Prime Property: Resilient in Uncertain Times.
The headlines make for bleak reading at the moment. War continues to rage in Ukraine and energy prices climb ever higher. A (not-so) mini budget sees the pound falling to its lowest value in decades, reaching near parity with the dollar. The Bank of England raises base rates from 1.75% to 2.25%, with further increases expected. Against this dismal backdrop, one might reasonably have concerns about investments.
However, the Prime Central London market (PCL) is – once again – expected to prove resilient to political and economic upheavals.
We sat down with CapitalRise CEO and Co-Founder Uma Rajah to discuss how PCL is likely to weather this current storm…
With the financial crash, Brexit, COVID, war in Ukraine, and the ongoing cost of living crisis – recent years have certainly been ones of uncertainty. Yet, this does give us some context to the situation we find ourselves in today, and a precedent for what we might expect.
According to recent research that CapitalRise commissioned with Savills, Prime Central London property prices have historically recovered three years faster than London and UK-wide values after both the 1989 downturn and the Global Financial Crisis.
More recently, following the upheaval caused by the COVID pandemic, a similar pattern of resilience was observed. Although PCL was affected by the first lockdown in March 2020 like the wider property market, the sector bounced back to surpass its March transaction volumes in just four months (+6%). By contrast, transactions in the wider London and UK markets hadn’t bounced back but instead dropped by 10% and 7% respectively during this time.
Source: Savills, London & UK house prices and transactions – August 2022
Q: Why is PCL more resilient and quicker to recover?
The very nature of the Prime Central London property market is one of low supply, in the finite space of neighbourhoods like Mayfair or Chelsea. At the same time, we see comparatively high demand from the global wealthy. Regardless of the wider economic situation, the capital also remains attractive due to some fundamental ingredients. Compared to other prime real estate hubs, London offers a global time zone that can look east or west, first-rate higher education, a stable economy and legal system, and some of the world’s finest retail, restaurants, theatres and galleries. This all contributes to Prime Central London property proving itself an attractive asset class even in times of uncertainty.
Q: What does this mean for the situation in 2022?
Recent reports are suggesting that the current weakness in sterling – especially compared to the dollar – is attracting unprecedented interest from overseas buyers. Increase in oil prices are also likely to lead to more buyers from the Middle East.
This is playing out in the statistics. According to a recent Bloomberg article, for instance, 48% of PCL homes in the first half of 2022 were sold to international buyers (up 13% on this time last year).
At the same time, from our own experience here at CapitalRise, developer appetite remains high. For example, we recently reached the milestone of originating more than £200m in loans. Crucially, we lent just under half (£99m) of this figure in the 12 months prior to the end of June 2022 – a 252% increase on the total loans originated in the year prior.
Taking all this into consideration, I have no reason to think that the PCL resilience seen in previous downturns should not be seen again in this current period of uncertainty.
Q: How does CapitalRise’s approach differ?
CapitalRise’s specialises solely in investing and lending against prime developments across London and the Home Counties – so we know this market inside out. I co-founded the business in 2016, during the last major period of market turbulence, and we have since grown the business with a pristine lending record, having achieved zero investment defaults or losses in our six-year history.
As regulated business, we of course fully comply with all FCA regulations. We conduct extensive due diligence on all borrowers and development projects, and assess each opportunity on a case-by-case basis. Our co-founders also happen to be the founders of Finchatton, the internationally renowned luxury property developer that has been in operation for over 20 years – so we truly understand the needs of the developers we are lending to and the specialist niche market we are lending to having successfully operated in the sector through numerous property cycles!
The outlook seems set to remain uncertain for a while to come, as both national and global events test the property market. But with a strong track record of resilience and the unwavering appeal of London as a world hub for high net worth investment, we approach the coming challenges with confidence.
With funding available to continue working on these exceptional projects, the Prime market promises to keep offering great opportunities for both borrowers and investors alike.