What is snowing on?

In the cooler winter temperatures I reflect on the multiple factors impacting whether to buy, sell or hold luxury property today and I am reminded of the largest snowflake recorded (38 cm large and 20 cm thick in Fort Keogh, Montana 1887).  This snowflake was a result of unique weather conditions combining multiple snowflakes, quite like the multiple factors that impact the luxury property markets I help to finance.

I recently sat down with professionals who buy or sell property in London and the French and Swiss Alps to understand what’s ‘snowing on’ in their patches of high-end real estate.

The London Patch

It is near impossible to perfectly time a market, however, sentiment has become more positive through 2019, evidenced by a higher level of transactions in the luxury segment than in the last four years.  For Prime Central London, the outlook has turned positive for the next 12 months with growth over a 5 year period expected to be 15.3% according to Jones Lang LaSalle (JLL), particularly so given the recent UK election outcome.

London is a leading world city, it scores high for education (first) and innovation (fifth) by JLL in their Innovation Geographies index due to the high quality education system and innovation in the Capital.  Additionally security continues to underpin demand in London.  Demand is the other challenge, the snowflake may melt by the time the desired supply comes onto the market.  In the luxury segment, there are few forced sales, which has meant a low level of transactions and polarising prices.  Still we hear of record breaking prices, most recently £4,000 per square foot for a townhouse in Knightsbridge as well as deep discounts for poorer quality stock.

Richard Rogerson of RFR comments they have “real concerns that buyer and seller expectations may continue to diverge as a result of the clear majority won by the Conservatives in the UK General election”.  What is certain is that demonstrating a commitment to the purchase with a dash of good old English manners is helping sales go through.  Jo Eccles from SP Property states, “sellers are feeling battered and bruised, buyers need tact and empathy going into this market, in order to transact”.

The trends of domestic buyers seizing the opportunity at near market bottom, or dollar strength sweetening the already decent price drops are now accompanied by a return of demand coming through from Hong Kong, both in residential and commercial property at all price levels.  The domestic uncertainties in the UK related to BREXIT are put into their short term perspective against the wider global political backstage.

There is no question that this is still a tough market, whilst transaction levels are the best Jo and Richard have seen in 3 years, domestic policies and politics have cooled the market, contrasting the sharp drop and recovery of 2009 with the prolonged downward shifts from 2014 to now.  Political uncertainty may have subsided with the majority Conservative government, however the wider relationship with the EU, will be uncertain for some time as the future trade agreement between Britain and the EU is negotiated.  Tinkering with taxes is also on the horizon (again) with the conservatives including a potential 3% additional stamp duty for secondary homes in their election manifesto, which may accelerate any planned 2020 purchases into the first quarter of 2020.  Professionals I speak with however comment this will bring the UK in line with other countries around the world with a global attraction.  As a result this is expected to be absorbed given the underlying strengths of buying into London.

Multiple property related tax changes in recent times, buy-to-let policy shifts and leasehold reform changes have made residential purchases less attractive than the past, though broadly in line with other international cities.  With relative greater certainty expected over the next year, supply is expected to return to the market, coupled with the pent-up demand, this is expected to achieve modest price growth over 2020 and beyond.

Turning to the Alps

A holiday home in the Alps is a discretionary purchase that now starts to perform and even out-perform certain property markets according to Knight Frank’s latest ski-report.  Over a 10 year period, the Knight Frank Prime Ski Property Index reports a 19% rise in property values on average across the 18 resorts tracked.

One big shift seen over the last decade is the amount of luxury stock rented out.  Only 50% of owners used to rent out their property, but, now the benefits of doing so mean that close to 100% of owners are renting out their properties “hassle free” as quoted by Annabelle Common from Swiss operated Naef Prestige / Knight Frank. Annabelle explained that clients can cover all their financing and maintenance costs, ensuring their luxury get away can start upon arrival rather than spending the first day fixing the heating or dishwasher.

Buying in France is that bit easier than Switzerland given there are no restrictions on non-residents purchasing property and could be one factor driving the 2.9% growth in Val d ‘Isere over the last year. That being said, Alex Koch De Gooreynd, Head of Swiss Alps at Knight Frank, is quick to caveat that as long as you are well advised in Switzerland on Lex Weber & Lex Koller laws, a Swiss purchase with breath-taking views such as those in Verbier (still taking top place in Switzerland) is achievable.  Roddy Aris, Head of French Alps at Knight Frank, made mention of the attraction of new-build in France where the 20% VAT rebate remains however this stock is drying up and he is seeing a shift to renovation projects.

Other elements impacting market performance are regarding the level of investment in a resort’s infrastructure, ease of access and proximity to airports, limits to supply such as secondary housing limits (for Switzerland), or new build restrictions in Val d’Isere and the length of the ski season.  Investment is key to the strength of a resort’s ability to attract visitors, evidenced by the 96 new lifts coming online to the Alps for the 2019/20 season as referenced in Savills ‘Ski Report 2019/2020’.  That said, the dual season trend is still on the up as well, with families enjoying a healthy getaway both summer and winter.  Transaction volumes and prices are expected to remain steady over the next year as sellers are in no hurry and buyers can still rent.  Should GBP strengthen against the EUR, Roddy Aris mentions “some pent-up demand may return to the market”.

Switzerland is seeing a lot of domestic demand given the strength of the CHF and negative CHF interest rates resulting in clients seeing value in investing in real estate assets with or without finance rather than leaving cash in the bank.  Areas with international schools such as Gstaad, Villars, Crans-Montana, Verbier and St Moritz have also performed well.  Domestic buyers are once again present in the French Alps as confidence in the French economy since 2017 has picked up.

Prices across the Alps are flat to slightly up, the maximum increase being the 2.9% annual increase in Val d’Isere according to the Knight Frank Prime Ski Property index.  The Alps are in a steady state, absent of further central bank actions making the EUR or CHF cheaper, the outlook is estimated to be more of the same while the impact from the Brexit snowball is yet to be clarified as far as Knight Frank are concerned.

Across all agents when it comes to assisting their client, they are keen to understand the purpose of the bricks and mortar, is it to ensure your children are accessing a great education, call London home but need green space for a run, want to train in mountain terrain, enjoy a spa in luxury alpine surrounds or take the family away for some quality time. 

Buying agents mention that 80% of their clients are purchasing their properties with financing, either with a traditional mortgage or a loan against their financial investments, one of the reasons for this is the potential tax benefits, subject to circumstances, that financing attached to real estate can bring.  JPMorgan are here to assist with your financing needs for property purchases, offering mortgages across the UK, France, Switzerland, United States, Singapore and Hong Kong.  Whether it is a tough but fair market coming into play in the UK, or a stable, enjoyable flight into alpine territory, there is a lot ‘snowing’ on in global property markets.