Wednesday, July 25, 2007

London Calling....Bubble Capital Of The World

The headline from the Bloomberg Story says it all.......

Die Überschrift des Bloomberg Reports sagt alles.....
"Home Craze Gazumps London With Record Prices, $500,000 Parking "

A confluence of powerful forces from low mortgage rates to Russian petro-riches to the teeming wealth of the City of London, Europe's largest and most dynamic center of finance, has supercharged home prices across the British capital.

The average price of prime London homes, the ones brokers consider the most desirable, has soared 254 percent since 1997,

Up, Up, Up
Defying predictions that the market would sputter, that average rose 28.7 percent in 2006, the steepest increase since 1979, and then jumped 18 percent during the first half of this year.
The decade-long leap in prices has made London the most expensive city in the world for high-end homes -- costlier per square foot than Monaco, New York, Hong Kong or Tokyo, according to Knight Frank, which says prime London houses cost about 5 million pounds and prime flats run about 2.5 million pounds. The most-sought-after property in areas such as Kensington and Chelsea, the priciest of London's 32 boroughs, sells for an average of 2,300 pounds a square foot, according to Knight Frank.
The unprecedented surge has brought with it unprecedented risks. Blair's successor, Prime Minister Gordon Brown, must now contend with a host of dangers -- from accelerating inflation to rising interest rates, to mounting mortgage debt -- that could puncture the housing market and threaten the nation's longest period of economic growth in 200 years.

The housing market hasn't been this heady since the 1980s, when prices almost tripled. That boom, touched off by falling interest rates and rising stock prices, ended when a subsequent increase in inflation drove interest rates as high as 15 percent.

London home prices sank 27 percent from December 1988 to December 1992.

Now, the thunderheads are gathering once again. As the U.S. Federal Reserve battles a subprime mortgage crisis, the Bank of England is tightening credit to combat inflation. The U.K. central bank has raised its benchmark lending rate five times since August 2006, pushing that rate to a six-year high of 5.75 percent.

Squeezing Borrowers
Tightening credit will squeeze people who've gone deeper than ever into debt in order to buy homes. Since May 1997, the amount of U.K. mortgage debt outstanding has ballooned, soaring 168 percent to a record 1.12 trillion pounds as of May 30, according to the Bank of England.

British homeowners have never been so stretched. A decade ago, first-time buyers typically took out mortgages equal to 2.4 times their annual salaries. Today, that figure has climbed to 3.2 times. About 120 billion pounds of short-term fixed-rate mortgages may have to be refinanced this year at new, higher rates.

London, long attuned to old money and social class, is increasingly a city divided by new wealth. The capital is being split between the rich, who can afford homes, and a growing number of ordinary folks who can't.

Foxtons Frenzy
No broker has fed the frenzy like London-based Foxtons, which has helped drive up prices and, in the process, its own commissions, by inflating home valuations, wooing buyers and sellers -- and pushing agents to close, close, close.

This year, Foxtons itself, along with another British property broker, Countrywide Plc, was gobbled up. The buyer in both cases was the new power in global finance: private equity. London-based buyout firm BC Partners Ltd. bought Foxtons from its founder, Jonathan Hunt, in May for about 390 million pounds. New York-based Apollo Management LP bought Countrywide in May for 1.07 billion pounds.

> Another "clever" Private Equity buyout....

> Sieht nach einem weietern "spitzen" Private Equity Deal aus.....

Hunt's exit is a bad sign, says Peter Nicholls, who sold his own London real estate firm, Royston Estate Agents Ltd., to rival Douglas & Gordon Ltd. in May for an undisclosed price. ``When Jon Hunt sells, you know the market's going to be in trouble,'' Nicholls, 44, says.

> The Quality Of Living Survey doesn´t help to explain the excess in the London property market.....

> Die o.g. Studie über die Lebensqualität kann den Wahnsinn nicht erklären....

Her advice: Buy now, before prices rise even more. People who are unwilling to pay top dollar can end up getting gazumped.

Apartments in the glass-and-steel complex, scheduled for completion in 2010, have sold for a city-record 5,000 pounds per square foot, according to Edward Lewis of London-based Savills Plc, one of the brokers contracted to sell the 80 homes in the development.

Aston Martins
The two-bedroom flat, adorned with silk-and-wool carpets, a white Yamaha grand piano and a bespoke bar, was for sale for 6 million pounds in late June. A parking spot in the garage, next to three Aston Martins, two Ferraris and a pair of Rolls-Royces, costs an extra 250,000 pounds.

He's still bleary-eyed from a trip to Moscow where, he says, he pitched six Russian billionaires on the London market. To the east, a thicket of 30 construction cranes rises around the dome of St. Paul's Cathedral, Christopher Wren's 17th- century masterpiece.

At nearby Millennium Bridge, on the River Thames, developer Amir Zarbafi is converting a building that once housed a tea company into luxury flats. Zarbafi, 43, bought the building in 1997 for 3 million pounds. It's worth 50 million pounds now, he says. Zarbafi says he's stunned by the prices that people are paying for homes. ``But I haven't seen anything that suggests the momentum is stopping,'' he says.

Prophets of Doom
People have been warning of doom for years. So far, the market has confounded home buyers and research analysts alike.

Former JPMorgan Chase & Co. banker Mario Vaccarino says he bought a three-bedroom flat overlooking Porchester Square Gardens, in west London, for 275,000 pounds in 1998 and sold it for 420,000 pounds in 2002, when he moved back to his native Italy, figuring prices had topped out.

``I thought prices were going to fall,'' Vaccarino, 33, says. Wrong. His old flat is now worth about 770,000 pounds, Marsh & Parsons broker Keith Gorny says.

As prices have spiraled higher, a new breed of London real estate speculator has emerged. Londoners who can afford to buy several homes are snatching them up and then renting them out, a strategy known as buy-to-let. Nationwide, the value of outstanding mortgages for this sort of purchase rose 29 percent to 94.8 billion pounds in 2006 from the previous year, according to the Council of Mortgage Lenders.
`Still Crazy'
Another time, a Russian businessman asked her to find a 1 million-pound flat for his 20-year-old daughter and ended up spending 6 million pounds.

All the same, Fatemi knows firsthand how frustrating it can be to find a home in London these days. She bought a flat near Regent's Park last December for 452,000 pounds. It's now worth 550,000 pounds, she says.

``It was the most horrific thing I've ever been through,'' Fatemi says of the purchase. She says she had to fend off seven rival bidders.

`Unprecedented Market'
Des Forges, the Knight Frank broker, has played the market too. He bought a home for 490,000 pounds in 2001 and sold it in June for 1.05 million pounds. He's moved up to a larger, 1.4 million-pound house in Hammersmith. ``We're in an unprecedented market,'' he says.

London's Future
The ground-floor maisonette -- with a sweeping, cantilevered walnut staircase, storage for 1,200 bottles of wine and a 42-inch (1-meter) plasma TV hidden behind a walnut panel in the master bedroom -- is on the market for 3.95 million pounds. Des Forges says an Italian banker and his wife have bought one of the places upstairs for 5.75 million pounds. An Israeli couple has purchased another for 4.7 million pounds.

When des Forges looks at buyers such as these, he sees the future of London and its housing market. London, a global nexus of finance, law and media, is luring the best and brightest from around the world, he says. ``I think it's just the beginning,'' des Forges says of London's ascent. ``Where else is going to compete with it, really?''

> A sceptic could ask what happens when the financial sector is facing "headwinds". Looks like London would be suffering the most......

> Man sollte eher mal das Argument bringen was passieren wird wenn der Finanzsektor mal ins Trudeln kommt. London dürfte dann überdurchschnittlich hart getroffen werden.....

Disclosure: Short Pound vs €

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Anonymous Anonymous said...

the "best and the brightest" woz ere tour....

New York 1987
London 1989
Tokyo 1990
A field in Kent 1991-1993
Ibiza 1994-1995
Hong Kong 1996
Ibiza 1997
LTCM 1998
Ibiza 1999-2000
Palo Alto 2001
Mexico 2002
Baghdad 2003
Whoops 2004
Riyadh 2005
Miami 2006
London 2007
further dates tbc.

3:39 AM  
Anonymous Anonymous said...

I'm open to suggestions on how to short the UK housing sector (when the time arrives).


10:03 AM  
Anonymous Anonymous said...

First way would be not to be in it. Second though more risky, not be in it and laugh at your friends who are. Third, corner the charlie market. Fourth borrow someone's house and sell it back to them later(Shome mishtake.. ed).

10:38 AM  
Blogger jmf said...


11:39 PM  
Blogger jmf said...

Moin Eh,

i´m playing the UK sector only indirect.

A bet that the pound will weaken against the euro and the other way is i´m short BCO SANTANDER CENTR.HISPANO.

They own one of the bigger lender Abby and are heavily involved in Spain. Their credit book is 70% concentrated in UK and Spain.

They are also involved in the takeover battle of ABN.

The downside for the short is that they are also the dominant force in Latin America (especially Brazil).

11:45 PM  
Anonymous Anonymous said...

Eh and jmf...

This guy has done 2 and 4, and very likely 3 ;)

"Word on Wall Street is that the head of one trading desk, after making a lucrative bet against securities backed by mortgages to people with bad credit histories, has had T-shirts made up that cheerfully proclaim: “I’m short your house”.

3:22 AM  
Blogger jmf said...


9:37 AM  

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