It would be hard to conceive of an international financial crisis that did not result in somebody, somewhere celebrating their sudden enrichment. But when George Soros, who knows a thing or two about making money in a crisis, starts talking about the worst financial crisis since the Great Depression, you begin to wonder just who is going to be able to afford a prime London property over the next few years.
One thing is for sure: the London property market has proved not just buoyant in recent years, but also astonishingly resilient to other problems in the economy. This is largely thanks to the instincts of the wealthy to invest some of their money in London property. If the copper price leaves your mines stranded, if there is a coup in your home country or a collapse of the currency in which you do business, a house in one of the world’s most stable economies will still be a useful asset.
This resilience has led many to believe that the prime London market is immune to a credit crunch. If you asked a prime London estate agent during the Northern Rock crisis last autumn whether he believed it would affect prime London property, he is likely to have asked you: which international tycoon needs to pop down to the Northern Rock before bidding on a £10 million house in Knightsbridge? For those who can afford such properties, the worry over the availability of mortgages, offsets and five-year fixes is well outside of their world.
But a different mood now rules. Privately, top-end estate agents will admit that they are suffering their quietest spring since the eve of the Iraqi war in 2003. ‘Of 123 houses for sale in London over £2 million two months ago, only 20 have sold,’ says Charlie Ellingworth of buying agents Property Vision. ‘We reckon that prices have come off by ten per cent over the past four to five months. But at the very top end of the market, deals are still being done. A couple of properties have been sold in Kensington for around £20 million. This is petro-dollar money, and mostly non-dom money.’
As for the country market, Ellingworth adds, it was less excitable on the way up, and will be less excitable on the way down: ‘Only in one year have I seen supply and demand seriously out of kilter, and that was in 1992 when a lot of houses were forced onto the market because of Lloyds losses.’
There is ‘desperate constipation’ in much of the prime property market, admits Ed Mead of Douglas & Gordon estate agents in Chelsea, ‘but there is always some turnover in the property market. We are doing deals at the moment in the £5 million-plus sector of the market with two Indians and one Russian buyer.’
In the super-prime market of £10 million-plus there has been a delayed reaction to the credit crunch, says Liam Bailey of Knight Frank. As late as February it was possible to ignore the problems being suffered by the banks. ‘We sold two dozen properties at £10 million-plus in the three months to February,’ he explains, ‘compared with barely eight a year earlier.’
Since then, Bailey says, things have changed appreciably. ‘The pattern seems to be for people to sit back and do nothing. Moving house has become a very expensive business in Britain. When the market is rising rapidly, people tend not to notice these costs, but now they are no longer making paper profits, they don’t want to move so much. If you want to sell, your best hope is to find a foreign buyer.
The prime country market never saw the boom that London did last year, but even there, adds Bailey, the market has stumbled: ‘Last summer, we were getting offers four to five per cent above the asking price. Now, they are coming in at three to four per cent under the asking price.’ Even in the prime market, a lot of people still need mortgage finance.
Even if they don’t rely on a mortgage to buy one property, says Jonathan Hewlett of Savills, many wealthy investors like to gear their portfolios – something which has become rather harder to do of late: ‘We have had sales of over £10 million this year where there has been more than one bidder. One property in Knightsbridge, which took a year to sell last time it was on the market in 2006, has just sold again in six weeks. But it had had a lot of work done on it in the meantime. It is properties which are ready to move into which are still selling, and tired properties which aren’t.’
That underlines one of the truths of the property market. While it is tempting to think of them as assets whose price only ever appreciates, houses are in fact wasting assets – it is the land beneath them which tends to inflate in value. The strong market for prime property in recent years disguises the increasing sums that have to be spent to keep houses in a decent condition, and in keeping with the current fashions for interior décor that will allow them to command a fancy price.
Whether the credit crunch eases in the next few months or not, the next couple of years are sure to see a return to the days when a property is principally a means of consuming rather than increasing wealth. In difficult times, property does have a slight
advantage over junk bonds and shares in elusive oil wells: its value doesn’t tend to evaporate into thin air. But a property will still need heating and painting. So from now on, you can count your London house as something of a luxury.