It’s true to say that the property market is not just one market, but many separate property markets. One of these markets is the prime property market.
Even if you’re not actually involved with the prime property market yourself here are a few things you need to know about it.
What is the prime property market?
The prime property market is a term used to describe very high end and expensive property almost exclusively in parts of central London.
Although the exact definition varies, the prime central London property market comprises parts of Mayfair, Knightsbridge, Belgravia, Kensington, South Kensington, Chelsea, Notting Hill and St. John’s Wood according to agents and consultants Cluttons.
How much does prime property cost?
The current record amount paid for a prime London property is £210 million. This was for a house located on Rutland Gate in Mayfair and overlooking Hyde Park.
Though there’s no exact value range prime property typically costs from £5 million to £50 million and sometimes much more. Anything above £10 million is sometimes referred to as the super prime market.
Prime property is very hard to value. Properties are often unique and sales volumes are low so it is hard to find comparables. Prime property is often worth whatever a wealthy buyer is willing to pay.
Prices also tend to be volatile. They can rise fast in the good times and fall fast in the not so good times. That can make prime London property a very good investment for those who buy at the right time.
Who buys prime property ?
Prime property is mostly bought by super-rich people often known as high net worth individuals or HNWIs. These buyers are often from abroad rather than from within the UK. Many prime property buyers are from the Middle East, the Far East including China and Hong Kong, and Russia.
Prime property HNWI buyers are frequently cash buyers and don’t need a mortgage to buy.
Some prime property buyers don’t intend to live in their properties nor even rent them out. They are bought simply as an investment or a way of storing wealth as it’s often referred to. It’s suspected that some prime property is bought with money obtained by less than honest means.
What you really need to know about the prime market
News of high value transactions in the prime property market is often seen as a good thing, but it presents a number of problems too.
The prime property market has a knock-on effect on nearby areas. Ordinary buyers and tenants in non-prime parts of London pay higher prices and rents because of the impact of wealthy, money-is-no-object buyers in the prime market.
The prime property market may contribute to the shortage of accommodation in London and mean ordinary buyers and tenants including key workers are pushed out of certain areas.
For example, Cluttons say that the established prime property market in London has affected other once less fashionable areas like Earl’s Court, Marylebone, Bayswater, The City and South Bank.
A recent trend is for prime property buyers to extend and develop the houses they buy over-intensively. This has led to issues such as so-called iceberg houses or mega basement extensions which have become very unpopular with local residents in prime areas.
The prices of prime properties are generally completely out of line with the wider property market. Because they’re not linked to things like wages and the interest rate. Prime property can be going up when ordinary property is going down – or down when the rest of the market is going up, as has happened recently.
That can mean that the prime property markets distorts the wider UK property market, and can make it harder to understand and forecast. For example, it likely pushes the average London property price and average UK property price higher then they actually would be if the prime market wasn’t included.
It distorts property-related legislation, taxes and policy. Some people assume that because wealthy prime property buyers can afford and maybe should pay more tax every property buyer and owner can .... when that’s not the case.
The growth of the prime market is often believed to be responsible for the 2% Stamp Duty surcharge placed on non-resident buyers last April. It means that non-resident buyers buying a non-prime property have to pay 2% more Stamp Duty too. It could hit developers selling investment flats aimed at the overseas investor market – an important source of sales for some new developers.
At the end of the day, quite possibly you may never buy, sell, rent or deal with the London prime property market. However it’s important to know how it fits in (or doesn’t really fit in) with the wider property market and so prime property is something you really need to know about.
