles have strong likenesses. But their housing markets have their own microclimate. When it is hot, it is hot. And when it is cold, it can be pretty chilly.

Part of that volatility is because the value of many properties is dictated by their value as a development plot. Indeed, over the past five years, of the 116 sales  in St Georges Hill, 45 were sold as development plots.

Like London, the private estates of the Home Counties have been more exposed to a much less welcoming tax environment. That has meant prices have seen much bigger adjustments than elsewhere  in the country market. 

As a consequence, prices have fallen by 20% since the stamp duty changes of December 2014 were announced, meaning they are now back to just  3.8% above the level they were in 2007.

That period of adjustment has resulted in  relatively low transaction levels, which is typified by  the experience of St Georges Hill. Whereas more  than £160 million of property was transacted in both  2012 and 2013, that fell to £71 million in 2014 and  £67 million in 2015. 

In 2016, that figure increased to more than  £110 million as the market continued to adjust to the new realities. Despite this improvement, underlying caution meant that the market for redevelopment remained subdued and quality became all-important. As always, the best property continued to sell.  There were four sales of more than £10 million last year, of which one was the highest-ever price achieved on the Hill. Yet, on average, final sales prices were  14% below their guide.

 

 
Super prime: The country estate

The country estate

Even compared to the ultra-prime flats and houses of central London, the market for private country estates would be considered specialised. The assets are  a unique combination of some of the country’s finest country houses, accompanying cottages, and a sizeable acreage of farmland and woodland, together with associated sporting rights.

They come to the market infrequently, while buyers are hard to categorise – domestic and international, old and new wealth. All of them are incredibly discerning.

Value is largely determined by how each of the separate asset classes have performed, but the total value is usually more than the sum of its parts.

During the past 10 years, land has been the key driver of price growth, having risen in value by more than 150%, far outstripping the growth in the residential component, which has risen by just 7%. That has meant values have risen, on average, by 34% over this period.

However, with evidence that commercial farmland values have peaked, growth is being driven by scarcity and amenity. Those factors tend to be reflected in the marriage value between the assets – the sum to own  the whole package rather than just its components.

While that sum will vary depending on the attributes of each estate, in the bull markets of late 2006 and early 2007 it added an average of 19% to the total value. Since the market bottomed out in the first quarter of 2009, it has fluctuated between 9% and 12%.

In the past five years, by slightly outpacing growth  in the value of the underlying assets, it has risen by 39%, with 15% growth over the course of 2016. That reflects  a market where demand has picked up, but which is relatively scarce of stock.

In 2016, there were 29 £5 million-plus estate sales where the land area was at least 200 acres. Together, those assets had an aggregate value of £331,585,000.

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