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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.

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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.

High interest rates and fiscal uncertainty challenge leftwing leader’s pledge that ‘good times’ will return

Luiz Inácio Lula da Silva won the Brazilian presidency by promising voters that the good times of “steak and beer” would return to Latin America’s largest country.

But as the leftwing leader prepares to take office on January 1, he faces a darkening economic outlook. Growth forecasts for 2023 have been revised down over concerns on the impact of high interest rates, fiscal uncertainty and the broader global slowdown.

“When you put all these elements together, external and domestic, we see a strong deceleration of the Brazilian economy next year,” said Alessandra Ribeiro, an economist at consultancy Tendências.

Lula presided over a period of strong growth during his first stint in office from 2003 to 2010, as a boom in commodities exports powered expansions in output of 4 to 5 per cent a year. Wages rose, the middle class expanded and millions of Brazilians were lifted out of poverty.

But the incoming president now faces an entirely different environment. While the agribusiness sector remains strong and unemployment has fallen to about 9 per cent — the lowest level in seven years — the economy is having to digest a series of interest rate rises aimed at taming inflation. The rate rises to the current level of 13.75 per cent weigh on growth by limiting consumer consumption and business investment.

“There are clear signs that credit is becoming scarcer and more expensive,” said Marcelo Fonseca, chief economist at asset manager Opportunity. “With very high interest rates we can expect consumption to slow down very quickly.”

The economy also remains hamstrung by deep structural inefficiencies, low wages and a long-term trend towards deindustrialisation.

The government last month revised down its official 2023 growth forecast from 2.5 per cent to 2.1 per cent. Independent economists, however, are even more pessimistic, with a consensus survey pointing to growth of just 0.8 per cent.

“There is the context of the global slowdown, which affects us. But we also have the more pronounced effects of high interest rates and the exhaustion of the post-pandemic services recovery which helped the economy a lot this year,” said Ribeiro.

She predicted unemployment would fall over the next 12 months, but at a slower pace than this year, probably ending 2023 at 8.2 per cent.

A key concern for Fonseca and other economists is how the Lula administration approaches fiscal policy. On the campaign trail, the former trade unionist pledged to increase spending on social assistance programmes, telling voters “the wheel of the economy will turn with the poor being part of the budget”.

Brazil’s Congress this month passed a constitutional amendment that allows the incoming administration to maintain the flagship Bolsa Família cash handout, the main social welfare programme, at R$600 (US$116) per month by circumventing the country’s spending cap rule.

The move has sparked concerns that the incoming administration could abandon its professed commitment to fiscal responsibility.

Economists fear that investors will be moved to quit Brazil if the country’s debt-to-GDP ratio — now at almost 80 per cent — begins to soar next year, further weakening the exchange rate and stoking inflation. This, in turn, would force the central bank to keep rates higher for longer, further curbing growth.

“The outlook next year is very mediocre,” said Fonseca. “And with a loose fiscal policy, I don’t see a stronger rebound in the years to come.”

Gabriel Leal de Barros, partner at Ryo Asset Management, said a loose fiscal policy resulting in rising government expenditure would create multiple knock-on effects and could potentially jeopardise a long overdue and much-needed tax reform.

“We would have to raise some taxes or find some money to pay for expenditures. We won’t have space or time to focus on the efficiency and structural problems of taxation in Brazil,” he said.

“Even the green agenda, which is one of the best opportunities we have, depends on the guidelines for fiscal solvency and debt-to-GDP trajectory.”

Yet economists also say there are reasons for optimism, despite the challenges facing Lula. Agribusiness, which accounts for almost 30 per cent of GDP, is expected to remain solid next year.

There is also demand among foreign investors for infrastructure concessions, such as roads and airports, which had boomed during Jair Bolsonaro’s administration. “[This] could hold up investments for a little bit,” according to Fonseca.

Ribeiro from Tendências said she believed Brazil could also get a boost if Lula succeeded in boosting diplomatic relations with key trading partners and finally approved the long-delayed EU-Mercosur trade deal.

“Improving our international relations, with the possibility of rescuing the EU-Mercosur deal, would greatly improve expectations, not only in the short term but in the medium term because of the expectation of more investments.”

Entrepreneurs behind digital art collections expand into retail and entertainment amid crypto downturn

Creators of best-selling internet collectibles have responded to a crash in the value of crypto and digital assets by seeking new revenues, such as using cartoons to sell real-world products and create entertainment franchises.

Digital items known as non-fungible tokens burst into mainstream culture last year as people snapped up animal collections, including Bored Ape Yacht Club, Cool Cats and Pudgy Penguins.

Celebrity endorsements and social media hype helped encourage people to spend billions of dollars to acquire NFTs from marketplaces such as OpenSea.

But the market has plummeted since April after being hit by a sell-off in the broader cryptocurrency market, which has been rocked by a series of high-profile scandals such as the collapse of crypto exchange FTX and the TerraUSD stablecoin in May.

Between January and March 2022, more than $19bn was spent on NFTs — representing the majority of this year’s $36bn worth of sales, according to Chainalysis. Since then, monthly spending has tumbled more than 87 per cent to just over $442mn in November.

The number of active NFT buyers and sellers is now down to just over a third of its peak in January 2022. NFTs are also being “minted” much less, with the number of new NFTs on the ethereum blockchain down by nearly 60 per cent, according to research group Nansen.

This has left makers of popular NFT collections looking at ways to expand their brands into real-world investments, such as selling products that are not linked to so-called blockchain technology, where records of transactions are stored on a decentralised digital ledger.

“If sales are not predictable, consistent [and] recurring revenue, [then] you have to figure out how are you going to diversify your revenue streams and expand,” said Drew Austin, co-founder of Knights of Degen, a sports-themed NFT project and one of the investors behind crypto group WAGMI United, which bought English football club Crawley Town this year.

Some analysts are sceptical that NFT makers will create successful businesses beyond selling digital art. “The fundamental model of NFTs didn’t work,” said Claire Enders of Enders Analysis. “It was a bubble that has burst and is not going to happen again.”

Doodles, a leading NFT project, recently hired musician and producer Pharrell Williams as its chief brand officer, who has used his music to produce live animations of the Doodles characters. The group is working on a video series and an album.

“We’re going into . . . a little bit of a slower economic environment in the next couple of years, and the thing that really wins out in those times is entertainment,” said Julian Holguin, chief executive at Doodles.

“Although entertainment is extremely saturated and consumers’ attention is very fragmented, we [can] build really great stories that connect with people and just put smiles on people’s faces.”

The former Billboard executive has been using his contacts in the music industry to partner with high-profile talent, working to diversify the Doodles intellectual property into live events, music streaming and physical merchandise.

Pudgy Penguins is another project that has been making deals to produce cuddly toys and children’s books based on its NFTs, returning some of the profits to holders of the tokens. It is one of the few collections that has seen the average price of its NFTs more than triple to around $5,700 in December.

“Every generation has had its great penguin IP from Pingu to Club Penguin to Happy Feet . . . there’s a huge opportunity for the next great penguins to invade not only the metaverse but the real world,” said Luca Schnetzler, chief executive of Pudgy Penguins.

Knights of Degen has taken a more scattershot approach to its investments, which include a minor league American football team, celebrity meet-and-greets, IPA beer and an upcoming line of vodka-based sauces.

The group said it had been inspired by Disney’s business model. “Disney started with creating Mickey Mouse, and from there, you have the amusement park, the shows, the movies, the merch, the toys and all these different things. We kind of want to take that similar trajectory,” said Austin.

Yuga Labs, the parent company of some of the most popular NFT collections such as Bored Ape Yacht Club, CryptoPunks and Meebits, has a host of products launching using content from its brands.

Yuga gives away IP rights with its tokens, which means the owners of the NFTs can use the images associated with the tokens however they like, without the company’s knowledge or permission. This has led to a flood of businesses developing associated Yuga products: everything from a burger restaurant to custom-made Tiffany’s pendants.

“From day one, the community has been empowered and encouraged to commercialise their Ape IP, and almost immediately, we started seeing Apes show up on hot sauces, food trucks, in music videos and more. Decentralisation of IP is a powerful tool for community building,” said Yuga Labs.

Yuga Labs has been one of the biggest beneficiaries of last year’s surge of interest in NFTs.

The group raised $450mn in a funding round led by Andreessen Horowitz, which valued it at $4bn at the beginning of this year. Meanwhile, in April, it generated $300mn by selling NFT “deeds” for up to 55,000 plots of virtual land in the “Otherside”, its upcoming metaverse game.

The Otherside land collection remains one of the most traded on the NFT marketplace OpenSea, but the average price for a deed in the Otherside has almost halved to around $3,300.

Associated projects bearing Yuga images have allowed the brand to spread, as well as several celebrities, including Snoop Dogg, Justin Bieber and Madonna, posting their cartoon apes on social media.

Yuga is facing a class-action lawsuit accusing the start-up of partnering with celebrities to “artificially inflate and distort prices” of the NFTs. Yuga Labs has denied any wrongdoing.

However, with trust for crypto faltering and NFT values plummeting, some analysts are sceptical that the brands will be able to catch on in the real world.

“Once there has been a disconnect between the valuation and the product, they can never become a Disney-type brand,” said Claire Enders.