Wetherell Mayfairs Fitnes Properties

Anne Ashworth and Judith Heywood

A chill wind is blowing through Holland Park, Kensington and Notting Hill, London's banker belt, as City job losses hit the values of prime residential properties below £5 million. They are down by 5.5 per cent over the past three months and have fallen by 9 per cent since last year.
However, the super-prime sector priced above £5 million is holding steady, with homes of £10 million-plus increasing in value by 1.2 per cent over the past three months, according to Savills, the estate agents. So far this year the sale of three homes in Mayfair has added £100 million to agents' deal books, according to Wetherell, a rival agency.

However, Peter Wetherell, a director, gave warning that general conditions are their worst in a generation.

He said: "This is the hardest market I have worked in since 1973, when we were going through the secondary banking crisis, the result of a lethal mix of rising inflation, rising oil prices, strict credit limits and companies running desperately short of cash."

Yolande Barnes, director of research for Savills, said that weaker demand from City buyers and from those foreign residents affected by changes to non-domicile taxation rules had taken its toll of the market, with prices likely to be 15 per cent lower year on year by the end of 2008.

The Savills figures suggest that prime property, which far outperformed the rest of the market last year, may now be the weakest spot. Figures from Halifax, the mainstream lender, indicate that average house prices are, so far, down a more modest 3.8 per cent in a year.

In previous downturns, pricier property was more vulnerable to falls than ordinary homes. Ms Barnes said: "History is, in part at least, beginning to repeat itself, with the more volatile prime London markets falling more sharply."

However, Savills believes that homes in the best areas will also follow the tradition of regaining value more quickly than the rest of the market. It now predicts that the current "sharp shock" will be followed eventually by a "rapid recovery", potentially starting in 2010.

Jonathan Hewlett, head of London residential sales for Savills, said: "We haven't yet seen the bottom of this particular cycle, but buyers will need to keep a close eye on the market - when it turns, it will turn with speed."

So far in this downturn, more owners have been able to stay put, with many choosing to let their homes rather than sell at a reduced price. Despite a flood of such homes on to the lettings market, Savills expects strong demand to mean that rents will be up 6 per cent year on year by the end of 2008.

Wetherell said that sales had fallen by more than half. Sales in Mayfair and St James's dropped 66 per cent in in the first half of this year, it said, but because of activity in the super-prime sector, the total value of those completed sales had stayed at £250 million.

Knight Frank has reported that prime property is now up 12.8 per cent in a year, down from a growth rate of 38 per cent last August. In May, property valued at less than £1 million in Central London fell 2.3 per cent.

Liam Bailey, head of residential research, said that sales of £10 million-plus homes were up 40 per cent year on year, but that across the prime market, prices were falling at their fastest rate since the early 1990s.

Properties in demand include large lateral flats, with luxury fittings and staff facilities, which appeal to foreign buyers, and once-in-a-generation character homes in the best streets or in other landmark locations.

Please click here to view the original article published by The Times, June 27th 2008.