LONDON // It is fitting that the Dubai developer Damac Properties chose Knightsbridge in which to build its London show apartment.
The display unit, just opposite Harrods department store, is a replica of a Versace-furnished flat at the planned Aykon London One development, Damac’s first outside the Middle East.
On the street below, shoppers from the Arabian Gulf flock to the local stores and luxury boutiques. There are bargains to be had following the UK’s Brexit vote in June, which prompted a dramatic devaluation of the pound: according to research by Deloitte, London is now the cheapest place in the world to buy a Louis Vuitton handbag.
Knightsbridge is where visitors from the Middle East come to buy luxury goods – and they’re getting more and more bang for their buck or, indeed, dirham.
And the trend with Louis Vuitton handbags, it seems, also applies to London property.
Estate agents say the decline in the value of the pound since June 23 – the drop stood at 17.3 per cent as of Sunday – has spurred interest among Middle Eastern investors. The picture is complicated by forecasts that London property prices will fall further, reports of wary sellers delaying transactions, new taxes on upmarket homes and wider uncertainty over the UK’s exit from the European Union.
Damac’s Aykon London One, which is to be built in the Nine Elms district south of the River Thames, is set for completion in 2020. When it was launched on July 20 last year, starting prices for flats stood at £700,000. That would have cost you a cool Dh4 million at the time; today, £700,000 converts to a mere Dh3.1m.
Tim Fallon, the vice president for international corporate communications at Damac, acknowledged that the Brexit vote had created an initial shock in the market. But he said appetite is still strong, with London property considered a long-term investment.
“Yes, there was a shock in the very beginning, but especially with the weaker pound people took that as an opportunity to buy in London at a lower price,” he said. “The London market is being looked at not purely from an investment point of view. It’s more about the security, safety and a long-term holding, rather than as a short-term market.”
Mr Fallon said that 44 per cent of the units at Aykon London One have now been sold to local and international buyers – with the number of inquiries spiking last month.
“We thought it was going to be predominately foreign GCC buyers. But because of the Versace Home association we had a big chunk looking at it from London itself, local buyers,” Mr Fallon said. “Clients are very excited. They see an opportunity with the lower pound. They see that developers are more flexible today, offering payment plans and on prices. So they are seeing an opportunity, they are seeing greater value.”
The wider Battersea and Nine Elms district, where Apple’s UK headquarters and the new US embassy will be, has about 20,000 units in the pipeline.
But there have been concerns over potential oversupply in the area, along with price cuts and some foreign investors reportedly deserting the scheme. The London-based property research and analytics firm Propcision earlier this year reported discounts of up to 38 per cent on some properties in the area.
“Foreign investors certainly will be proceeding cautiously and considering all factors before investing in new-builds in Nine Elms [and] Battersea – an area that has seen an exceptional number of new apartments being brought to market in a concentrated area within a relatively short time span,” said Michelle Ricci, a co-founder of Propcision.
“Those foreign investors willing to take the risk will certainly be scrutinising purchase prices to ensure insulation from further price erosion.”
Ms Ricci said that low sterling prices do not necessarily mean a resurgence in foreign investment in UK property. She pointed to the falling prices of new-build properties in the prime central London market and said investors always have the option of forfeiting deposits to cut their losses.
“Investors need to believe that sterling will rise, and not sink, against their home currency. Furthermore, investors need to believe that the property will appreciate over the duration of their investment,” she said. “The economic and political climate in the UK has changed since Brexit in that there is short-term uncertainty for the UK economic growth. Since late 2015, new-builds in prime central London have experienced continued downward price pressure.
“Both the UK economy and prime central London property market will need to demonstrate stability in order to make investments attractive again.”
Damac said that most buyers of units at its London development are viewing it as a long-term investment. “They’re not flippers,” said Mr Fallon. “The way we see it, this is extremely healthy.”
Other housebuilders and commentators agreed that the slump in the pound has prompted interest among foreign property buyers.
Alistair Shaw, the managing director of the Television Centre residential project for the developer Stanhope, says the conversion of the former BBC building in West London has attracted foreign buyers, including a few from the Middle East.
“It’s a good opportunity at the moment for foreign buyers to take advantage of the weaker pound. And we’re certainly starting to see that. In fact we’ve had a reasonably buoyant summer,” he said.
Dana Salbak, an associate partner at property company Knight Frank in Dubai, said the devaluation of the pound had indeed boosted interest among Gulf investors. But she said that some sellers are proving to be reluctant to transact in the wake of the Brexit vote. “Currency is playing a significant role in spurring interest from buyers denominated in foreign currencies, particularly those pegged to the [US dollar] such as the Gulf states,” she said.
“In the two months since the vote, inquiries for London prime properties have remained active. However, many buyers have sought asking price reductions before closing deals. In turn though, the majority of sellers are adopting a wait-and-see approach before compromising on price points. This has undoubtedly affected transaction volumes,” she said.
The forecast of future property price declines further complicate the picture for potential Middle East investors.
House prices in Greater London are expected to fall by 1.25 per cent next year, according to the estate agency Countrywide. And rival Savills expects prices for prime central London properties – such as many of those found in Knightsbridge – to drop by 9 per cent this year and stay flat next year and in 2018.
Ms Salbak said increases in taxes – or “stamp duty” – on some properties and other tax changes had already affected the prime London market. “Higher stamp duty saw transactions fall by an average of 5 per cent in the five years to March 2016, particularly in areas like Kensington and Chelsea and Camden,” she said.
Naomi Heaton, the chief executive of the London Central Portfolio, a specialist residential property adviser focusing on prime areas of the UK capital, also said that the top end of the market had been affected by the tax hikes. In April last year, the UK introduced a capital-gains tax for overseas property investors, requiring them to pay a percentage of the uplift in a property’s value when they sell.
“The luxury end has been hit by three successive stamp duty rises in four years and taxes specifically hurting foreign investors. Price discounts are almost inevitable,” said Ms Heaton.
But prime central London property remains “very compelling” for Middle Eastern investors given many countries in the region have dollar-pegged currencies, she said.
“Middle Eastern investors have particularly benefited,” said Ms Heaton. “Within the new-build and luxury sectors, investors are seeking out only the very best opportunities and then driving hard discounts.”
The overall London market remains “highly fragmented”, with submarkets reacting differently to various domestic and global “headwinds”, Ms Heaton said. “One certainty in the London property market is that nothing is certain,” she said.
Despite that and the uncertainty over the timing and terms of the UK’s exit from the European Union, Damac’s ambitions in London remain on track.
Hussain Sajwani, the Dubai developer’s chairman, speaking before the Brexit vote, said that the company had viewed at least 30 other sites in London for a future development. “We want to be among the three biggest property developers in London within five years,” he told the Financial Times in March. “We are there for the long haul.”
Additional Damac projects in London remain on the cards, even after the Brexit vote. “We are very much looking at many sites in London,” said Mr Fallon. “We think … we will find more opportunities, and more realistic opportunities. Rather than a year ago, when it was more expensive.”
And so London property, like Louis Vuitton handbags, could still be in fashion for some seasons to come.
Follow The National’s Business section on Twitter