Why London is still calling the world's wealthy

Art, in this case, absolutely imitates life. Earlier this year, a property on Ashburton Place in Mayfair, London, sold to a private buyer for £38.6mn. It is the most expensive property purchase of the year to date. 

An earlier listing for a penthouse purchase in a gated building on Ashburton Place fetched more than £19mn back in 2019, while even two-bedroom apartments in Clarges, Mayfair (shown in the image above), are being listed for £9mn to £10mn apiece.

This price reflects the continuing popularity of prime central London property, which has diminished neither in price nor appeal despite Covid-19, Brexit and geopolitical turbulence sending ripples through the UK economy. 

The prime heartlands of Mayfair and St James’s and South Kensington have seen very strong annual growth.Marc von Grundherr, Benham and Reeves

According to data from eXp UK, a platform for personal estate agents, the gap between the top and bottom end of the property market across England and Wales currently sits at 183,900 per cent - a difference in sold price of more than £38.6mn.

Even hotspots just outside of the capital, in the so-called commuter belt, have been commanding top dollar - or, rather, 'top pound'.

In the south-east of England, for example, the most expensive home sold in 2023 to date went for £20.75mn, some 47,601 per cent more than the region’s most affordable sale at £43,500. 

Capital preservation in the capital

Who is buying these properties? According to upmarket lenders and estate agencies, the world's wealthy are splashing their cash in London.

Rich Asian buyers in particular have fallen for London's allure - but what is it about the capital that is attracting buyers from Asia Pacific countries? 

Capital preservation is the biggest draw for rich families who want to preserve and pass on wealth, rather than invest it all in the markets, according to some commentators.

Alpa Bhakta, chief executive of high-net-worth lender Butterfield Mortgages, says: “The City of Westminster, the Royal Boroughs of Kensington and Chelsea, and some parts of Hammersmith, Fulham and Chelsea continue to dominate the capital’s prime property investment landscape.

“Indeed, with their period properties, green spaces and proximity to cultural and historical landmarks, these prime central London boroughs continue to be the most sought-after for Asian HNWIs."

In line with the Adam Smith theory of economics, demand is high and supply is low. Therefore, properties in these areas preserve their value to a greater extent than the rest of the market, and value preservation is important to wealthy Asian families.

Bhakta explains: “In Knightsbridge, for example, prices rose by 3.3 per cent in the year to July 2023, while average prices across London fell by 0.8 per cent. 

"Evidently, sticking to heartland of the PCL market, with its enduring appeal and limited availability could prove attractive to investors seeking resilient real estate assets.”

Frances McDonald, director of research at Savills, says: “The fundamentals of what attracts residents to central London remain strong; business, connectivity, tourism and education.

"Therefore, demand has continued to be more robust than perhaps many had expected."

Who is buying?

Statistics from Benham & Reeves show that, of the top 10 countries represented by London titles registered to individuals with an overseas correspondence address, Hong Kong, Singapore and China lead the pack in terms of the number of buyers.

Hong Kong tops the table, with nearly 11,800 London property titles belonging to people either domiciled in, or living in, Hong Kong.

Director of Benham and Reeves, Marc von Grundherr, comments: “London remains one of the most sought after cities for Asian buyers and this is unlikely to change anytime soon.

"The UK property market is one of the most consistent on the global stage. We also have an incredibly strong rental market, which adds great appeal to those looking to invest with a view of renting out their property."

There are 62,256 homes registered to overseas owners across London, based on Property Register data, and this number has climbed by more than 3,000 in the past year alone.

Von Grundherr adds: "Chinese buyers are also driving the increase seen in international homeownership across London, with a 22 per cent annual increase in numbers. 

"Other cities that are proving popular among Asian investors include Manchester, Birmingham and Liverpool.

"However, even in cooler market conditions, the stronger values found within the London market ensure that investors are largely protected from any notable reductions in the value of their portfolio.”

London - titles registered to individuals with an overseas correspondence address

Source: Benham & Reeves

If one looks more granularly at just the top 10 Asian nations in terms of ownership of properties in London, countries such as Taiwan, Thailand and Japan start to appear, with overseas title holders in their hundreds. 

However, while other Asian countries are represented in the table (below), Macao, Philippines, Vietnam and the Republic of Korea represent just a tiny percentage of Asian property owners in the UK's capital.

London: Titles registered to individuals with an overseas correspondence address in Asian countries

Source: Benham & Reeves

Butterfield's Bhakta thinks the trend towards Asian buyers taking up more of London's big-ticket properties is likely to continue.

She says London's prime property market has "long been a magnet for investors and high net-worth individuals", and acknowledges that Asia has become a significant source of PCL buyers.

She says: "In recent years, the weakness of the pound against other global currencies has supported international demand for London’s real estate, allowing Asian and other overseas buyers to purchase at a lower relative cost.

“With the Bank of England’s rate hiking cycle likely to now be at its peak, many economists now expect the pound to weaken further in the final few months of 2023, which could precipitate another influx of buyers with holdings in foreign currencies into the PCL space."

Some caution required

However, it is not all roses in London's prime property gardens. 

McDonald explains there are some headwinds, which have led to a "sense of caution" at the top end of the central London market.

She cites a lack of urgency among international buyers, despite the value on offer in a historical context.

Sterling’s appreciation, particularly against the US dollar, macroeconomic pressures on global wealth and requirements for transparency around beneficial ownership have contributed to this.

McDonald adds: "For a global perspective, some reversal of the substantial wealth gains of the past few years are likely to take place as some countries face slower growth and even recession."

This is why Mike Cook, chief mortgage officer at Market Financial Solutions, says it is important for buyers to stick to quality.

He explains: “The case for sticking to quality when investing in the UK property market is compelling.

It could be worth exploring these less traditionally though of areas of the outer prime market.Michael Cook

"If we look at the areas that have appreciated and held value the most historically, they tend to boast high-quality period and luxury properties that will always be desirable among buyers – particularly in the upper echelons of the market.

"Therefore, as these properties tend to weather market fluctuations better, investing in quality could be a good way of safeguarding an investment in the long run.”

He says the UK could start to see a broadening of scope among overseas property buyers, looking to invest in quality homes outside of the typical PCL areas. 

Cook explains: “Obviously, due to their desirability among buyers and perennial lack of supply, the main PCL areas, such as the City of Westminster or Kensington and Chelsea, tend to weather the storm of falling prices better than most.

“However, areas like Battersea, Shoreditch, and Clapham – not traditionally PCL areas – have shown similar robustness in recent years, particularly as demand for homes in these neighbourhoods has grown among younger buyers and renters."

For example, data from property buying platform Rightmove shows while the average house price in Clapham softened slightly this year, it remains at £868,601 - far above the national average of £288,000, according to the Office for National Statistics.

Meanwhile, despite prices falling by 13.4 per cent in real terms across the UK, London estate agency Kinleigh Folkard and Hayward's data shows that prices in Shoreditch have fallen by just 1.6 per cent on the previous year.

“As such, it could be worth exploring these less traditionally though of areas of the outer prime market, which look well placed to hold their value in a softening property market", Cook says.

Longer-term factors

These headwinds may be short-lived, however, according to wealth consultancy estimates.

The five-year outlook is for global wealth to continue growing. There is an expected increase of US$173trn (£140.3trn), equating to a 38 per cent rise between 2022 and 2027, according to the 2023 UBS Global Wealth Report.

The number of ultra-high-net-worth individuals, a key buyer group for central London homes, is also predicted to rise. 

Sister title Nikkei Asia has put the number of China's billionaires at 440mn, out of a total of 990mn across the whole of Asia. This is expected to reach more than 1bn uber-wealthy individuals within the next year alone.

This should be good for London.

McDonald explains: "Despite some concerns surrounding the UK capital’s standing in a global context post-Brexit, London remains an international hub for business and has a rapidly growing tech sector in particular.

"The UK capital attracted by far the most venture capital in Europe last year, some $12.2bn (£9.89bn) and this has helped to cement its position as Europe’s premier tech city.

“This suggests central London’s potential buyer base is set to continue expanding, with a more diverse mix of where their wealth has been generated.”

Moreover, the cooling in the housing market generally across the UK as interest rates have reached a 15-year peak and inflation remains stubbornly high is not typically reflected in the ultra-high-net-wealth property market. 

We should expect London to continue to lure in international investors.Alpa Bhakta, Butterfield Mortgages

According to von Grundherr: "There’s no real wrong choice when it comes to investing long-term in the London property market.

"Over the past 10 years, London house prices have climbed by 60 per cent, and while the strongest performances have come across the capital’s peripheral boroughs, inner London house prices have also climbed by 47 per cent in that time."

He points to 2023 figures from organisations such as the CRBE and JLL Residential's Prime Centra London, which show the "prime heartlands" of Mayfair and St James’s and South Kensington have seen strong annual growth despite cooler market conditions with property values increasing by approximately 7 per cent to 13 per cent respectively. 

And the fundamentals still remain, as Bhakta adds: “More generally, we have to remember that there are several fundamental reasons that Asian investors – and indeed investors globally – are attracted to London’s property market.

"The capital’s reputation as a desirable place to live, work, study or holiday is well-known.

"But the simple transaction processes, coupled with the transparency of the UK's legal system, also continue to bolster the longstanding resilience and demand in the capital's property market."

According to her, this appeal is not going anywhere, so "we should expect London to continue to lure in international investors in the long term".

Simoney Kyriakou is editor of FT Adviser