London overtakes NY as costliest city for luxury homes
London overtakes NY as costliest city for luxury homes
Check out this article I found on Bloomberg. I know that New York real estate is crazy in both rentals and sales but now it looks like London has met our match. Of course if you are making British Pounds vs US Dollars maybe it equals out as well. Either way buying real estate in New York is still quite a challenge.
Source: Bloomberg News
Measured in British pounds, London has overtaken New York City as the most expensive city in which to buy a luxury home as the dollar has weakened, a study by CB Richard Ellis Hamptons International showed.
Prices for prime residential real estate, like London’s Chelsea and Notting Hill districts, costing more than 1 million pounds, averaged about 1,200 pounds ($2,282) a square foot in the second quarter, the study showed. Equivalent space for Manhattan homes — on Fifth, Park and Madison avenues near Central Park — cost about 1,000 pounds.
The pound’s 16 percent gain against the dollar during the past three years has amplified house price increases in London, where as many as 40 percent of luxury home sales are to foreign buyers, said Jennet Siebrits, head of residential research at CBRE. Rising sales and increased mortgage lending also suggest that the U.K.’s $6.8 trillion housing market hasn’t yet entered the slowdown that the U.S. is experiencing.
“With the continued strength in the London market, we expect this trend to continue,” said Siebrits, who expects prices for all London homes to rise 9 percent this year, as the U.K. overall grows by 7 percent.
After New York came Tokyo, with homes at 900 pounds a square foot, Hong Kong at 700 pounds and Singapore at 600 pounds, CBRE said in its semi-annual review of the global housing market.
Currency Gain
London’s top position stems from the rise in the pound. At the end of August 2003, the pound traded at about $1.58, whereas it’s now at about $1.90. Prime New York residential real estate sold on average at a record $1,842 a square foot in the second quarter, when the pound averaged about $1.85, according to Miller Samuel Inc., a residential appraiser.
International comparisons matter for wealthy international investors who are looking for a home or simply a pied a terre. Lakshmi Mittal, the billionaire chairman of Mittal Steel Co., paid about 70 million pounds in April 2004 for a house near Kensington Palace in London, a world record.
In Manhattan, home to the most expensive U.S. real estate, prices have held near record levels even as the number of sales dropped 15 percent in the second quarter to a five-year low. The average price of a luxury Manhattan apartment, calculated from the top 10 percent of all transactions, was $5 million in the second quarter, down 3 percent from a year earlier when prices hit a record $5.2 million, according to Miller Samuel.
U.S. Boom Ending
That growth has come as 17 interest-rate increases by the Federal Reserve have brought an end to the boom in the American housing market. Brokers report surging demand for luxury rentals in New York for leases running at more than $10,000 a month as people worried about real estate declines choose to lease rather than buy.
By contrast, prices for central London homes sold for at least 1.5 million pounds climbed 21 percent in 12 months ended Aug. 31, according to a monthly index calculated by broker Knight Frank LLC.
Monthly inflation for prime London homes slowed to a 1 percent rise in August and had little to do with the Bank of England’s Aug. 3 increase in interest rates, said Knight Frank’s head of residential research, Liam Bailey.
“The recent rate of price growth was unsustainable in the longer term,” he said. “The wider global demand for property in London means U.K. base rate changes have less impact than in other more mainstream U.K. markets,” he added.
The Bank of England lifted its benchmark interest rate for the first time in two years to 4.75 percent from 4.5 percent. The rate would have to rise to 5.50 percent before affecting the prime central London residential market, said Bailey.
Leading Indicator
The prime residential market acts as a leading indicator for the broader housing market because expensive homes are the most sensitive to a drop or a pickup in prices. The latest economic figures suggest that the U.K. market shows no immediate signs of slowing.
Nationwide, Britain’s third-largest mortgage-lender, said yesterday that the average cost of a home in the U.K. rose 6.6 percent in August, the fastest pace in a year. Earlier this week, the Bank of England said mortgage approvals rose to a six-month high in July.
In Greater London, the average house cost 317,679 pounds in the second quarter, according to figures compiled by the Land Registry, marking an 8.3 percent increase from a year earlier.
Prime Time
There are signs, though, that London’s prime housing market is being driven by other factors that are insulating it for the time being from prospects of higher borrowing costs.
Prices for prime residences have been underpinned by the estimated 7.5 billion pounds in bonuses paid this year to the 330,000 workers at financial firms in the British capital. Investment banks, law and accounting firms increased payouts by 16 percent on 2004 bonuses paid last year, according to the Centre for Economics & Business Research Ltd.
“With mergers and acquisitions doing well this year, bonuses for this year should go up by more than 8 percent,” said Jonathan Said, a senior economist with the London-based firm.
New York got a similar boost as the world’s top five investment banks paid more than $20 billion in bonuses in the city. Financial services provide 4.5 percent of jobs, and 19 percent of pay, in New York.
Top-end or “super prime” luxury homes in London are selling on average for about 2,000 pounds a square foot or more, prices that beat even the most prestigious addresses in Manhattan, according to CBRE.
Manhattan Triplex
A triplex penthouse apartment in the Pierre Hotel across from Central Park in Manhattan is on the market for $70 million, equivalent to 2,700 pounds a square foot, Siebrits said.
In London, development manager Candy & Candy Ltd. has pre- sold an apartment at its Chesham Place development at more than 2,800 pounds a square foot.
The six-apartment building near Sloane Square, designed by architect Sir Norman Foster’s firm and scheduled to be delivered early next year, has attracted offers approaching 3,000 pounds per square foot, said Nick Candy, 33, who founded Candy & Candy with his brother Christian.
CBRE also said that Monaco is keeping pace with the gains in London. While the report didn’t provide estimates for prime residential real estate there, it said super-prime homes sell in the Mediterranean principality for as much as 2,800 pounds a square foot.
What’s attracting the international mega-rich to London is the lack of taxes on worldwide assets, which is why Candy predicts prices in this exclusive market may climb to 6,000 pounds or more per square foot.
“I’ve just got back from New York, and nothing compares to London at the moment,” said Candy. “The minute the U.K. tax regime gets changed, though, there will be a mass exodus.”