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October - November 2007

Business Forum

Trends in property market: UK-India

The London property market has seen unparalleled growth over the past 12 months. In fact Central London prices have increased at three times the rate of the rest of the UK. In the past 12 months we have seen price increases in Prime locations (Mayfair, Belgravia, Knightsbridge, Kensington among others) rise by approximately 35%. A contributory factor to high prices in the centre of town is due to a strong demand and a shortage of supply. The owners of these properties are not keen to sell as their property continues to steadily rise in value. The increased wealth has meant that many now own homes in more than one city. According to Knight Frank research, a contributory factor is also that higher transaction costs (Stamp Duty in particular) mean that people are moving less frequently. This is a factor which may be reinforced with the introduction of Home Improvement Packs last month. Our data reveals that the supply of available property fell by over 50% in the first quarter of 2007 compared to the same period in 2006. In the meantime the number of new prospective purchasers increased by 17%. The result is that London has become the world’s most expensive residential market, ahead of Monaco, with prices moving beyond the £3000 per square foot barrier for best properties in the most sought after locations. Interest rates have been on the rise but London buyers do not, at present, seem to be overly concerned.

Part of the reason for this is that foreign buyers are an established and increasingly important source of demand for UK residential property. In prime central London our research figures suggest that foreign buyers currently account for an estimated one third of all transactions – this figure rises to 75% for properties with a value of more than £5 million. A high proportion of these overseas purchasers originate from Russia, the Middle East, China and increasingly India. As the Indian economy continues to thrive, due to a number of factors, including industrial growth and the increasing importance of IT. India’s residential market has also seen considerable activity. India is not the only economy which is prospering and on the back of this many across the globe feel London is the city where they wish to buy property. Knight Frank research tells us that in the past 5 years ‘BRICS’ nations (Brazil, Russia, India, China) have seen annual GDP growth of 7%. By comparison the world’s developed economies have seen increases of 2.3%. Following a recent trip to Bangalore, Delhi and Mumbai all those who I spoke to agreed on one thing, that if they buy property abroad it is London which is the first city they tend to think of. From April 2007 this has also become that little bit easier. The Indian Government has increased the amount of money an Indian national can take out of the country to spend on property abroad. Previously this figure was $50,000 per family member per annum. This has now been doubled to $100,000 and will inevitably lead to an increasing demand for overseas property. In the previous three months we have already seen an increase in the number of enquiries. We are beginning to embrace a more diverse range of Indian buyers. We expect this trend to continue over the next few years and it is likely that controls will be further relaxed in the future and may in all likelihood disappear altogether.

An important question to ask is why has London become such a popular city to purchase properties?

For our Indian clients the education that is available in the UK is a key factor. High numbers of Indians send their children to the UK (or USA) for university education. Having a property allows their children to live comfortably and securely. Many may visit the UK for a few months of the year and would prefer to live in their own property than stay in a hotel or rent an apartment on a short lease. Of these purchasers, many are opting for new developments which provide a secure environment, modern layout and design aesthetic. Another key factor as to why London is such a popular choice is due to the lifestyle it offers, such as world class leisure and retail facilities.

London is viewed as a global financial centre with a robust and deregulated economy. Along with the United States it is viewed as one of only two truly global financial centres. However London has benefited from the Sarbanes Oxley Act of 2002. The act tightened US corporate governance in the wake of several high profile accountancy scandals. This has led to a fall in America’s shares of IPO’s. London has been the main beneficiary. The UK has a relatively stable political environment and advantageous tax regime; offering exemption from tax on income from foreign investments for people resident but not domiciled in the UK. India is the third largest investor into the UK and 400 Indian companies have a base in London, one must also mention the historical ties that the UK and India share.

A number of our clients have purchased a London apartment as a buy to let investment. Many are keen to buy when their children are young. They will rent it out and often ask us to manage the property on their behalf. Over the past couple of years newly built riverside apartments have proved increasingly popular. This is due to the fact that the costs have been considerably lower than a prime central London apartment. The river is also proving to be a popular location for young city professionals to rent. Once again when purchasing a “buy to let” investment property our clients tend to prefer a new build apartment. The reason for this appears to be because they believe there is less which may go wrong with a newly built property. If they buy off plan they often get the benefit of paying in instalments. Newly built apartments are also relatively easy to let out. They are a popular choice with city workers both British and foreign as they have security, modern amenities, many have underground car parking and gym facilities. An example of such a development which has proved very popular is Imperial Wharf in Fulham where we have sold a number of units for investment purposes over the past 9 months.

When buying a London property for their own use the location for Indian buyers is crucial. They all want to own a property in top London locations such as Mayfair, Knightsbridge and Belgravia. But as prices in the most sought after locations such as these continue to force many out of the market, demand in locations such as St Johns Wood and Kensington is increasing rapidly. St Johns Wood is now perceived as Central London whereas in the past it was often referred to as North London. Within close proximity to the West End and with Regents Park on its’ doorstep it is no wonder that prices have rocketed in this area. Kensington Palace Gardens and the high profile families who live there have put Kensington on the map as far as our Indian clients are concerned. Consequently we have had a steady increase in the number of enquiries in Kensington over the past few years.

In relation to specific Indian requirements we have a high demand for property in the £500,000 to £1 million price range. There are of course the ‘super league’ who will look at properties up to £20 million but these sales are all done very quietly. Our clients always prefer upper floor apartments for security purposes as they only spend a few weeks or even days in London per year. They also tend to prefer long leasehold or freehold properties which are viewed as a wiser purchase in the long term as very few of them will ever sell their London properties.

The Central London property market has been strong since the mid 1990’s with growth figures over the past 12 months which have seen some property owners have their assets rise in value by up to 35%. The bulk of this demand is from abroad and as the Indian economy continues to boom and while the Indian Government makes it easier for Indian nationals to spend money on property abroad, it is likely that London will continue to be one of the main beneficiaries.

(All Statistics provided by Knight Frank Residential Research)

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