Rich pickings

So who has £32m to spend on a house? More people than you would think, but the chances are that he — and it is almost certain to be a “he” — will not be British.

Welcome to what is known in estate agent-speak as Prime Central London, a stretch of a few square miles in the middle of the capital that is home to more billionaires than anywhere else in the world — and has property prices to match.

Its districts, with their white stuccoed squares and red-brick mansions, have long been favourites with affluent Britons. What better sign could there be that you had made it than a house in Mayfair, Belgravia, Knightsbridge, Kensington, Holland Park, or the part of Chelsea around Cheyne Walk? Yet, according to the small group of upmarket agencies who have made the area their stamping ground, British buyers are becoming a minority, outbid by the growing ranks of the international super-rich, for whom a house in Prime Central London is as essential as a yacht in the Med.

Liam Bailey, head of residential research for agents Knight Frank, estimates that only about 30% of properties priced at £4m or more in central London are bought by the locals, and only 25% of those for more than £10m.

Prices, meanwhile, are rising at an extraordinary rate that has very little to do with what is happening in the market elsewhere in London, let alone in Britain as a whole. The cost of property in the elegant streets and garden squares of the Royal Borough of Kensington and Chelsea, for example, has risen by more than 20% since the start of the year.

“The rate of growth we have been seeing has been at record levels,” says Bailey, who estimates there have been at least 15 sales over £10m in the capital since January. “Sales of properties priced at above £10m have grown by 126% in 2006, compared to 2005. It is what we call the uber-prime market — properties costing £4m or more — that have had the biggest price rises in cash terms.”

Ed Mead, of Chelsea-based agency Douglas & Gordon, agrees. He estimates three times more deals over £10m have been done this year than last. “Everyone is feeling richer and coming to London. They all know exactly where they want to live,” he says. “When the rich are shopping for a base in London, it doesn’t matter that it is £10m or £15m — they don’t give a hoot. Most properties at the very top end are selling for 30% over the guide price, even more.”

Savills, another top-flight estate agency, sold the two most expensive private houses in the past six months: a terrace in Belgrave Square for £33m to a Lebanese businessman and 100 Park Lane, a former office headquarters, for £37.5m to a Middle Eastern entrepreneur who has already begun the £10m conversion to turn it back into a 17-bedroom trophy home. Neither buyer has been named. ()

Both properties, however, will be overshadowed by another that might come on the market this summer: British Land’s headquarters, opposite Regent’s Park. Even at £80m, it is expected to find takers.

Wealthy foreigners have, of course, been buying here for decades, or at least since the 1970s, when Middle Eastern sheikhs began pumping their growing oil revenues into the capital’s property market.

“London became a place where deals were struck,” says James Laing, who works out of the Mayfair office of Strutt & Parker and has been watching developments in the capital for more than 25 years. “Middle Eastern sheikhs

needed somewhere to invest sudden oil wealth. The next identifiable overseas investors were those who made incredible wealth out of the tiger economies. The south Asian buyers liked riverside flats. There were tales of Malaysians buying four flats on a credit card. They fell away to be replaced with Russians and eastern Europeans, who are now buying at all levels of the market, and trickling out into the home counties.”

Philip Beresford, compiler of The Sunday Times Rich List, says the degree of foreign penetration is unprecedented. “Never before has such a large proportion of our prime real estate been owned by foreigners,” he says. “The rise of foreign entrants has completely changed the composition of the rich list. They’re the ones buying houses. Those with the readies are Russians, Arabs, and anyone else with money; Indian billionaires and the Chinese are on the horizon.”

More than 65% of the Fortune Global 500 companies, a key barometer of the world’s financial operations, have chosen London as their European or world headquarters, and the capital has more foreign banks than any other city on the planet. Private banks and hedge funds have moved into St James and Mayfair.

There are surprisingly large numbers of western Europeans, too, according to Jeremy Davidson, an independent agent. “The higher up you go, the stronger the market,” he says. “The buyer is just as likely to be Norwegian or Swiss as Russian. The world’s super-rich have had an explosion of wealth in the past two years. Compared to other capital cities, there is a real lack of premium property, so the demand for good stuff is that much stronger.”

There are many reasons why London appeals: it straddles time zones in America and the Far East, making it easy to do business with both. It is politically stable and viewed as a safe place to live. It also boasts an extraordinarily favourable tax regime for foreign citizens who are resident in Britain but can claim a special “non-domiciled” status that allows them, effectively, to pay very little tax. Despite past threats from the chancellor of the exchequer, Gordon Brown, to change the rules and tax them like the rest of us, he appears more unlikely to do so now than ever — presumably out of fear that if he does, they will simply make their homes elsewhere.

“The UK offers very attractive tax advantages to the mega-rich,” says James Anderson, publisher of Wealth Management magazine. “If they keep money offshore, then they are only taxed on income generated in the UK. It is a positive discrimination against domestic Brits. For this reason, London is the most cosmopolitan, multicultural city in Europe, if not the world.”

So who are members of London’s new international plutocracy, and where do they live? The list is headed by Lakshmi Mittal, the steel tycoon, who paid £70m for a 12-bedroom mansion in Kensington Palace Gardens in 2004.

Roman Abramovich, the Russian oligarch, who has an £11m townhouse in Chester Square, Belgravia, splashed out another £11m or so to buy the house next door, and plans to convert them into one large home. He also has a £5m flat in Knightsbridge.

Boris Berezovksy, Abramovich’s fellow oligarch and one-time mentor, paid £10m for Stanley House, just off the King’s Road. Charlene de Carvalho, the daughter of the late brewing tycoon Freddie Heineken is in Mayfair, along with shipping magnates John Goulandris and John Fredriksen. The singer Madonna, who owns a £7.5m townhouse in Marylebone, has bought a nearby mews house for just under £1m at the end of her garden.

Sir Richard Branson is one of the few British London residents to make it into the superleague — and he has just put his Holland Park villa on the market for £17.5m. Nearby Notting Hill has seen a boom with a townhouse on Lansdowne Crescent selling for £5.5m in January, while an offer of £7m for a property on Dawson Place has just fallen through.

The challenge for the coiffed and buffed agents who work this market is to penetrate a closely guarded society. You will see them hovering in the background of the VIP lounge at Harrods, exclusive gaming clubs such as Aspinalls, and the Clermont dining at San Lorenzo and Le Gavroche, or signing in to private members’ clubs such as the George.

All now employ Russian-speakers — well-spoken, well-dressed young ladies — and have opened offices in Moscow and St Petersburg. One agent whispers to me he wishes he “had an Indian” as well. And well he might: Grosvenor Square is now known as Little India.

Cruising around the garden squares of Mayfair and Belgravia in his BMW M3 convertible, Robert Bailey of Robert Bailey Properties, a high-end buying agent, points to the grand red-brick terraces of Mayfair, many of which were once offices but are now flats.

“That building there has an entrance hall like a mini-Versailles,” says Bailey, who helps film stars, diplomats and business billionaires find the right home in the right place, usually at stellar seven- and eight-figure price tags. “It used to be where Diana’s mother lived. Russians live there now. Captains of industry like to live in Mayfair: they want privacy, but need to be near the big hotels. Everyone knows everyone else. Visit Eaton Square at any time at night, and there might only be 20 lights on.”

If you have £10m or upwards to spend, what can you expect for your money? There are 28 properties on the market that currently fit the bill, from a four-bedroom flat in Eaton Place — described by the agent as “Luxe, calme, moderne. London’s most sophisticated apartment”, a snip at £10m — to the Marble Palace, an 11-bed, Grade I-listed house near Regent’s Park, with a gold vault, for £15m.

The brochures for such houses are larded with superlatives that appeal to the wealth and ego of prospective purchasers: “possibly the finest house”, “truly imposing”, “spectacular” and “a discerning choice of residence”.

That is when there are brochures at all. The most expensive homes in the capital are sold privately, with only serious buyers offered a tour.

At these kind of prices, the majority of purchasers will employ a buying agent to set up viewings, negotiate on their behalf, and advise on the investment. The identity of the client may never be known to the seller or the estate agent, to avoid prices being pushed even higher by opportunistic vendors. Given the shortage of suitable stock, agents also increasingly write to the owners of homes in the most prestigious addresses — or even drop in — to see if they will sell for the “right price” — often 20% more than market value.

Tim Wright of Knight Frank’s Kensington office says the success rate is about one in 100, but, with a 2% commission, “it’s worth a call”.

However the property is sold, it all makes for rich pickings for the agencies — although, not surprisingly, they are expected to provide a more comprehensive service than the average high-street agency.

“It is important for us to provide an exceptional service,” says Jonathan Hewlett, head of Savills’ Sloane Street office, who regularly deals with sales over £10m. “At the top end, you have to supply a concierge service. Some buyers may make up their minds in three hours, some may take three years.”

So what about the British? Are there any left in Prime Central London, now that even Branson is selling up? Jemima Khan is blazing a trail for the Brits, having just splashed out £18m for a house in Chelsea Square, while the Duke of Westminster and Viscount Rothermere are holding their own. But even the high net-worth individuals and millionaires who still have to earn their livings find their fat City bonuses do not go as far as they hoped in South Kensington, Chelsea or St John’s Wood, and are being forced out into the suburbs.

“If Britons want a substantial house in the capital, they’ll probably find themselves relegated to south London — Battersea, Wandsworth or Clapham,” suggests Bailey. “These are lovely houses, of course, but a little further away from the action in the centre — that’s where the rest of the world is.”

Additional reporting: Graham Norwood