TheChek News Flow

With prime London prices expected to fall, this wealthy enclave is experiencing reductions, lower offers and choosier buyers

For Venezuela-born Mary Perez, it’s the butcher, Italian deli and a French café in “Stratford Village” south of Kensington High Street that keeps her in the affluent west London neighbourhood. The small cluster of streets between Earl’s Court Road, Stratford Road and Marloes Road, which also includes popular pubs such as The Abingdon, has a more peaceful air than the main thoroughfare of the high street with its slightly dispiriting string of chain stores.

“I love having good-quality food stores on my doorstep and the European feel of the area,” says the mother of two, who works in finance, on why she’s lived in Kensington for 20 years. She’s just downsized from a town house to a four-bedroom apartment in a portered block near Stratford Road.

“It took a long time to find the right apartment. I believe I paid a fair price for it [she declined to say how much] but expect properties in the area to lose value now.”

She’s not alone. Estate agents agree that average prices in prime central London will fall next year. Knight Frank Research estimates this will be by 3 per cent while Savills says 2 per cent — while expecting the national average to fall by 10 per cent.

In Kensington, prices are softening already. Lots of Rightmove listings in W8 — a quadrangle between Cromwell Road, Kensington Gardens, Notting Hill and Holland Park — have had price reductions, mostly flats. Lower offers are now being made on properties below £1mn, the tranche of the market most affected by interest rates, says Andrew La’Personne of agent Marsh & Parsons after mortgage rates rose in the autumn.

Above £1mn — which takes in much of the Kensington market — buyers are often buying without financing, so rate raises are not such an issue, he says. “We have several buyers who are renting and waiting for the right house to come up for sale.”

A three-bedroom Victorian terraced house in Holland Street, off Kensington Church Street, went online last month at £3.5mn; it had five viewings within 48 hours and three second viewings booked the following week, but did not receive any offers.

Nevertheless, it has been a busy year in the family house market — the number of transactions between January and November was 52 per cent higher than the five-year average leading to 2019 (though 7 per cent down on 2021’s record level).

At the same time, the average price per square foot finally overtook its 2015 market peak to hit £1,939, according to LonRes. The average price of flats, at £1,544, is still 4 per cent below its market peak seven years ago, however.

New inquiries are down, says Josh Grinling of Winkworth. “After the ‘mini-Budget’ [on September 23] a number of overpriced properties have been reduced.”

Andrew Weir, of London Central Portfolio, a buying agent, reports that buyers — including Perez — are becoming choosier. “Large houses have been selling, but only if a property is on the right street, or the right side of the street; and if the layout and everything else works for them.”

According to Weir, two sales that completed in late November were to US dollar-denominated buyers paying cash. One house at a guide price of £12mn near Holland Park has been purchased by a family who have been renting on the same square, he says. When the exchange rate hit $1.13, they thought it was a good time to buy.

The other is a three-bedroom apartment in a mansion block south of the high street for £3.5mn. Both sold for their guide prices, he says.

According to Weir, the so-called “right house” is often on “the Phillimores” — the Phillimore Estate is a grid of stucco-fronted semi-detached villas and town houses roughly between Holland Park and High Street Kensington tube station.

These, and some homes on the other side of Kensington Church Street, can be more affordable than those on Notting Hill’s premium garden squares, which have sold for £4,000 per sq ft, according to LonRes. In March, a five-bedroom semi on Brunswick Gardens sold for £8.4mn — or £2,462 per sq ft — only about £898,000 more than it sold for in 2007.

Good schools are a big part of Kensington’s appeal. Proximity to Thomas’s Kensington on Cottesmore Gardens is often requested, with families especially liking adjacent Victoria Road, a long, tree-lined cul-de-sac of stucco-fronted houses, says Hermione Russell at Russell Simpson estate agency.

The past four sales in the street have been for more than £10mn — with a seven-bedroom semi-detached house selling in April for £11mn. Along with Eldon Road and Cottesmore Gardens, Victoria Road is part of the De Vere Conservation area, a mix of late Georgian houses, early Victorian villas and later Victorian terraces towards Gloucester Road and Palace Gate.

“Correctly priced” properties are still selling, says Grinling. In August a one-bedroom ground-floor flat in Pembroke Place, a little square of pastel-coloured terraces south of the High Street, was advertised at £995,000. The flat sold at £975,000 to an Asian family buying for their daughter studying medicine at Imperial College. “The vendor, who had spent lots on interior decoration, wanted over £1mn but I told her that was unrealistic. She has lost £100,000 on the property with stamp duty and refurb costs,” he says.

Kensington’s rental market is still highly pressurised, with a lack of a available properties causing prices to rocket. So far this year, the average rent for a property in W8 is 24 per cent higher than it was in the same period a year before. The number of rental properties changing hands was down 49 per cent on the average annual rate in the five years to 2019.

A five-bedroom house in Stratford Road has recently let at £4,500 a week to an American family, says Sarah McIntyre, head of lettings at Harrods Estates, while there’s a waiting list of overseas students for one-bedroom flats at 375 Kensington High Street, a serviced apartment block towards Kensington Olympia with rents of £650-£675 per week.

The redevelopment of the exhibition centre to include a music venue, theatre and restaurants aims to attract new people to the area when it completes in 2024.

Oissila Lawton, originally from Paris, and her English husband Vincent love the Stratford Village area, having lived in Kensington for 35 years. “We didn’t want to live in Notting Hill and find Kensington calmer and less built up than Chelsea,” she says of their decision to stay in the area but downsize during their retirement.

“There are some very good pubs and cafés here, and [it’s great] having Holland Park and Kensington Gardens so close with our two dogs,” says Oissila, who is in her sixties. “Lots of our neighbours are also downsizing locally now,” she adds.

/

>>> Down

* Lotus Bakeries Cut to Reduce at Bank Degroof Petercam (+)

>>> Initiation

/

>>> Call

/

DAX:

MDAX:

SDAX:

/

>>> Down

/

>>> Initiation

/

>>> Call

/

International groups are sourcing parts from other markets as fears rise of breakdown in relations with Beijing

Over the past 20 years, China has risen from obscurity to become a global leader in the car parts industry.

Its growth was fuelled by European and American carmakers that farmed out the production of an increasing number of their components to China to save costs and establish links with the world’s largest car market.

But international groups have now launched a quiet yet concerted effort to cut their reliance on China’s sprawling network of components makers, according to industry executives and supply chain experts.

“There is a large-scale rethinking of logistics operations [across the industry],” said Ted Cannis, a senior executive at Ford. “The supply chain is going to be the focus of this decade.”

The move has been prompted by two developments. The first is uncertainty caused by China’s zero Covid-19 policy that forces plants to close at short notice.

“The longer the pandemic stretches, the more uncertainty there is,” Volvo Car boss Jim Rowan said earlier this year, when announcing the Geely-backed carmaker was increasing its use of non-Chinese components.

But the second is a longer-term concern about a larger political decoupling in the event of a breakdown in China’s relations with the international community, similar to Russia, that could threaten trade.

Although most international groups are unlikely to abandon the Chinese market entirely because of its size, they expect the flow of components from the country to plants across the world to fall over time.

Consequently, foreign manufacturers aim to make parts and cars inside China exclusively for use within the country.

This cuts their reliance on Chinese factories for goods sold overseas, while retaining a secure local supply chain for their own plants inside the country.

A quarter of China’s exported car parts end up in US plants at present, said a report from Sheffield Hallam University in December, which highlighted the country’s rise as a global supplier over the past two decades.

In private, car bosses draw parallels with their experience in Russia after President Vladimir Putin’s invasion of Ukraine.

Then, groups from Renault to Mercedes-Benz were forced to wind down or sell plants in Russia, while key components, such as palladium, had to be sourced elsewhere.

“I think that the [auto] world got surprised by Russia and Ukraine,” said Cannis. “The US-China relationship is more difficult than it has been previously . . . it’s a new world.”

However, the supply chain shake-up will take time as carmakers rarely switch the sourcing of components until the end of a vehicle’s life, which is about seven years.

It could also prove expensive for an industry that already operates on lean margins.

“I don’t think the sourcing is the difficulty. It’s the price that winds up changing,” said Tom Narayan, an automotive analyst at RBC.

“If everyone tries to shift to the same European or US providers, you’re limiting the supply, and the price will go up.”

Ted Mabley, supply chain consultant at PolarixPartner, said moving away from China “will be looking at a price lift for both labour and material”.

This means carmakers must make savings elsewhere, particularly with costs rising in the switch to electric, or risk becoming uncompetitive.

“If we don’t fix the affordability issue, the middle classes won’t buy EVs [electric vehicles],” said Stellantis chief executive Carlos Tavares.

“If 85 per cent of the total cost of a vehicle is parts, if you don’t act on that 85 per cent, you will have no impact,” he said, and that “requires us to use low cost countries”.

China is “not the only one and not even the best”, he added, with “plenty of options” across India, Mexico, and parts of north Africa and Asia.

However, carmakers are also aiming to be more rigorous over their choice of suppliers as they focus on the resilience of the supply chain, as well as costs, to make sure it does not break down.

“It is no longer an era where cost is the major driving factor,” said Masahiro Moro, senior managing executive officer at Mazda. “Right now, robustness of our supply chain also needs to be considered to ensure the stable procurement of parts.”

Mazda said it was shifting production of some components made in China to its home market in Japan.

This is a sign that even Japanese carmakers, which tend to be less dependent on the country than their rivals in Europe or the US, have started to reduce their reliance on China-based supply chains.

The company has already asked more than 200 of its suppliers that use components made in China to stock up on inventories in case there are disruptions ahead.

Yet despite growing wariness behind boardroom doors, the industry remains reliant on sales to consumers in the Chinese market, making it hard for executives to talk openly about some of the changes.

Executives said Mazda’s reallocation was driven mainly by concerns over the reliability of supplies as a result of the Covid lockdowns.

Japan-based Honda admitted it was considering ways to cut supply chain risks, although it denied media reports that it was exploring the possibility of building cars and motorcycles with as few China-made parts as possible.

“With a series of production supply impacts due to multiple factors, including the Shanghai lockdown, we are considering various ways to hedge supply chain risks. However, we are not specifically considering a scenario of decoupling in China,” the company said.

Both Ford and General Motors have been proactively shifting parts out of the country for their US factories for more than a year, according to several people.

GM said: “Most of the parts we use in North America are already sourced in North America, and supply chain challenges over the past few years have reinforced the value of the resilience of our sourcing.”

The company added that “most of our sourcing in China is for production in China”, and “we plan to continue this approach”. 

Supply chain risks are greater for the German carmakers Mercedes, BMW and particularly Volkswagen.

The three are so deeply embedded in China that, alongside German chemicals group BASF, they accounted for a third of all European direct investment between 2018 and 2021.

“The Germans are so tethered to China, not only for sourcing but on the customer side too,” said RBC’s Narayan. “That is actually right now the biggest risk that investors are looking at.”

However, Jörg Burzer, head of supply chains at Mercedes-Benz, stressed any changes to the company’s sourcing of parts were not driven by political concerns.

It is “not about China or the US”, but “about the best set-up of the supply chain and the operations”, he told the Financial Times Global Boardroom summit in December.

“Obviously, we look at the sources which are nearby, which could also be from European suppliers or US suppliers or Mexican suppliers,” he added, stressing it was not about the nationality of a supplier.