The most exclusive property has delivered the best returns over the long term.
Residential property has long been a favoured investment, particularly in the UK. In the last fifteen years, the number of buy-to-let mortgages has increased tenfold as access to finance opened opportunities for more people. Residential property has remained a popular investment despite the credit crunch, which led to tighter affordability restrictions on bank finance and changes in tax policy. Low interest rates and low yields on other investments have helped to support this demand and indeed helped to support prices.
However, investment in prime property has been more lucrative, across the whole of the UK, not just the London markets. In the past decade, property prices in prime markets in England and Wales rose by 45% (30% excl. London), compared with 27% (23% excl. London) in non-prime markets. In London, prime property increased in value by 82% in the decade compared with 68% in the non-prime markets.
Property owners in London have seen very satisfying returns, but the amount depends on where the property is based. New, desirable areas of the city that are not quite classified as prime, but rather prime fringe, have seen strong returns over the period, but it’s the most exclusive property that has delivered the best returns over the long term.
Over the past decade, property prices in the prime central area of London increased by 101%, but prices of the most exclusive properties in the super-prime areas of the capital increased by 116%. So, even within the prime sectors of the market the more exclusive the area, the more resilient prices are.
The obvious reason for this is the lack of available supply compared with demand. There has been an increase in the building of luxury property that has been difficult to achieve in the most exclusive locations. However, the most prestigious parts of London – overall a small geographic area – cannot accommodate demand from the growing number of wealthy households wishing to move into them. As a result, valuations have risen faster in the super-prime district and prime central markets have served as an overspill for those priced out of the most expensive areas.
Demand for prime property from the wealthy has pushed the geographic boundaries
During the past couple of decades, prime London has doubled in size, growing from 10 to 20 square
miles. Despite what has been a tough couple of years for the prime London market, there are few signs to suggest its structural growth is slowing. In similar fashion to almost every other world city, the appetite for luxury central living among the wealthy is growing. The success of developers in providing new luxury accommodation to satisfy demand in the higher price brackets is quite stunning. On average, the most expensive property in prime central London that was sold or refinanced in the past 12 months was built this century.