With Buyers Harder To Come By, Less Is More In The World Of Luxury Residential

“It is no secret that the London high-end residential market is facing more challenges than it has in recent years,” are the first words out of Northacre Chief Executive Niccolò Barattieri di San Pietro’s mouth.

A doubling of stamp duty, increased construction costs, Brexit uncertainty and changes to rules over non-domiciled investors have all hit the top end of the market. Prime Central London values are down 9% since their August 2015 peak, according to Knight Frank. Barattieri di San Pietro said there were around 650 sales of homes £5M and above in 2014, compared to around 330 expected in 2018.

We will get to how long that situation will persist and what it means for the market long term. But what does it mean for those building, completing and selling homes right now? What kind of product do you need to create to make sales right now? For Barattieri di San Pietro and Northacre, the developer owned by Abu Dhabi's ADFG, the answer is that the gilded age is over: less is more when it comes to both aesthetics and technology.

“The secret sauce is you need to achieve two things at the same time," he said, speaking ahead of an appearance at Bisnow’s London Residential and Affordable Housing Outlook event on 5 December.

One is you need to create a return for your investors. The second is you need to build beautiful homes that people want to live in, and will pay a premium for compared to other nearby buildings, because they offer them the lifestyle they want. It is very hard to acquire a customer, but once you have, they are your best ambassador.”

Simplicity is paramount in homes in 2018.

“In a certain way we have gone backwards, and less is more,” he said. “The insecure developer wants to cover every single wall with wood panelling and put marble everywhere. They think, the more I spend, the buyer will see this, and the more they will pay. But these are sophisticated people, they have the best architects, stay in the best hotels and have the best boats. Most have beautiful art collections that cost more than the apartments themselves.

"So you want to create almost a gallery-like space, with beautiful white walls. If everything is wood panelled, where do you hang the art? We understand and focus on the sense of space, design, the craftmanship – we create the perfect environment to showcase beautiful things.” 

The same attitude is true of technology.

“Nobody wants to faff around with 2 million buttons.  Not all our residents live in these properties all year-round and you don’t want to have to call the maintenance guy every time you want to turn a light on or change the temperature. So our lights have a switch to turn them on and off, and a dimmer.

“Also, technology dates a property terribly, and you want to create something timeless.”

This all helps the bottom line and the returns for investors of course, as does Northacre’s choice of where it buys and builds. It has typically bought on the edge of super prime locations like Knightsbridge and Mayfair, while seeking to persuade buyers to pay Knightsbridge and Mayfair prices. For example its 72-apartment No. 1 Palace St. scheme is opposite Buckingham Palace, but the land price was cheaper because it was not on the “Mayfair side of the Palace,” Barattieri di San Pietro said.

At The Broadway, its redevelopment of the former New Scotland Yard police station, one key selling point is a double aspect layout, to give residents views of the nearby world heritage sites like St James’s Park and Westminster Cathedral. To provide this it has knocked down the former building and built six towers on a central podium.

“It means that even the first level of apartments start on the fourth floor and provide fantastic views. It is how you create value,” Barattieri di San Pietro said.

As for the slow market, he said he sees the potential for sluggish sales lasting for a few more years yet, but remains optimistic.

“You had a 20-year bull run with only one quarter of negative growth, and since 2014 we have had four slow years, it would not be surprising to have six or more slow years after a run like that," Barattieri di San Pietro said.  

“But we remain optimistic about prime Central London and it’s appeal. If you think at the peak there were 650 buyers a year and today there are 330, you only need to find another 320 buyers around the world to get back to that peak, that is not a lot. China and India have a population of about 2.5 billion people. The middle classes have been growing and now the upper classes are growing too. Demand was zero in 2009 and then skyrocketed, that could happen again, with a good Brexit outcome or for many other reasons.”

Barattieri di San Pietro said the slowdown did not offer any opportunities for expansion in the short term. But over the medium term the competitive landscape should be more favourable for large, well-capitalised developers.

“Selling prices have adjusted but land prices have not. I’m Italian, and there is a Neapolitan saying: ogni scarrafone è bello a mamma sua. It means every cockroach is beautiful in the eyes of their mother. The price of land might have gone from 100 down to 50, but the owners aren’t willing to accept that yet.”

Less isn’t more in that instance. But it is the mantra Northacre swears by.

Hear Barattieri di San Pietro and other experts in high end and affordable housing at Bisnow's London Residential and Affordable Housing Outlook on 5 December.