Follow the Money

Somewhat predictably, the first two months of the year have borne witness to yet another upward hike in Fulham house prices, with February’s average asking price up to £992,248 from £885,954 in December last year according to Rightmove’s house price index, a 12 per cent rise in two months. Yikes! Although this figure is skewed by high value property being withdrawn from the market in December, the sales we’ve agreed this year corroborate the continuing upward trend in the price of, and seemingly insatiable demand for, good quality Fulham property, with our sold prices averaging 101% of asking price in 2013 so far.

What we are experiencing is a three speed market, with property prices outside of London in first gear, growing only 1.1 per cent over the last year, Greater London in second gear up 8.4 per cent, and prime London areas like Fulham going even faster, up 16.3 per cent on a year ago.

The story isn’t all roses however. Clouds lurking on the horizon give the occasional reminder that – insulated though it may be – Fulham needs to be wary of the economic weather beyond its banks. The recent down grading of the UK’s credit rating from AAA to Aa1 status by Moody’s serves as a reminder of the continuing reverberations of the crunch, and it’s worth noting that negative GDP growth in the first quarter this year, on top of the 0.3 per cent contraction in the quarter four last year, would put us back into recession. Could that spook buyers? Probably not, in our opinion.

Historically low mortgage rates are unlikely to be affected either, as Ben Thompson, Legal & General Mortgage Club managing director explains: “This downgrade - while embarrassing and untimely - will not have come as a shock. Markets will have expected this to a certain degree and there should not be much disruption to the cost of funding. Moreover the Funding for Lending Scheme and other measures implemented have ensured that cheap funds are at the ready, so mortgage pricing should continue to remain low.

“In fact, if anything, competition amongst lenders to attract certain borrowers will increase, so we expect to see further record lows such as the five year fixed rate just announced by the Yorkshire Building Society.” (You can read more about remarkably cheap five year fixed rate mortgages on page 15).

Other than the low cost of finance, it’s interesting to consider the international forces helping support growth in Fulham house prices.

Safe Haven
Alongside gold and the Swiss franc, London property is seen as a third safe haven by wealthy individuals and governments around the world. No better examples are the extraordinary amounts – supposedly up to £140m – individuals from Eastern Europe and Arabia have paid for flats in uber prime developments like Number One Hyde Park, and the £1bn of China’s sovereign wealth invested in London commercial property and infrastructure since May last year.

Although London property plays a leading role on the world stage, in the context of London, Fulham is not high on the list for overseas property investors, despite growing numbers of owner occupiers moving here from abroad, particularly from Europe. However, high prices and low supply in London’s well known prime areas – Mayfair, Belgravia, Knightsbridge, Kensington, Chelsea, Notting Hill and the rest – and the increasing pulling power of the Fulham ‘brand’ are gradually seeing this change. Massive new build development over the next decade will see even more foreign eyes turn this way too, with almost 10,000 new homes planned in Earls Court and along the river over the next decade (see this month’s Buyer’s Guide on page 20 for more on this subject).

Exchange Rates
Of course, exchange rates play an important role in determining which nationalities are buying here, and perhaps the most significant affect of Moody’s downgrade was a drop in the value of the pound against the dollar. The Euro has made significant gains against the Pound over the past sixth months too, up about 10% since mid-2012, which can only increase the already strong appetite of European buyers here.

Europe
Fulham is popular with Europeans, who make up about 15% of buyers in the area. Half of those are from France, giving support to the oft’ quoted rumour that London is France’s sixth biggest city. Figures from the French consulate actually put it at 68th biggest, but that doesn’t sound quite so impressive.

High paying City jobs, good foreign language schools – particularly French – reasonable property prices and an abundance of green spaces all help this trend. Aggressive taxation policy in European states can also push people this way. France’s recently proposed, and defeated, 75% top income tax rate gives a flavor of what might be to come, although at present the UK and French tax systems are pretty much comparable. For example the effective tax rate for someone earning £250k in the UK is about 42%. For a single person in France that figure is approximately 51%, whereas for a family with two children it’s 39%, due to the French system of splitting income between family members including children.

Asia
Asian money flows mainly into new build developments, with about 48% of sales of these properties in London being made to residents of Hong Kong, Singapore, China and Malaysia, compared with only 27% going to people from the UK in 2012. Interest is at an all time high, with more than 100 units in the Battersea Power Station development being sold to Singaporean buyers in just one day in January this year. Fulham developments get their fair share of this market, with the majority of units in Bellway Home’s recent development on Vanston Place, and Nicholas King Home’s block on Rylston Road, having been sold off plan to buyers in Hong Kong and Malaysia. The new developments by St George and Barrett Homes along the river will only continue this trend.

Asians are typically looking for investment, and are more comfortable with the process of buying off plan, which involves exchanging – often on the very day the property is presented to them – before work is completed. Interest in Victorian property from these buyers is low, although we’ve had several enquiries from canny Asian investors in the Sands End area, looking for alternatives close to the riverside developments.

Russia & Middle East
Russian and Middle Eastern buyers typically look for high priced prime residential property. As yet, there’s been little demand from these nationalities in Fulham, who only accounted for about 1 in 40 sales in 2012.