Why London’s Wealthy Are Renting Instead of Buying - Kanebridge News
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Why London’s Wealthy Are Renting Instead of Buying

By RUTH BLOOMFIELD
Wed, Feb 7, 2024 9:28amGrey Clock 5 min

With London luxury real-estate prices on the slide and a collapse in high-end deal volume, it has been a tough year for prime central London real estate.  But the prime rental market is thriving.   People in need of a London base are increasingly opting to take the flexible, minimal-commitment housing option rather than buying, and paying Britain’s high taxes, in a stalled market. As a result, prime rents are escalating.

House price analyst LonRes found that average prime rents in London increased 3.5% between December 2022 and December 2023. Average prime rents are now 29% above pre pandemic levels notched during the period of 2017 to 2019. Separate research from estate agent Beauchamp Estates found that 63 London homes were rented out for $6,370 or more per week—about $330,000 per year—between January and June 2023.

Buying agent Liam Monaghan, managing director of London Central Portfolio, said many of his prime tenants live a global, itinerant lifestyle. They include soccer players, actors and film producers and tech entrepreneurs.

“They can obviously afford to buy these properties, but perhaps they are on a short-term contract or are growing a business and have got a lot of wealth quite quickly and are jumping between lots of different countries and are still working out where they want to live,” said Monaghan.

Nina McDowall, head of lettings at estate agent Strutt & Parker’s office in Knightsbridge, one of London’s most expensive neighbourhoods, said many of her renters are considering buying a London property but only when they find the perfect home at a great price.

“There are a lot of people who are weighing up their options,” she said. “They might also be sitting tight to see if prices slide further.”

Others, such as Antonio Volpin, simply don’t see London property as a great investment opportunity. Volpin, who is Italian, moved to London for work in 2011, initially living out of hotels. When his wife and two sons joined him in London in 2012, the family started renting.

The Georgian exterior of a rental property in Mayfair that is renting for $37,900 per week. PHOTO: CHESTERTONS

“We mulled the idea of buying a property, because the market was very strong, but I thought it could not grow forever, and with my work I am not sure where I will be next year,” said Volpin, 61, a consultant for asset and fund management firms.

The family’s decision to continue renting proved prescient, because prime central London’s house prices have stagnated for almost a decade. According to LonRes, average sale prices in prime central London increased by just 2.3% between 2013 and 2023 (from $2,130 per square foot to $2,180 per square foot). In 2016, Volpin’s job took him to Singapore, and now he and his university professor wife are based in Rome. Their two sons, aged 26 and 22, opted to remain in London so their parents, who visit regularly, have continued to rent a three-bedroom, three-level, apartment in the affluent, historic neighbourhood of South Kensington, 2 miles west of the city centre.

Antonio Volpin has been renting in central London since 2012 and considers it a more flexible option than buying. PHOTO: OLGA PODPORINA FOR THE WALL STREET JOURNAL

Volpin has signed a nondisclosure agreement prohibiting him from revealing his monthly rental costs, but a spokeswoman for his estate agent, Winkworth, said that a similar property would cost up to $191,000 per year.

“Certainly with that money I could buy, but the point is that at the moment it is more of a kind of holiday home,” Volpin said. “When I come, I want to be close to downtown and to the friends I made while living in London.”

McDowell believes that the reason top-end rental prices have accelerated while home sale prices are falling is simple: Demand for these types of rentals is high and there is a serious undersupply of high-specification, turnkey properties.

“They are as rare as hen’s teeth,” she said. “Super-prime tenants will not sacrifice or compromise on many things. The condition and functionality of the property has to be slick and beautiful, and they will pay big prices, or pay one or two years in advance, to secure the right property.”

But while rents are rising, prime-central London landlords still have to work hard to attract high-paying tenants who expect five-star standards.

“I have had people who want walls to be ripped out or massive extension work,” said Sinead Conlon, head of corporate and relocation services at John D Wood & Co. estate agents. “Some of them want interior-design furniture packages costing about $32,000 to $127,000 per month. They are all looking for an add-on.”

In one memorable case, Conlon was able to rent a substantial house in the north London suburb of Primrose Hill to a tenant who wanted the toilets in the bathrooms, 17 of them, to be replaced with Japanese models with built-in bidets. The tenant, who paid around $70,000 per month to rent the house for a year starting in 2021, eventually settled for just 10 new toilets to be fitted.

“But they are around £25,000 [$32,000] a pop, so it was not exactly cheap,” said Conlon.

Another problem facing landlords is dwindling profit margins. Interest rates have jumped and, since 2020, landlords cannot deduct mortgage interest from their tax bills, said Becky Fatemi, executive partner of Sotheby’s Realty UK. The administration of renting a property is also not cheap. Fatemi said landlords should expect to pay their estate agent between 8% and 15% of the annual rent to find and install a tenant. Management fees, if required, add another 5% to the cost.

Vickram Mirchandani currently owns and rents out two prime London properties. He is painfully aware how hard it is to turn a decent profit even in a hot rental market. Mirchandani, 46, who is British, bought a five-bedroom family home in the upscale neighbourhood of Belgravia, about 10 years ago. They lived in the home full time, but he and his wife became increasingly disillusioned with life in Britain and left London in October, then moved to Dubai with their young family in January—they have one child and are expecting a second.

Vickram Mirchandani & his wife
CREDIT:Vickram Mirchandani

Mirchandani has decided against trying to sell the property until London’s property market has revived. In October 2023, tenants moved into the 4,200-square-foot townhouse, paying just under $8,900 per month in rent.

“It was gone within a week, on the second viewing, for the asking price,” said Mirchandani, a renewable-energy developer. “In hindsight, I could probably have got a little bit more.”

Mirchandani also owns a second property, a three-bedroom penthouse in Belgravia, which he had originally hoped to flip. “The plan was to purchase it, develop it, and sell it at a handsome margin,” he said. “But after Brexit that handsome margin never materialised.”

The apartment is also rented out, fetching $11,500 per month. “I actually got over asking price for that one because the tenant has a dog and I said, ‘Fine, but that will be an extra 10%,’ ” said Mirchandani. “I am very happy with the prices achieved.”

He is less happy with the yields his capital is earning. He estimates that after costs, including income tax, he is earning around 1.5% to 2%. England’s major banks are currently offering interest rates of around 4% to 5%. Longer term, Mirchandani is still weighing his options. “I could keep them in the hope that someday some miracle will happen and they will go up, but if we like it in Dubai we will probably sell the properties,” he said.



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Hong Kong’s superluxury homes have lost more than a quarter of their value. Prices haven’t hit the bottom yet.

By ELAINE YU
Tue, Feb 20, 2024 3 min

China’s economic slowdown is wreaking havoc on Hong Kong’s luxury property market .

The most expensive homes in the city are changing hands at steep discounts to what they were worth just a few years ago. Chinese property tycoons, struggling to contain the fallout of their collapsing business empires, have become forced sellers. Bank lenders are seizing properties after luxury homeowners miss loan payments.

The average selling price of superluxury homes, defined as those worth more than the equivalent of $38 million, has fallen by more than a quarter since the middle of 2022, said Cherrie Lai, senior director and head of residential sales in Hong Kong at Savills . It will fall further this year as sellers accept reduced prices to cash out quickly, she said.

The slide in prices shows the fallout of China’s sputtering economy, which is suffering from deflation , slowing exports and moribund consumer confidence. A continuing real-estate slowdown in China is proving particularly painful, since the country’s big-spending property magnates were behind some of Hong Kong’s biggest luxury-property deals in recent years.

Hong Kong’s property market has also been squeezed by rising interest rates in the U.S. The Hong Kong dollar is pegged to the U.S. dollar, and the city’s de facto central bank matches Federal Reserve interest-rate increases. But the U.S. market has held up much better: Nine-figure home sales in places such as California and Florida have skyrocketed , and luxury-home prices in the top 5% of the U.S. market have soared over the past decade.

The luxury homes up for grabs in Hong Kong include three mansions linked to collapsed real-estate company   China Evergrande , said Victoria Allan, founder of Habitat Property. Local media reported they were ultimately owned by Hui Ka Yan , the company’s founder.

The three properties, which are adjacent mansions on a hillside road known as Black’s Link, have been seized by creditors. House 10B was sold for about $115 million in 2019 but it is now valued by banks at roughly $55 million, said Allan. It has yet to find a buyer. The other two properties could be put on the market next month, she said.

Chen Hongtian, the mainland-Chinese founder of property-investment firm Cheung Kei Group, bought a luxury high-rise apartment occupying an entire floor in a building designed by architect Frank Gehry in 2015, paying about $49.5 million. It was later seized by a creditor, according to official records. In September, shipping magnate Kwai Sze Hoi bought the property for $53.4 million, records show, below what property agents said was a market valuation of about $87 million at the time.

Homes seized by creditors usually sell at a discount to market prices, property agents say.

A waterfront house at Residence Bel-Air, a luxury residential development, belonged to Mai Fan , the chief executive of Kaisa Group —another developer that defaulted as China’s property crisis widened in recent years. He acquired the house through a company called Million Link Development in 2017, corporate and land records show, at a time when property prices were still climbing. Receivers were appointed to handle the property in 2021 and sold the house the following year for about $46 million, according to the land registry.

In one of Hong Kong’s top sales in recent years, a local businessman sold his house for the equivalent of about $107 million last month, well below the initial asking price of $166 million, according to Savills. It is located on Hong Kong’s Victoria Peak, a mountaintop neighbourhood that is home to business moguls and celebrities living in some of the city’s most expensive properties.

“China still has very wealthy people, but they’re a different group now,” said Victor Cheng, a realtor in Hong Kong. “They’re not the highflying property moguls but those who may not have made as much when China grew rapidly but whose businesses grew steadily.”

He said the new breed of luxury-home buyer in Hong Kong is cash-rich and less likely to load up on debt.

Some mainland Chinese homeowners have been forced or pressured to sell—often at around 20% below market prices—because they need cash to pay off debt, said Cheng. Some top executives from the mainland previously bought trophy homes and only used them occasionally without renting them out, he said.

Data analysed by online real-estate marketplace Spacious.hk suggest a tougher time ahead for luxury homes. The number of sale inquiries on the platform for homes priced at the equivalent of $10 million or above fell 45% in the past 12 months, said Spacious.hk Chief Operating Officer James Fisher. Inquiries for homes under $1.3 million and for those priced between that and $3.2 million fell by 8% and 25%, respectively.

The price index for private homes slumped to a seven-year low by the end of 2023, according to Hong Kong’s Rating and Valuation Department.