The purchase of a 140 million pound ($259 million) 16,000 square foot unfurnished penthouse at the One Hyde Park apartment block by an unnamed buyer has made waves throughout the London real estate market. Developer CPC Group says the penthouse, when fully furnished may be worth up to 175 million pounds. The record setting transaction has some experts warning that the trend of rising prices may not be sustainable.
Some wonder if there is a risk of a real estate bubble coming to London with such sales and rising prices.
Development manager and interior designer of One Hyde Park is Nick Candy of Candy & Candy. He has said, “We’re in boom-time prices, more expensive than we’ve ever been in the history of mankind.” He went on to explain that the high prices that London is seeing may be unrealistic and may not last. Talking to Reuters, Candy explained the dangers of the perception of a market stronger than it might be saying, “Everyone thinks the main central London is doing so well, (so) the ripple effect is going throughout the UK, and some of the prices being achieved are probably unrealistic and not sustainable.”
Money coming into London from sources outside the city like business leaders, sheikhs, and oligarchs has made a dramatic impact on the market, making it one of the most costly markets in the world. This may be why the British government recently has put forward new taxes on buyers from oversees.
And as prices continue to rise, London locals may be at risk of being pushed out of the competition. According to property consultant Savills, 10 London districts together have the combined real estate value of Scotland, Wales, and Northern Ireland.
Real estate prices are still in the process of recovering from the 2008 financial crisis. And as prices continue to rise at about 10% annually there are some at the Bank of England that are saying that the economy in general may be at risk. Prices in poorer regions of London are seeing dramatic price increases. And while the greater London area has seen real estate prices rise by about 40% since 2009, prime real estate in central London has risen by nearly 80%.
An indicator of how quickly market prices are increasing can be seen with the last record holder from only three years by Rinat Akhemtov, a Ukranian billionaire. Akhemtov bought a penthouse and apartment, turning them into a single unit, and paid a then record 136 million pounds. Like the current record setter, the property was purchased at One Hyde Park. In fact, One Hyde Park has seen more than $2 billion in property sales.
CPC Group and Waterknights, in a joint venture, are the developers of the One Hyde Park apartment block. CPC Group is run by Christian Candy while Waterknights is owned by Qatar's Sheikh Hamad Bin Jassim Bin Jabor Al Thani.
Changes in the market may not happen unless changes are made elsewhere.
Nick Candy has said, “I don’t see a massive correction unless a number of things happen, firstly a change of government, second of all, interest rates start going up high and inflation starts going.” He added, “If the political climate changes in either (London or New York), so in London next year the government wants to charge mansion tax and other taxes, the market might change. They might have a correction, a significant correction,”
As prices continue to increase, more and more luxury developments are being made, with 20,000+ residential homes that are priced at more than 1,250 pounds for square foot slated to be developed over the next decade. This may be in response to the proposed tax on houses worth over 2 million pounds. The proposal is by the Labour Party which is currently in the lead in public opinion polls.
Some groups, like Grosvenor Group, who holds a considerable portion of properties in London's Mayfair and Belgravia districts has confirmed they sold about 240 million pounds of high end residential real estate in 2013. They plan to focus on cheaper regions of the city because of the vulnerabilities faced by such luxury properties.