Capital appreciation

Cottesmore Gardens is a quiet, tree-lined street in the Royal Borough of Kensington and Chelsea. At one end stands a Victorian mansion that used to be the London residence of the deputy US ambassador to the Court of St James’s. Most of the other houses on the street are smaller, but of the same vintage. All are impressive. Five or six bedrooms are standard, plus a few reception rooms and a large garden.

It’s rare that these houses come up for sale, and when they do their price tag is likely to be £25 million-plus (€31.3 million). Thirty-five years ago you could have bought one for around £90,000. So if someone bought one back then and was still the lucky owner, they would be sitting on an investment return, without stripping out inflation, of 27,677%. Of course, investing in George Soros’s Quantum fund, or Berkshire Hathaway and Microsoft shares might have notched up even better returns over a similar period of time, but you can’t live in them.

Cottesmore Gardens is by no way unique. Throughout London’s top addresses there exist many similar uber-smart streets that command these sorts of prices – some even more. The most pricey are mostly located in what has recently been dubbed the “golden triangle”, which contains 16 of Britain’s 20 most expensive residential streets, in which the average house price is over £2.5 million.

In the most expensive, Campden Hill Square in Holland Park, the average was £4.9 million, according to a Lloyds TSB report in December 2011. This triangle stretches up from Wimbledon Parkside, overlooking Wimbledon Common, taking in Kensington, Holland Park, Notting Hill, Mayfair as well as Knightsbridge (pictured, right), Belgravia and Chelsea. Outside the triangle are two of the remaining 20, in Hampstead and St John’s Wood. (The two non-London streets in the list are in Virginia Water, Surrey, and Beaconsfield, Buckinghamshire.)

Of course, all of this excites estate agents. “There are few property markets like prime central London. It offers something unique that others can’t match,” says Jonathan Hewlett, head of London residential for upmarket estate agent Savills. “As a truly cosmopolitan centre you can walk around streets and enjoy total anonymity. There are top quality restaurants, theatres and arts to cater to all tastes and you are surrounded by beautiful parks and a heritage reflected with fabulous period properties.” The time zone that gives traders access to both American and Asian markets during London hours further appeals to those who do business in those regions. London is also stable, something which can’t be overlooked. “It offers real security compared with other capitals – not just as a safe place to live but also with laws on property ownership you can trust,” adds Hewlett. Those who live and work in the west can underestimate the importance of that. Unlike more volatile parts of the world, it’s unthinkable that anybody is going to try to seize your property in London.

“When you buy a property in London it is on the Land Registry and there are no hidden clauses. It belongs to you. During times of economic uncertainty this is vital for investors,” says Hewlett. True, the government recently closed a loophole in the sales tax on UK property (called stamp duty) that meant many expensive properties were owned by offshore companies and thus exempt from taxation. And stamp duty for individuals buying a home for £2 million or more was also raised in March to 7%, from 5%. But in the grand scheme of things this is a trivial change. Coups, revolutions and midnight knocks on the door aren’t part of the deal in London.

The numbers tell part of the story of London’s increasing appeal. And as an investment, London works. But it appeals above and beyond the bottom line, for an obvious reason: its standard of living. Charles McDowell, a property consultant who specialises in finding homes for high net worth clients, says: “Kensington and Chelsea tend to attract a lot of attention – often from foreign buyers looking for a home where they can also enjoy the convenience of great schools, restaurants, shops and a lifestyle to suit wealthy international tastes.”

Hewlett adds: “Parts of Belgravia are 95% residential. Neighbourhoods tend to be elegant, quiet and homes immaculately kept. But go to Chelsea and you will see a different atmosphere and a bit of a buzz. There is a broader mix of people and with streets like King’s Road nearby there are fabulous shops and restaurants on your doorstep.” The allure of fabulous gardens and parks, such as Kensington Gardens, Hyde Park, Holland Park and Regents Park, means there are plenty of green open spaces in easy access to quiet residential streets for families and private luxury apartments. International schools abound, and there are great universities in the UK.

So London is a fantastic place to live, one of the greatest cities on earth. But that is really only part of the story. London also has history and character galore, which are embedded in its bricks and mortar. Whether it’s stucco and Corinthian pillars that excite you, baroque Victorian gothic, astringent neoclassical Georgian townhouses or the swishest of modern steel-and-glass constructions, London has it. And this brings home the true appeal of London: buying a top-end property in the city is not an alternative to buying gold or stock. It’s not only about the potential returns. It’s more like buying a Rembrandt or a racehorse. Yes, it should hopefully hold its value. But it is also a thing of beauty, and a thing to give you pleasure and to improve your life immeasurably.

Take, for instance, Cornwall Terrace (pictured, right). This curved terrace of 11 Regency mansions overlooking Regents Park was designed by famous architect Decimus Burton in the early 19th century. They were recently refurbished and some have come on the market for eye-watering prices. Many of the top properties in London are on garden squares, where there is a shared green space, often a beautiful oasis in the centre of the city. Some of these properties are unique – like the 19th century six-bedroom mansion set in two acres of private gardens in the grounds of the Royal Hospital Chelsea, which recently came to the market for £75 million.

Kensington Palace Gardens is the UK’s most expensive street, where the average price of £22.2 million is the highest in the country, according to research by property company Zoopla. Among the famous names on the street are steel magnate Lakshmi Mittal, who has bought three properties there, for over £400 million. These are magnificent buildings. One is reputed to be the biggest London private residence after Buckingham Palace, another is a wonderful home built from red Portland stone and the other has a ballroom and wood-lined library.

London atrracts the global very wealthy like no other city. Russian oligarchs like Roman Abramovich, bought nine aparments in Lowndes Square in Knightsbridge to convert into a single house. Madonna also owns property in central London.

Areas such as Chelsea have a diversity of 19th century properties to suit all tastes. And breathtaking properties do come on to the market with surprising regularity. Recent examples include a £9.25 million, three-storey, four-bedroom white stucco terraced house on the Phillimore Estate in Kensington and an £8.25 million Grade II-listed (those that cannot be altered without special permission) six-bedroom five-storey terraced house close to Sloane Square in Belgravia, both on Savills’ books.

History adds to the allure of many of these properties, but there are phenomenal new builds too. One Hyde Park (pictured, left) in Knightsbridge, a joint venture between property developers the Candy Brothers and a Qatari royal, contains a penthouse that reportedly sold to Ukrainian billionaire Rinat Akhmetov for £136 million in 2011. An apartment there, with five bedrooms, six bathrooms and a view over Hyde Park, is currently on the market for £65 million. This is renowned for being a flashy development, with swanky restaurants and stores including outlets for Rolex watches and McLaren cars. It’s often said that an Englishman’s home is his castle. At the top end of London property, it’s also an investment and a work of art rolled into one.

Why London?

In a list of the cities where property values have increased the most in the past year, London came fifth – an amazing performance since Jakarta and Nairobi, where growth from a low base is pushing up prices, were among the cities above it. It’s fair to say that many of the other contenders to London’s position as the greatest place to own property come with problems.

Take Bangkok, the strongest performer in an index of global cities last year with a 29% growth in values for the most expensive properties, according to Knight Frank. A £1 million (€1.3 million) investment can buy a luxury three-bedroom apartment in a prestigious development in the heart of town. Yet despite the headline figures looking good, prospects for the property market are uncertain – not least of all because they are based on new builds that can start to lose value after a decade. More worrying is the threat of political instability – nobody knows what will happen when ailing 84-year-old King Bhumibol Adulyadej leaves the scene.

Demand for the top homes in Manhattan is on the rise again after a six-year slump. Luxury properties have risen 7.4% in value in the last year. Foreign buyers make up 30% of buyers for new condominium developments, thanks to a relatively cheap dollar and value for money compared to other capitals. A 19th century Brownstone period home in a top Manhattan neighbourhood can cost £8 million – although these rarely come on to the market. There is a 1% “mansion tax” on purchases above £1 million and buying fees can add a further 6% of the property value to the price. The big problem is getting a non-immigrant visa – far from a formality.

The prime real estate market is in Monte Carlo with the most prestigious area being the Carre D’Or – Square of Gold – around the Place Du Casino. A three-bedroom luxury apartment with a pool in the Golden Square can cost as much as £23 million but values remain stable. Investing in property for foreigners is straightforward but there is a 7.5% registration fee plus 3% commission for the estate agent. In addition there are notary fees and expenses equivalent adding a further 1.5% to 2.5% to the property value. Why accept these high costs? There is no income or capital gains tax to worry about. Its top properties are always in demand, and exceptionally expensive.

The price of prime property in Paris fell by 4.5% in the last 12 months but over five years has enjoyed healthy growth returns of 23.6%, according to Knight Frank. A five-bedroom home on the highly sought-after Avenue Foch can go for £6.8 million. Central Paris townhouses sell for more than £5 million but rarely come on the market. Key to the appeal is that the top arrondissements such as St-Germain-des-Prés never seem to fall out of fashion. Agent fees can be as high as 8% while purchase tax and notaire fees plus other costs can add a further 10%.

The most exclusive homes in Beijing have soared in value by 84% over the past five years – even more than Hong Kong. House prices for top locations can be £5,000 a square metre – a six-bedroom Beijing villa in top districts costs £5 million. There are several hurdles to jump for a foreigner to get a title certificate – and they all cost money. The biggest catch is that property may only be owned for 70 years. To limit overseas speculation a 5% tax on property resold within five years is also levied.