Prime Property Prices Begin to Stir

The Wall Street Journal

London, Switzerland, Monaco and the South of France are Sparking to Life

After sharp falls during the credit crisis, prime residential property prices in Europe are beginning to regain their poise, fueled by investor appetite for direct investment opportunities, cheap money and exchange-rate advantages.

London is leading the charge, but residential property in Switzerland, Monaco and the South of France is also sparking to life.

The downturn hit prime property — those valued at €2 million and above — hard. Central London prime residential property fell between 20%-30% from peak to trough, say estate agents.

Monaco and South of France property was off 20%. Switzerland, less exposed to a property bubble before the credit crisis, bucked the trend, with top properties selling for 5% more so far in 2009.

But the worst of the crisis for top residential property prices in London and other prime locations outside of Switzerland appears to be over.

Knight Frank, the upmarket London-based estate agent, said that 30% of its deals in the prime central London market were sealed in October and September. Savills, another exclusive London estate agent, reported a similar rise in activity during the same period.

“People are coming to us with saddlebags laden with money,” said Trevor Abrahmsohn, who runs estate agency Glentree, which sells houses on one of the capital’s most expensive streets, Bishops Avenue.

“They have made up some of their losses in gains in the equity markets and, with such low yields of cash, are being more aggressive with their investment strategies,” Mr. Abrahmsohn added.

Forty percent of properties Glentree has sold so far this year have been in the last two months.

Property lawyers are saying activity is being helped by many wealthy investors buying prime residential property in Europe for investment reasons.

“They like the direct investment opportunity of buying residential properties in cities like London,” said Henry Stuart, a partner and property specialist at private client lawyers Withers. “Right now, they see property as transparent, tangible and useful — they do not share the same optimism towards indirect investments.”

Mr. Stuart said activity has been particularly strong around the £1 million to £2 million market in central London. Withers also worked on six of the 10 houses sold for £10 million-plus in central London in the second quarter of this year.

Many wealthy buyers are taking advantage of cheap mortgage deals to finance purchases.

“Buyers see prime property as a low risk means of generating cheap capital,” said prime London property consultant Charles McDowell. “There used to be an image issue. It was thought that people who borrowed to buy didn’t have deep enough pockets. Now clients are very keen to hang onto their money and borrow to buy. They want to stay liquid.”

Mr. McDowell said two thirds of the deals he has worked on worth £5 million and more were financed by mortgages. “This is a far higher percentage than would have been purchased with mortgage finance in previous years,” he said.

At least 50% of buyers for prime central London property are coming from abroad, say estate agents. Middle East and Asian buyers are active, and continental European buyers, buoyed by the strong euro are also driving demand. Knight Frank said the introduction of the Italian tax amnesty, which came into force in October, was instrumental in fueling purchases from wealthy Italians.

The estate agent said there has been a quadrupling of the number of Italian buyers looking for London property and they now comprise 38% of European buyers in the city.

Weak sterling and the desire to own a “trophy” house in central London might be behind much of the demand for prime property in the U.K. capital, but in Switzerland prime property purchases are being driven by Europe’s wealthy looking for refuge from tougher tax regimes. With a number of European countries imposing higher taxes on their wealthy citizens and removing loopholes for nondomiciles, as well as the threat of higher taxes hanging over many other economies, Switzerland’s low tax environment looks increasingly appealing.

“We are advising more wealthy Europeans about moving to Switzerland than ever before,” said Robert Ferfecki, managing director of Henley & Partners, a residence and citizenship planning consultancy based in Zurich. Mr. Ferfecki added that foreign demand for top properties in Switzerland is as strong as it has been for years.

Despite prices coming off from their 2007 highs, demand for prime properties in Monaco remains buoyant. A number of apartments in the principality were placed on the market for a staggering €50 million last summer, helping to cement Monaco’s reputation as the world’s most expensive place for residential property.

“Demand is coming more for studio and one-bedroom properties, between €1 million to €3 million,” said Jean-Claude Caputo, head of Riviera Estates, a Nice-based estate agent. “Although we have also seen three sales for more than €10 million this year.”

Mr. Caputo acknowledged that the Monaco property market has seen better years, but said properties in the South of France are more in demand. He said: “International money continues to flow to places like Antibes, St. Tropez and other exclusive areas — and this is where the real demand is in the region.”