London prices rising

There are some big bonus payments floating around the city of London at the moment. Property investors are jumping on to the band wagon and making huge profits. With big bonuses likely again next year, City high-flyers are looking for properties. UK and Europe property expert Andrew Stefanczyk explores the issue in his latest column.

The surge in the prices of property in the most prestigious parts of London looks set to continue next year amid predictions that next season's City bonuses will be even bigger than the existing record amount — estimated at £19 billion by the Office for National Statistics — which were awarded at the start of this year.

Huge payouts to bankers, hedge- fund managers and others in the financial sector have been an important driving force behind the recent massive price increases in what is known by agents as "prime central London".

Savills Residential Research confirms that prices in the most sought-after parts of the capital rose by 10.5 percent in the first half of 2006 — the highest rate of increase since 2001; in areas such as Notting Hill, Kensington and Holland Park, especially popular with City high-flyers, prices soared 22.5 percent. They are still rising, although at a slower rate.

A survey by Morgan McKinley, banking recruitment specialists, suggests the next round of bonuses, due to be paid in January and February, are likely to be much higher. Some 28 percent of City workers polled expect next year's payments to be half as much again as this year's, while a quarter think they are going to at least double.

Robert Thesiger, chief executive of Morgan McKinley, says 2006 has been another great year for the City. "Most employees will now expect to see the rise in corporate profits reflected in all of their bonus payments," he says. "More than ever this season, banks will be using bonuses as a key to retention and as an attraction tool."

Despite concern among some economists that prices in London, in particular, are reaching unsustainable levels, this mass injection of money into the top end of the market is expected to outweigh the negative effects of this year's interest-rate rises.

London's estate agents are already looking forward to another wall of money. "Bonuses are definitely a hot topic this autumn," says Lindsay Cuthill, head of Savills's Fulham office and regional director for southwest London, who estimates that more than 45 percent of sales in the past 12 months in his area were bonus-related. He was speaking after spending the morning with the wife of a banker who was "extremely excited" about his bonus package this year.

Some agencies, such as Chard, which operates in west London, are setting up dedicated teams to target the new round of wealthy buyers. "It's not just the top of the market. I get at least half a dozen calls a day from buyers who are looking to spend smaller bonuses of £100,000- £200,000. They're entering the market with gusto now," he says.

An equity trader, with around £50,000 bonus to invest, Dyson suggests, might typically go for a £250,000 one-bed apartment; a senior trader with £100,000 might go for a two-bed apartment in Ladbroke Grove at £425,000; while a broking floor manager with £250,000 might buy a refurbished two-bed apartment in Queen's Gardens, Notting Hill, for £750,000.

In some cases, buyers are getting in early, taking out bridging loans against next year's bonuses to allow them to buy right now rather than compete with their fellow City workers in February. Coutts, the top people's bank, has reported a "massive" increase in demand for such financing.

Potential buyers are also increasingly prepared to pay commissions to property finders and buying agents. Use of such intermediaries also allows them to retain remain anonymous.

Nor is demand likely to be restricted to the capital. "The growth in property prices is spreading from London," says Yolande Barnes, head of residential research at Savills. "The prime country-house market has also started to surge ahead, following virtually no growth last year. Most of the strongest growth was seen in the home counties and especially in the market for 'trophy mansions'."

George Hyde, a partner in Knight Frank's country house department, says that some people have still not spent this year's bonuses. "For every £1m-plus property put on the market, we easily see at least 30-50 buyers," he says. "People have had to spread their net far wider than before and should expect competition for the best houses."

This is all great news for property investors who specialize in buying run down property in London and then reselling during the 'bonus' season. There are literally millions of pounds to be made in this market.

Where the money goes
• Area / City buyers as a percentage of all buyers in 2005-6
• Prime central London 52.5 percent
• Prime Docklands 51.9 percent
• Prime southwest London 44.7 percent
• Prime home counties 30.5 percent
• Prime north London 28.0 percent "Ubertowns" (Oxford, Cambridge, Winchester) 20.6 percent
• Rest of prime UK market 16.7 percent
• All prime markets 28.5 percent

If you have a question or comment for Andrew, email him here.

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