Luxury property values in central London fell for a fifth month in September following a round of job losses at investment banking firms

Central London Property Prices Falling

It has long been the case that central London’s luxury residential property prices rely almost exclusively on super-sized City bonuses. When Lehman Brothers filed the largest bankruptcy in history last month, more than eight hundred jobs were lost at the investment banking firm, with more losses expected soon. The City of London Corporation estimates 42,000 jobs in banking or financial services will disappear over the next year.

According to an index compiled by Knight Frank LLP, the estimated average value of a house or apartment in the city’s nine most expensive neighborhoods fell another 1.8% from August Property values declined 4.5% from September 2007. The index covers homes mostly valued around £1 million ($1.8 million)

It’s unsurprising that confidence is still low in the housing market, especially bearing in mind that prime London buyers are disproportionately drawn from the financial services industry.. Luxury homes in central London will almost certainly continue to decline through 2009 and won’t recover until 2010, bringing their decline in value since September 2007 to about 15%. Liam Bailey, head of residential research, Knight Frank

Which is actually rather an optimistic estimate, considering that a recent report by Nationwide Building Society show prices have already fallen 12.4% in the last year across the country.

Even the “super prime’” properties costing over £10 million fell in value from August. The smallest monthly decline was for homes worth less than £1 million. Central London’s luxury residential real estate market has joined the slide in values affecting the rest of the U.K. London and southeastern England accounted for more than 75% of sales of £1 million+ houses last year, according to  HBOS Plc.

Certainly the short-term outlook is not positive with City experts predicting that borrowing could become even harder than lenders have admitted, since the Bank of England quarterly survey of credit conditions released yesterday was carried out before the past two weeks of financial turmoil. Almost 40% more lenders told the Bank that the availability of secured loans such as mortgages had grown worse in the past three months than said it had improved; 17% more lenders said that secured loans would be harder rather than easier to come by in the next three months.

With Dubai government owned property investment company Limitless pulling out of a deal to buy stricken London-based property developer Minerva, and rumors of foreign investment companies needing to liquidate their portfolios quickly to cover cash-flow short falls, it would seem London is going to be hit at least as hard as the US.

• Knight Frank
• Nationwide Building Society - PDF Dowload
• HBOS Halifax House Price Index - Word Document download

With eyes fixed firmly on Wall Street and the proposed $700 billion bail-out, most of us are probably wishing we had gone to merchant banker school instead of whatever vocation we chose. I know I am - I can only imagine just how much of this money will end up being paid out as “consultancy fees,” to unemployed bankers with Manhattan mortgages to pay. In fact I think I will drop whomever ends up with the blank check book a line and see if they need a luxury real estate consultant. I promise to overvalue everything by at least 50%, suggest a 250% mortgage - 3% interest for 5 years and guarantee it will be worth that much by the time the interest rate goes up to 18%. And if that doesn’t work, we can just ask the fed for another handout.

Whichever way it falls, a look further westward gives an indication of the effects that are now starting to be felt in the luxury property markets. Tough times call for tough marketing, and Scott Franklund, President of Legendary Properties Sotheby’s International Realty, is hosting the Sotheby’s Fall 2008 Luxury Real Estate Sealed Bid Auction in Boulder, Colorado.

According to their press release, this luxury property auction will present over $16,000,000 in inventory, with, as far as I can tell, realistic opening bid requirements. These are not the type of properties one usually sees with a mortgage attached, and Mr. Franklund was eager to point out that this is by no means a foreclosure situation.

We feel that an event like this will help stimulate the luxury property sales in our area. We are spending upwards of $100,000 in marketing this event which will bring in buyers from all over the nation and possibly the world. This is not a foreclosure auction. The sellers are luxury property owners who are looking for a shorter sales cycle. Most homes will be available for viewing on dedicated Sundays throughout September and October. Scott Franklund.

One of the properties, Somerset Manor in Niwot, Colorado was previously listed at $7,395,000 - minimum bid is now $5,395,000.

Somerset Manor

Even some one with my rudimentary mathematical skills is able to work that out as a two million dollar reduction. In my opinion, much of the recent drops in sales volumes in the luxury market has been, at least in part, due to sellers holding out for unrealistic prices. It would seem Mr. Franklund has been able to dissuade at least some owners from that course. A far more realistic way of starting the ball rolling again than huge federal bailouts. The auction is by sealed bids only and the deadline is October 15, 2008 at 5pm. For more information on the properties offered, visit this site.

Luxury real estate news from around the world. Ups, downs, new developments and disasters abound.

The Wall Street Journal reports on a new luxury development in downtown Houston. The WaterLights District.

The WaterLights District will include a careful planned array of office, hotels, restaurants, boutique retail, and residential structures amid a park setting along the banks of Clear Creek, just south of the world’s largest medical and research center, the Texas Medical Center.

1927 villa for sale, Bucharest, Romania

The Diplomat, a Bucharest-based online magazine announces a refurbished interwar villa for sale or rent.Price - €15,000 per month; for sale at  €3.5 million.

Pache Protopopescu Built in 1927 and completely refurbished in 2007, this interwar villa in the east-centre of Bucharest was built for a Jewish family 80 years ago and is now available for sale or rent. Avoiding nationalisation, the house was acquired by Romanians, whose descendants still retain ownership. The iron entrance gate gives access to an impressive interior court with high walls, arches and two beautiful terraces placed on the ground and first floor of the building.

TRLV Group will be at this year’s Cityscape Convention in New York’s Javits Center, Booth D36, September 10th and 11th presenting a unique project site on the Las Vegas Strip next to the MGM/Dubai/Kerzner future hotel & casino and the Stratosphere Hotel & Casino recently acquired by Goldman Sachs.

A $1.74 billion residential development on the north coast, about a two hour drive from Cairo, Marassi will eventually cover more than 1,500 acres and include a marina, golf course, retail space and 3,000 hotel rooms.

Perth’s millionaires are finding it hard to move their second (or third or fourth) homes. Dunsborough, the premier town of the region and conveniently close to the Margaret River wineries, has seen the median house price fall 11.4% to $655,000 in the year to June.

One of Manteca’s biggest builders - Woodside Homes - has filed for bankruptcy protection. The home builder has housing projects that are part of the 402-lot Tesoro neighborhood bounded by Woodward Avenue, Atherton Drive and Van Ryn Road as well as a portion of the 497-homeUnion Ranch East directly east of Del Webb at Woodbridge on North Union Road.

The purchase is not his first property in Singapore. Modi has two other luxury condominiums in Singapore located in Orchard Road, the city’s shopping district. He also has another penthouse in Sentosa Cove, described as “an exclusive weekend hideout” on Singapore’s Sentosa Island.

An industry source is quoted as saying Trump flew to Bangkok last month to talk with a Gaysorn executive about development plans for a four rai plot located at Ratchaprasong intersection.

In an abrupt about-face, Manhattan luxury real estate, always thought to be immune to the current housing slump, is showing signs of weakness. The latest figures for the second quarter (traditionally the hot spot of the year) show large drops in both volumes and prices

Manhattan Luxury Property

According to the Corcoran Group, one of Manhattan’s largest realtors, sales slumped 38% to a five-year-low. In an interview with the FT, Pamela Liebman, Corcoran’s chief exec, said:

Two years ago, you could throw up some brick, put in a kitchen and a bath, put a price on it, and you’d have a bidding war. That’s not the case any more. Buyers now feel that a property they want today could cost less tomorrow.

City records for this period indicate that apartments in prime Manhattan neighborhoods are selling for less than their purchase prices — a situation that seemed all but impossible just a year ago.

The New York Sun has compiled a long list of properties that have recently sold for less than the original purchase price, including: a unit at 80 John St., in the financial district, which sold for $590,000, much lower than the $720,000 selling price in January. An apartment on 515 West End Ave., on the Upper West Side, sold for $2.1 million — $50,000 less than its 2005 purchase price. Even TriBeCa, “the wealthiest ZIP code in America,” is not immune. A three-bedroom condominium at 166 Duane St. is on the market for $4.495 million, well below the $4.7 million paid as recently as April.

Much like the city of London, which has also seen the first price drop in London luxury real estate in five years, the Manhattan luxury real estate market is fueled by bonuses from Wall street, which look like being a little thin on the ground this year.

As usual, the analysts are make a big fuss over rising median prices, which means the only stock moving is the very high end. Sooner or later, sellers needed to be realistic about prices asked, and this seems to be happening now.

Corcoran Group Q2 report (PDF download)
The Financial Times
The New York Sun

Underlying reasoning for the ups and downs in the luxury real estate market

There seems to be a lot of ups and downs in the luxury real estate market this week, and if any one is wondering why that may be, this chart should clear things up nicely.

Two brothers in Montreal are embroiled in what appears to be a gangster-related murder attempt after the failure of the luxury condominium project, “One Avenue du Port.” As little as 8 years ago, the brothers Magi were riding high on the crest of the luxury real estate boom, now one of them lies in a hospital bed fighting for his life after being shot by a professional hit man while his car waited at a traffic light and the other faces extradition to the US and a lengthy prison term if he is convicted of charges filed in a Los Angeles court alleging he was part of a large-scale Montreal-based fraudulent telemarketing operation that targeted elderly people.

While the attempted killing of Tony Magi came only months after the U.S. indictment was filed against his brother, police investigators interviewed by The Gazette see nothing that links the two events. But the events highlight a number of problems the brothers have experienced in recent years, despite once appearing to be on successful paths as real estate developers. Full story.

The India Times reports that one sector in the Indian real estate market is still strong - the luxury property sector. Of course, announcing projects and selling them are two entirely different animals.

Even in the midst of low sentiments haunting the real estate sector, there is one segment that is totally unfazed by it all. Luxury homes continue to dazzle in the face of robust demand and keen investor interest in the segment. Full story.

Knight Frank’s latest report suggest that London luxury homes worth over £10 million have become “completely detached” from the property slow down in the UK, with “super prime” London real estate climbing nearly 3% in price during August alone, in the face of falling prices in the rest of the city (and country.)

There are now signs that the gap between this sector and the rest of the market is growing. Liam Bailey, Knight Frank, residential research. Full story.

Bloomberg reports that Los Angeles and San Diego luxury real estate prices fell the most in more than ten years in the second quarter of 2008, but San Francisco is hanging on.

The average price of a luxury home in Los Angeles dropped 3.8 percent in the quarter from a year earlier, the most since 1996, according to a survey by First Republic Bank, a unit of Merrill Lynch & Co. Luxury homes were defined as those costing more than $1 million with up to 6,000 square feet (557 square meters), six bedrooms and six bathrooms. Prices fell 7.8 percent in San Diego, the most since 1997, while San Francisco prices rose 0.2 percent. Full story.

Nine luxury model homes come up for auction in Waddell/Surprise, Buckeye, and Gilbert, Arizona following Trend Homes Chapter 11 reorganization. The homes will be sold alongside 21 other model homes with starting prices at 50% of the original sales prices.

If you’re the first, last and only bidder at $90,000, you get the property. Rhett Winchell, president of Kennedy Wilson Auction Group

The auction will be  September 14th - Auctioneers site with full details.

Uncertainty on the Romanian luxury residential real estate market is causing a shift in investment strategies – for both investors and developers

In the last 6 months, prices in the luxury apartment market have fallen 10% for older apartments and newer construction sales have stalled almost completely, which is a major turn-round. The last few years have witnessed price increases of as much as 30%.

Two major luxury residential developers, Sonae Sierra, and Energoconstructia, one of Romania’s largest construction companies, have abandoned projects before even breaking ground. At the beginning of the year, Energoconstructia announced they would begin construction of fifteen 4 to 11-story buildings, which would have equated to almost 3,000 new apartments and an investment of €100 million. This has now been abandoned and an attempt is being made to sell the land.

“We decided to abandon the project which we intended to build on land we own in the Berceni area, because the real estate market is confusing at the moment, and fluctuations are significant on this market. We are already negotiating with an investor to sell a piece of land of some seven hectares in the Progres area, and are asking €500 per square meter, without VAT,” according to a statement for Business Standard by Constantin Tabacaru, Energoconstrucia’s Technical Manager. If sold at this price, the company stands to make some €35 million from this transaction. More on Luxury Real Estate in Romania Faces Uncertain Future

Developers had a good year in Israel in 2007, but there has been a slowdown in the luxury home market during 2008.

With one exception – The Ultra Luxury market. Much like the super luxury market in France, which recently witnessed a record-breaking price for La Leopolda, a luxury villa on the French Riviera, the Israeli super luxury market is also seeing record prices.

The market usually sees deals worth $5-6 million or more no more than 10-15 times a year, but 2008 has already seen over 40. These properties usually involve very large apartments covering an entire floor, buildings slated for preservation, and large lots. Israelis are no longer satisfied with luxury 200-300-square meter apartments, and developers are now marketing apartments of 500-1,000 square meters or more.

There is no shortage of luxury apartments in high-rises, but buildings slated for preservation are few, and each one has its own unique character. The number of seafront penthouses is also limited. Prices of $80,000 per square meter are becoming the norm rather than the exception.

Record prices are being paid for properties with a direct line of sight to the sea, and the gap between these properties and prices for apartments on the second line and farther from the sea has widened dramatically.

Apartments on the upper floors of seafront luxury high-rises, such as Tel Aviv’s Opera Tower, are priced at $15,000 per square meter and up.

The differential between the second line and the fourth line, where it is still possible to have sea view, is eight-fold. Until recently, the difference was only two-fold, and I suspect the next median price report will show a substantial increase.

70pc of buyers of luxury homes Israelis, and 30 pc are foreign residents but, foreign residents account for at least 40pc of the purchases of seafront residences.