House Prices: Million Pound House Sales Rise As Ultra Rich Defy Downturn
A few minutes walk from High Street Kensington, One Campden Hill is firmly in wax jacket and Barbour territory.
Next door to Abuja House, the Nigerian High Commissioner’s residence, the listed mansion comes with an acre of private garden hidden behind a high wall, a cottage for the hired help and two subterranean levels that the sales brochure says will hold a swimming pool, library, gym, home cinema, wine cellar and night club.
Currently empty and undergoing refurbishment works, the house is likely to go on the market at around £75m, according to Knight Frank, which is marketing the property. In today’s market, it should not be too hard a sell.
On Saturday, a report from Lloyds TSB showed that the number of property sales worth £1m or more hit its highest level since the UK housing market peaked in 2007. In the first half of 2011, there were more than 3,375 sales in this category, according to Lloyds, 2,163 of which were in London.
Prime London property prices have risen 37.2% since the market bottomed out in March 2009, and are now 4.5% higher than their pre-recession peaks in March 2008, according to research from Knight Frank.
From September 2010 to September 2011, average prices rose more than £1,117 per day, Knight Frank said.
London has long been a bolt hole for global multimillionaires, with Middle Eastern, Eastern European and South Asian business dynasties putting down roots in well-heeled areas of the city.
In the midst of sweeping change in North Africa and the Middle East and fears of a second recession hitting Europe’s developed markets, the capital has remained a perceived safe haven from economic and political turmoil. The weakness of the pound after its slide in 2008 also created a sudden discount for overseas investors.
“The biggest reason is the bounce in the last two years of the value of wealth portfolios. As the global economy recovered after 2009, people’s portfolios recovered and they looked to invest that money into assets, and they were nervous of financial assets,” Liam Bailey, head of research at Knight Frank said.
With very few new properties constructed in Central London, supply is constrained and values tend to hold quite well due to global demand.
“If you look back in 2008, it was thought that there was an existential threat to London as a wealth centre, and there was a big question mark over London’s future role, whereas the reality is that from 2009 onwards, the market has defied that prediction and more and more wealthy foreign people are coming into the marketplace,” Bailey said.
Before the crash, Knight Frank was selling prime properties to around 40 different nationalities. Post-recovery, that number has swollen to 61. Mainland Chinese are increasingly buying at the top-end of the market, reflective of the economy’s strength, while political uncertainty ahead of next year’s Russian elections means that Bailey anticipates a swell of interest from that country.
Actual financial stress is less of a limiting factor than confidence amongst buyers of the top end of the luxury market, Bailey said. Supply, rather than demand, is the major constraint on sales of super-premium properties.
“Most of our offices in Central London will report that they’ve got a lot of potential buyers, a lot of money to be spent, but they can’t find the right type of property to offer to these guys,” he said.
Property is not the only market currently buoyed by the continuing health of the upper echelons of global wealth.
Luxury goods companies have shown surprising resilience despite broad based consumer slowdowns in the developed world.
In May, Burberry reported a 59% gain in its operating profit and significant investments in new and refurbished stores. Louis Vuitton Moet Hennessey, a handbags-to-champagne luxury conglomerate, posted revenues of nearly £9bn for the first half of 2011, after 2010 results that saw the group’s income pass the €20bn (£17bn) mark for the first time in its history.
Anecdotally, the pipeline of orders for super-yachts and private jets – both relatively secretive markets – are back to post-crash levels.
While many countries in the developed world are back to teetering on the brink of recession, and unemployment and poverty on the rise in the UK, Europe and North America, the global class of high net worth individuals has emerged relatively unscathed from the last two years’ economic turmoil.
Figures released on the weekend by the Swiss bank Credit Suisse revealed that less than 1% of the global adult population own more than one-third of the world’s total wealth.
Globally, there are more than 26 million dollar-millionaires, with between $1m (£625,000) and $5m, according to Credit Suisse. At the ultra-high-net-worth scale, there are just over 987,000 individuals with between $10m and 100m, and 29,000 with more than $100m.
The number of millionaires grew faster in 2010-2011 than the average across 2000-2009, the report said.
Much of this accumulation comes from faster-growing emerging markets, with the totals in Europe and the USA still slightly shy of the highs of 2009, before recessions, slowing growth, market turmoil and business failures clipped the wings of some high net worth individuals (HNWIs), particularly those in the private sector.
However, millionaires are still predominantly found in developed countries. The US is home to 34% of the world’s millionaires, with 11% in Japan, 9% in France and 6% each in Germany and the UK.
China’s population now represents 9% of the world’s wealth, according to Credit Suisse, compared to Europe and North America, which make up 34% and 28%, respectively. Africa makes up just 1% of global wealth.
Separate research, published in the summer by Capgemini and Merrill Lynch Wealth Management, said that the population of ultra high net worth individuals (UHNWIs) – defined as individuals with more than $30m in investable assets - grew by more than 10% in 2010, rebounding from their slight dip
“Those who have more money than the rest of us are more likely to be diversified in a sensible way,” Alan Walker, who heads the financial services practice at Capgemini, said. “They potentially also have better access to advice, so that they are investing in ways which are more likely to be sustainable in terms of investment returns than the average man on the street.”
UHNWIs and HNWIs are also able to invest globally – as London’s estate agents can testify. This means that they are able to spread their risk around the world and take advantage of islands of growth, unlike the majority of households whose exposure is almost entirely to their domestic economy.
“Where [HNWIs] themselves happen to be located is less important than where their assets are,” Walker said. “The more sophisticated investor, better advised, is more likely to be switching in and out of particular economies as time goes on.”
Wealth is also increasingly being generated in new areas of the world, which is feeding buying trends in the West. “New money” in Latin America, Eastern Europe and Asia is far more acquisitive than dynastic wealth in Europe.
Walker said, “You’ve got people who are making money now and realising those fortunes now.”