Super Prime Property Sell-off by Grosvenor

Grosvenor Estates, the Mayfair landlord controlled by the Duke of Westminster, has sold off hundreds of millions of pounds worth of "super-prime" property in London because of fears about the capital's overheating market. (See article in the UK Independent newspaper)

The company posted a third successive year of record profits in 2013 as it took advantage of surging prices to sell off £240m of super-prime developments, typically defined as homes with an asking price of at least £5m. Profits from its UK and Ireland arm more than trebled as a result to £117.5m.

House in Belgravia 

Its chief executive, Mark Preston, insisted that the company was "not calling the top of the market".

But he added: "It's certainly true that part of the reason for making the sales we did last year was because we had a concern about the level of pricing and its sustainability, and the extent to which it was going to continue… Inevitably one has a concern over what happens next."

The move follows research from agents Knight Frank which showed overseas demand pushing up London's luxury-home prices 68 per cent since 2009, compared with a 49 per cent rise across greater London measured by Nationwide.

Grosvenor's sell-offs included 11-15 Grosvenor Crescent, which it sold in December last year for £114m to private developer Wainbridge. The company pumped sale proceeds into rental schemes in more-affordable areas of London such as Bermondsey. 

11-15 Grosvenor Crescrent

Bermondsey is a district in South London (Zone 2), in the Borough of Southwark. One of our investment properties is in Southwark, see our blog posts here.

Mr Preston added: "The picture for us looked increasingly risky. One of the things that should concern us all in London is the lack of supply of residential property that can meet the needs of people who want to live and work in central London and cannot afford or choose not to put most or all of their savings into a house."

The company traces its history back to 1677, when the present Duke's ancestor, Sir Thomas Grosvenor, married Mary Davies, who had inherited 500 acres of land north of the Thames to the west of the City of London.

The Grosvenors developed the northern part – now known as Mayfair – in the 1720s before moving south to Belgravia.

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Observations

This article caught our attention.  It sounded like Grosvenor group were selling off their crown jewels in Prime Central London!  The prices in PCL must have gone so much out of whack that they thought enough was enough.

But look what they are doing with the proceeds.  They are reinvesting in London, but now in Zone 2.  They are also focussing on more affordable areas.  We were very happy to read this strategy precisely because this has been the strategy we have been adopting.

Who owns Grosvenor Estates?  The Duke of Westminster. This chap here.

Also a Major General!

His name is Gerald, and he is the 6th Duke of Grosvenor.  He is also one of Britain's richest man, worth about £8bn.  Notice his name, Grosvenor?  Yes, his family ancestors developed Grosvenor Square. 

That's why I said it sounded like Grosvenor group were selling off their crown jewels and family heritage. Some of these properties in Grosvenor Square must have belonged to the family for centuries.   I guess the 6th Duke of Westminster really means business.

Happy Investing!

Prime Central London Prices Up Rentals Down - Knight Frank

Prices in Prime Central London (PCL) have risen 68% in past 5 years.  But rentals have not kept up, in fact they have declined in the past 2 years, though it may be bottoming out.

Prices Go Up, Rentals Come Down
What do you make of this? Yields are definitely dropping to the floor. The again, do yields matter?
Yes, to a normal retail investor looking for consistent positive cash flow, especially when you need to service a mortgage.

No, if you are so rich you are just looking to park your money in a safe haven.

However, buying in PCL doesn't work for us because we are looking for rental yields and not just parking money in a safe haven.  Read more in this blog post.

Properties in Prime Central London - A Different Asset Class
We think that properties in Prime Central London are an asset class on its own. Look at it this way. There are an estimated more than 100,000 ultra high net worth individuals in the world, defined as investible assets of more than US$30 mil. The number goes up exponentially if you drop this figure down to US$20mil or even US$10mil. All these people can easily afford some type of property in PCL.

If they are looking to diversify and park their money in a safe haven, them London PCL would be one of their main choices.

Not to mention, the rich and famous also like to have Central London House.  Apparently Beyonce & Jay Z bought a £5 Mil House in Mayfair this April.

The following are screenshots of Knight Frank's reports.

1) Prime Central London Sales Index

Look at the price index for the past 2 years.  Consistent upward trend.

2) Prime Central London Rental Index

Look at the last column - monthly change.  Almost all negative.  The 3 month change %, all negative.  Note that these is a price index, i.e. against absolute prices. Nothing to do with rental yields.

Happy Investing!

Zone 1 Prime Central Location, or Further Out?

No doubt that anyone who had bought any Zone 1 property prior to 2010 is now reaping large capital gains. Prime central London has always been sought after by investors from across the world.

Greater London property has appreciated too, but the appreciation of prime central London over the past decade has outperformed most Greater London areas. The properties we have bought so far are fairly humble, and are largely in zones 2-3, with good transport links.The most central investments we have are the Brickmakers Apartments, which is not exactly in zone 1, but is a comfortable 10 minute walk to Tower Hill underground station. (City of London)

London Zone 1 - Be prepared to pay millions ££

Why not Prime Central London?

1. Capital outlay much higher
Initially, given that we were new to London property, we were cautious and preferred to work with a bite sized investment. The capital outlay involved is obviously much higher with Central London property.

2. Rental yields generally lower
Rental yields are generally lower in Prime Central London than at the outskirts. This is especially pronounced if you are purchasing in today's market. Ex-council property aside, it is almost impossible to find a property in Prime Central London that gives a yield of 5%.

3. Plan to hold and not flip
We plan to hold on to our London investments for the medium to long term, and as a means to store savings value and hedge against inflation, our focus was not on immediate capital gains but a stable and high yield.

4. Multiple smaller investments over one large investment
With this investment philosophy, we opted for multiple smaller investments over a single Prime Central London acquisition.  Although it takes more effort to manage the portfolio, it also gives us more flexibility. It is not an all or nothing situation.  We can sell some along the way, if the need arises.

5. To flip or not to flip?
We have heard of the huge capital gains Singaporean investors have made with Zone 1 property. Some have even succeeded in flipping properties before completion, which saves incurring the stamp duty expense. Flipping property is not as prevalent in the UK as in Singapore and to flip for a profit in London was unheard of just a couple of years ago as new builds are known to be priced at a premium.

Now that we are more comfortable with London, we have started to look at Zone 1 properties. We may have missed the boat as prices are now very high. New builds at the Eastern side around Aldgate are priced at 1000 £ psf, as are the Nine Elms developments. Developments at the South Bank and Kings Cross areas are even more expensive.

We may have to start looking at the resale market for opportunities.

We buy to hold, not flip.

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