London and Paris - Real Estate Realities podcast

Whether you're buying, selling, or investing in prime property is now the right time? Are we headed for a downturn in prices? And which markets will remain the most resilient? Tune into Real Estate Realities, the new podcast series from Barclays Private Bank, where we give you the inside track on prime and super prime residential markets. We uncover the trends and the opportunities. As global events evolve, we analyse the data and ask the experts for their opinions and insights into what's next for prime property.

Zoe Dare Hall (ZDH): Hello and welcome to Real Estate Realities from Barclays Private Bank, the podcast series that looks at prime and super prime residential property through the shifting market conditions shaped by the COVID-19 pandemic and the global economy. I'm your host, property journalist, Zoe Dare Hall, and in this episode, my guests will discuss the outlooks for London and Paris as these and other capital cities cautiously emerge from their respective lockdowns.

So, first of all, let me welcome from Savills estate agency, Sophie Chick, Head of Department for World Research.

Sophie Chick (SC): Thanks Zoe, it's lovely to be chatting with you today.

ZDH: Hi, Sophie. Also joining us is Jo Eccles, Managing Director of Eccord, the London-based buying agency and property management firm.

Jo Eccles (JE): Hi Zoe, it's great to be with you again.

ZDH: And from Paris, we welcome Susie Hollands, founder and CEO of VINGT Paris, a full-service real estate company that specialises in prime sales and rentals.

Susie Hollands (SH): Hi, Zoe, glad to be here. Thank you for asking me.

ZDH: And then joining us from Barclays Private Bank is product and proposition director, Stephen Moroukian.

Stephen Moroukian (SM): Thanks, Zoe, it's great to be with such an expert panel today.

ZDH: Before I come to my first question, it's probably worth stating the obvious. It's been an incredibly unusual year for property markets in general, with a huge amount of change in the prime and super prime markets in particular. And in fact, the predicted drop in prices and activity was so short-lived during the first lockdown last spring that it seems like a bit of a blip now.

Almost every property agent I've talked to over the past year has reported record activity. And while a lot of that activity has happened outside of cities, it seems that the appeal of city living isn't going away anytime soon. Sophie Chick, I know you've been looking at some of the trends emerging in what Savills call 'Tech Cities' and your latest report identifies both London and Paris as 'Tech Mega Cities'. Can you explain what defines a Tech Mega City and how does that designation shape longer-term demographics?

SC: Yes, of course. So, our Tech Cities programme is all about what tech talent is looking for both in terms of a place to live and a place to work. And in our latest edition, we actually looked at different tiers of tech cities. So we had three of them: there's Tech Mega Cities, Tech Lifestyle Cities, and then Rising Global Tech Contenders.

So as you said, London and Paris fit into the Tech Mega Cities category, perhaps unsurprisingly, and what that means is that they're big global cities with populations over five million. They're primary tech hubs. They attract the lion's share of venture capital, VC investment. They have lots of different attributes like leading higher education, vibrant neighbourhoods, but on the flip side this does mean that the cost of living in these cities is usually higher than the national average.

Now, we have 16 cities in this category and actually London and Paris are the only two from Europe. We have four cities in America, places like San Francisco and New York. And the list is really dominated by Asia. There are 10 cities over there, the likes of Singapore, Tokyo, and six cities in China alone.

ZDH: So London and Paris are in good company globally. It sounds as though the flight to the countryside perhaps won't have as big an effect over the long term as it was looking around the middle of 2020. I mean, that was the time when big properties with home offices and large gardens were topping the searches and increasing in value. Jo Eccles, could you give us a snapshot of prime London? What were the headlines from 2020 for you?

JE: In 2020 London has proven itself to be incredibly resilient. We saw an unexpected surge from buyers, post the first lockdown, many of whom were looking for more space to accommodate the work-from-home balance and also outside space. Properties with gardens or communal gardens have been commanding a premium.

We saw the value of homes with medium or large gardens increase by more than 4% in 2020 versus 1.6% across the rest of prime London. These lifestyle changes have been coupled with pent-up demand from the past five years, since the Brexit vote, and together they created a very strong momentum over the summer.

As in any time of uncertainty, we're seeing a flight to best-in-class properties, and we've even seen cases of bidding wars in some instances, plus also a large layer of properties being sold are being done very discreetly and off-market. Interestingly, we saw no mortgage down-valuations at all last year and only one repossession, which was entirely unrelated to the economy. One of the interesting points to note is the difference in how the buyer profile has shifted.

We've seen very little appetite from international buyers, which has really levelled the playing field for domestic buyers. We've also seen some people doing U-turns, where they've decided to leave London and rent or buy in the country during the summer months. We are seeing some return now though, which is interesting. London clearly has its draw still.

There have definitely been clear COVID winners and losers in terms of areas. Traditional prime central London, such as Mayfair, Knightsbridge and Belgravia, have seen prices really struggling on both sales and rentals. In these areas, demand is very international-driven and they're also quite discretionary transactions – the demand from internationals just isn't there.

We do believe they will come back, but they're just not hungry enough right now to buy remotely. In terms of the COVID winners in prime outer London – for example, Richmond, Hampstead, Wimbledon, St. John's Wood and Notting Hill have all been really big winners and the biggest increase in demand has been for family homes, particularly the larger ones with gardens.

ZDH: That's interesting. I suppose a lot of people will find that that country idyll that they'd dreamt of doesn't actually quite offer them what they want in the end. Susie Hollands, it seems that some Parisians have also been looking beyond the city during lockdown.

SH: Well, they definitely have, but Parisians of all classes actually tend to have a country home as well as a city pad. A lot of them managed to escape before the intense first lockdown, where we were under house arrest for 23 hours a day if we stayed in Paris, which I did. And if you were stuck here, that was three months, but a lot of people already had a country place. Usually it's a family home that they share with siblings.

So, I don't think that there has been such a flight from the city here, certainly not in the prime sphere. In the prime part of the market – those people who own very prestigious properties in Paris will never not have a home in Paris. They need one because they entertain and do business here and they didn't sell. There was actually, again, a lack of product, a lack of stock in Paris for the last five years and it's only intensified with the 2020 situation.

So that's I think the big reason why our prices have just wobbled, but not really changed much, given that there's just never enough good property. And we have, basically, a battle between French and internationals to obtain the best stock. So, that's Paris at the moment.

ZDH: And Susie, what about prices? Paris has been such a strong market for so many years now, and I know there was a historic dip in house price growth in the third quarter of last year. What's the market looking like now?

SH: Well, the price dip, I would say was quite ... The marked thing that affected us was that financing became much more difficult to obtain. So it was difficult for buyers to position themselves and there were quite a few people who didn't get mortgages they were counting on. Then there was a drop in the number of transactions. But at the top level, we haven't seen much difference in properties, let's say around five, six million euros, which would be those that are attractive for the international buyer looking for something special.

They are still even being sold close to asking price with maybe a five percent discount. So we haven't noticed a big dip in prices for property that have a very good address and a lack of defects. The market was a little bit overblown, so there's been a correction for the kind of properties that were overpriced for having defects like lack of an elevator or a courtyard view rather than a lovely view on an open street.

It's the 'bad' properties that have been more difficult to sell and for those there's been a correction. So yes, the Paris market is incredibly resilient and the average price for prime property in Paris is still around 20,000 euros a square meter, and does go up in certain locations to 40,000 euros a square meter and has barely corrected during 2020.

ZDH: Thanks, Susie. I'd like to ask for some broader economic insights from Stephen Moroukian now, to put this positive property news into perspective. So, let's just touch on inflation first, which is on the rise, albeit a small rise, after a four-year low last August, and that looks likely to continue throughout the year. So, what sort of effect might inflation have on property markets in general and on prime markets specifically?

SM: Thanks, Zoe. Well look, we need to look at the wider economic context to put that small percentage rise in inflation into some sort of perspective. Despite recessionary indicators, the UK property market as a whole has remained resilient. There's obviously been some government intervention in certain parts of the market that has touched a little bit of prime.

As for super prime, that story in all three lockdowns has been about the domestic buyer, which Jo's already highlighted. And the overseas investors, whilst they have been out of the market or have been constrained from entering the market, they will likely return to prime, both London and Paris, regardless of inflation, as both of those global centres open up over the next quarter or so.

ZDH: Well, yes, that's a really important point because there are just certain sectors, financial services in particular, creative industries, that can't be transplanted to smaller centres for those reasons. So Stephen, let's just talk a bit about some economic reasons to be cheerful as we gradually come out of lockdown. What are the market drivers in these unusual times ahead?

SM: Well, we've got the obvious ones that we can think of – the steadying effect of the Brexit trade story that will have a positive effect on the market. We've got the COVID-19 vaccine confidence and that's really coming through now. It remains to be seen when and how city workers will be able to return to the office, and that whole entire ecosystem that sits around that particular piece is quite important.

And there was sentiment of a negative-rate environment in the UK, in a post-vaccine recovery, and as we sit here right now that does seem less and less likely. So I think there's a lot of positivity out there, in terms of those particular market drivers at the moment, Zoe.

ZDH: Well, yes, the predicted hike in capital gains tax was rather overshadowed by bigger COVID recovery headlines, in this recent Budget. I suppose we'll just have to see how that plays out in coming months. Thinking about planning ahead, I wonder whether the experience of lockdown has given buyers and sellers more confidence about moving ahead with big life and property plans. Jo Eccles, what's been motivating your clients?

JE: Yes, Zoe, absolutely, COVID has made buyers really question their lifestyles and made them focus on making much longer-term decisions about how and where they want to live. And on top of lockdown, real-life events are also driving purchases and sales, for example, divorce, upsizing, downsizing, moving for schools and so on. In some cases we've seen buyers accelerate plans to move out of London, which they were planning to do anyway, but have brought that forward.

And in other cases, many buyers and sellers have concluded that life's too short. Many of them have put off buying plans for so long now, particularly since the Brexit vote, and the lockdown experience has given them the impetus to make life decisions and commitments. We're seeing some sellers being very pragmatic and are accepting lower offers in order to enable their sale and an onward purchase.

For many buyers, the emphasis, as I said earlier, is on the need for more space and in a prime location. And a lot of the buying clients we represent have decided to go all in with their property purchase and buy something that ticks all the boxes. Like a bigger garden, two studies, gym, pool and so on – everything they need to meet a post-COVID lifestyle. For example, we recently acted for a hedge fund client whose budget pre-lockdown was five million pounds.

And as we emerged from the March lockdown, he increased it to just over nine million. And his lockdown experience had made him realise that he wanted more than what his original budget would buy him.

The best-in-class properties are commanding premiums for this reason. We acted for another client who bought a very large gated house with a garden in St. John's Wood and we exchanged contracts in December. And in between exchange and completion, our client was offered 450,000 pounds more by another buyer if he would sell the house onto him before completion. And this is just one example showing the premium that buyers will pay for best-in-class.

ZDH: That's amazing. It's definitely not the kind of deal you hear about every day. What else are your clients asking for that chimes with this going-all-in philosophy? You must be, for example, seeing a lot of big refurbishment projects taking place after the deals have gone through.

JE: The change in our client's requirements has been fascinating to watch. Over the past 12 months, we've been acting for buyers who are demanding many different things, either buying new properties to meet those needs or seeking to alter where they already live. There's been a lot of emphasis on bigger space, different living zones, for example, separate offices for two working spouses.

At the higher end of the market, more and more buyers are looking for private space for live-in nannies, housekeepers and other household staff. We've also had clients needing to house elderly parents.

A few of our searchers have been very keen to have charging points for their Tesla cars and we're seeing clients wanting gyms, pools, parking, a separate room for their Peloton. And in a way, buyers are trying to create a self-sufficient lifestyle. Again, either buying it themselves or altering where they live ,and it's caused a real spike in super prime refurbishments, which often take one to two years to complete.

So as a knock-on effect, we're seeing demand for super prime rental properties. For example, within the portfolio of rental properties which we manage for landlords, we have rented two properties for 20,000 pounds a week and 35,000 pounds a week to families who are refurbishing their homes nearby. So there's been a lot of activity in prime and super prime, and buyers are definitely thinking more long-term

ZDH: That's really interesting. We've heard a lot over the last year about self-sufficiency and multi-generational living coming full circle, which has to be a positive trend. Sophie Chick, I want to come back to you because I know you have a lot of insight into why cities are so appealing. If we're all moving towards this state of self-sufficiency, couldn't we do that from anywhere? Why do people carry on gravitating to cities?

SC: So this is really topical at the moment. There's so much speculation about the future of cities. I'm personally really optimistic. Cities are resilient. They've evolved to be as they are for a reason. And when the pandemic has passed, the draws of cities will still be there – the heritage, the culture, entertainment, access to international travel, the list could go on and on, but there's also a real opportunity for cities to evolve.

People's priorities do seem to have shifted during the pandemic and there's now this focus on environment, wellness and community. And one focus is making cities more walkable, and that's actually vital to improving health, cutting transport emissions and also building these stronger local communities. But very few cities give pedestrians priority and actually, most are dominated by cars.

Now, we did see this shift slightly during COVID, cities around the world were introducing measures to encourage more walking and cycling and we saw it happen in both London and Paris, for example.

And this is a great first step, but actually we can go further. To really create cities with fewer cars and less reliance on public transport, we need to have a look at the layout of cities and potentially how that needs to be adjusted. We need to look at neighbourhoods that can meet most people's daily needs. So, things like shops, schools, parks, even workplaces just a walk or a cycle away. This is of course that 15-minute city concept that is being widely talked about and adopted in cities around the world, most notably Paris.

ZDH: Yeah. The 15-minute city idea does really sound ideal in many ways. I have another question for you, Sophie, and that has to do with remote working, which is certain to be with us for the foreseeable, now that we've been doing it for a whole year. Do you predict a rise in the city pied-à-terre market on both sides of the Channel?

SC: I think, once the pandemic is over, what we'll see is a sort of hybrid of home and office working – that's definitely what all the surveys are pointing to at the moment. So yes, I think we could see more and I actually think that the term 'holiday home' or 'second home' is likely to change when you're referring to the house in the country, if you own both.

And we may see that country home becoming the main residence and actually the London or Paris pad used for weekends or a few days in the city, to make the most of that culture and hospitality.

ZDH: Susie, can you tell us a bit about the clients you're seeing from overseas? Where do they tend to come from and are they wanting primary residences or are they buying second homes or pied-à-terres?

SH: Yeah, they're absolutely buying second homes and pied-à-terres. I'd say 90% of our buyers in Paris are looking for something special that they will use part of the year, not just once a year. Sometimes they come and stay for up to six months. We always have had many customers from North America, some South Americans and lots of people from London, which for us is a sort of international hub that's close by.

Not necessarily Brits, but definitely international customers based out of London, whether Middle East, Asian or some Brits and some returning French people who happen to be in London working but want to buy something in France.

ZDH: And which arrondissements are particularly appealing for UK and international buyers, and what kinds of properties are they looking to buy in prime Paris? Is it the traditional Haussmannian city-centre apartment with a private cobbled courtyard?

SH: Those are definitely always appealing. The Left Bank has a very strong pull for most of the international buyers, and French. So there's this competition aspect and probably the best properties in Paris are in the 6th and the 7th arrondissements, close to the river. River views are always highly sought-after. The other thing that people frequently ask for is the classic apartment with the very high ceilings and great volumes, with a view as well. Why not?

SH: Those are the kind of apartments that we are seeking and when we're retained as a buyer's agent, those are the ones that we have to go for, and there's not that many of them around that tick all the boxes. A lot of our customers want AC, which is pretty hard to find in Paris, and elevators are not always in all the historic buildings.

ZDH: Thank you. I think that's exactly the picture we have of the kind of Paris we all want – the high-ceilinged historic apartments, coffee on a balcony overlooking the rooftops. It's interesting how robust the Paris market has been and also without the benefit of a stamp duty holiday, like we've had here in the UK. So, Stephen Moroukian, let's just talk about that for a moment.

What's your view on the extension of the stamp duty holiday, which of course has triggered so much extra activity here. Will all of those extra transactions have a trickle-up effect on prime and super prime sales?

SM: Well, you're right. Zoe, the stamp duty extension certainly moves what was a cliff-edge concern further down across the calendar. It's also tapering off at the end of the year. And at this particular level, the relative saving is negligible and it's much more a sentiment-driven piece in terms of its effect on the market. And the fundamentals continue to remain strong, which will bolster confidence as we go through Q3 and Q4 this year.

We'll observe things like international travel and, really important, the return of international students. And of course that reframing of the new normal, which will be different to the environment we're in today.

SM: I think it's also very important that we look at the economic factors that we've got on the go at the moment. The end of the furlough scheme is clearly something that many commentators and observers continue to keep a very close eye on, and that will drive especially which high street first movers will start to announce their plans. And of course what that means for unemployment and things of that nature as we enter the next economic cycle.

ZDH: And clearly, agents in London are waiting expectantly for the return of international buyers from Asia, the Middle East, the US. Will these buyers be thinking about the relative value of sterling on the euro? Is there an advantage for cash buyers looking to diversify into high-value property in the UK or France?

SM: Really good question, Zoe. I think the pound and the euro clearly remain relatively strong, and sterling is doing some really interesting things right now also. Investors that are buying in a basket of other currencies certainly could find good value, especially in the super prime markets. I think the question is how long will that value last and how long will that look good? I think that remains to be seen.

And certainly, for me personally, I know investors looking at London right now that I'm talking to, they're wondering whether that window is closing and whether the very best opportunity for that was in 2016 and again in Q1 2020, but the sentiment certainly remains that there's a value to be had over the coming quarters.

ZDH: Thank you. I mean, there are two great cities that will always attract talent and investments. So, it's really a question for our listeners – will it be London or Paris, which would you choose to invest in? I suppose the answer really is both, if you can.

ZDH: I'd like to thank all of our guests for their brilliant insights and here's to our capital cities coming back stronger, if slightly different, when we've all had our vaccines and can really get to grips with city living again. So, thank you to Sophie Chick, Head of World Research at Savills.

SC: My pleasure, Zoe. I can talk about cities all day long, so thank you for having me.

ZDH: Thank you to Jo Eccles, Managing Director of Eccord. It's great to have you here with us again.

JE: Thanks, Zoe. Pleasure to be back again.

ZDH: And thank you to Susie Hollands, CEO of VINGT Paris.

SH: It's been brilliant, Zoe, thanks and hopefully see you on the Eurostar soon.

ZDH: And thank you to Steve Moroukian, Product and Proposition Director at Barclays Private Bank.

SM: My pleasure, Zoe, and thank you to all our guests as well.

ZDH: And that's all for this episode. Please join us next time when we'll be taking a trip into the UK countryside to revisit what's been happening in prime and super prime property in all that fresh air. I'm Zoe Dare Hall for Real Estate Realities, and thank you for listening.