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« previous: Podcast: Is the Fed too slow on cutting interest rates?   |  next: Manhattan real estate continues to defy gravity »

Friday, December 14, 2007

The London property echo

London once again defied the skeptics and remained on target for a 17% increase in value in 2007 despite falling prices in much of the rest of the country.

globeglobalThe story of London's property market seems to echo New York's right now. London and Manhattan have seen continued strength even as the wider regional markets trend downward. Both are global cities and centers for the financial services industries. There is a unusually high concentration of wealth within the marketplace, and intense interest from overseas investors. Overseas Property Mall states, "The FT index (Financial Times House Price Index) suggests that overseas demand, rising immigration and City bonuses are fueling the London price increases". This is much in the same way that that foreign demand and Wall Street bonuses have been widely cited as factors insulating Manhattan from the slump seen in the rest of the U.S. On a one recent building sale for well over $8M that I represented, we had 10 offers, eight of which were from overseas So foreign demand has loomed large as a factor for me recently.

Lulu Egerton who is a partner at a large London luxury property company, wrote an opinion piece on her market at the Telegraph site. She talks about some of the high end properties that are selling quite well in London. It sounds a lot like a New York City broker speaking about high profile projects like 15 Central Park West or The Plaza. They're looking at the compensation being paid by NYC financial firms too, noting that "Wall Street's five biggest investment banks are expected to pay a record £18.6 billion in staff bonuses this year".

London prime property remains the safest property investment in spite of the occasional storm cloud...sentiment drives markets, not facts.
The BBC reported recently that the London property market is 'slowing' and "London house prices dropped at their fastest rate in more than two years last month". Looking closer, it is revealed that the fastest rate drop is only .06% (10/07) and did not even reverse the gains of the previous month. Yes there are challenges, but there is also a predisposition in the media to leap at the opportunity to say that the sky is falling. It's as much a contrivance of sentiment, as a reflection of it. It seems to me that expecting some fluctuation in any marketplace is kind of normal.

It leads me to think that it is very much a matter of perception right now. For sellers in both of these markets, it would be a mistake to misinterpret, and overlook the conservative market sentiment. Buyers may be more price sensitive in the near term. They will not risk overpaying, but will choose fair value. The smart money will be made by pricing properly, not by overreaching.

Speaking of sentiment, is it driving the market? In a sign that we may be getting to a point where we can at least find some humor in even the bad news about the credit crunch, we find British comedians John Fortune & John Bird speaking about the subprime lending crisis on The South Bank Show. We might as well end this postcard from London with a laugh, and enjoy some pithy English dialog, with the ring of truth to it. Just voted by the Economist as runner up for best business moment on YouTube. The piece contains a few off color remarks, but there are some very funny points here too. Cheers!

related links:
London property holds its own » (overseas property mall)
London property market is 'slowing' » (BBC)
London property market: London eye » (Telegraph)
'The Long Johns' on The South Bank Show » (YouTube)

Updated 12.18.2007

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