Black's Property Blog

Adrian Black delivers critical property market insights and the influences, behaviour and money driving them.

Is a luxury new build flat in London a “bank with benefits” to international Ultra High Net Worths ‘UHNW’?

by Adrian Black, Thursday 03 September 2015

New build prices are reaching the stratosphere and so we thought it worthwhile to offer a perspective.

Some very clever developers realised a few years back that the best suites at the Dorchester get booked up fast when UHNWs want to spend time in London.  This is very irritating for a small very demanding group who expect without comprise, security, privacy, flexibility, quintessential service and on-tap indulgent amenities.  The super nest was born.    

Now let’s consider the economics – and perhaps unsurprisingly QE plays a role here too.

The best suites at the Dorchester cost around £5,000 a night – amounting to £35,000 for a week’s stay or around £150,000 for a month - £300,000 if you need two.

Dorchester Suite

The world is currently awash with cash (thanks to QE) with very little investment appetite and the safest (in theory) investments offer very little if any return – let’s say 1%.

So, spending £6m on an apartment with the desired services at very little opportunity cost, as government bond yields are very low (and some remain negative), can seem attractive….and also could be rationalised as a saving.  The choice of losing say £60,000 of income on £6m of investment or saving £150,000 a year in hotel expenses – and having the freedom of staying at your apartment of choice whenever you want is an attractive one to many – even if the apartment might lose a little value as the shine wears off.

Therefore, an indulgent amenity new build could be considered, perhaps, as a bank with benefits and this is probably why these developments are achieving great prices.

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