An expert's guide to investing in the prime central London property market

The Prime Central London (PCL) market may seem like an untouchable and ultimately unknowable entity because it exists in a higher echelon to most home buyers’ frame of reference.

This, of course, means there can be misconceptions around how it works.

To help dispel the mystery, Homes & Property spoke to prime property finance experts CapitalRise who, in the course of their business, are busy ripping up one misconception: that this market is only accessible to squillionaires.

CapitalRise is an award-winning investment platform that provides a route for individuals and institutions to invest in prime locations like Belgravia, Knightsbridge and Mayfair, as well as prime locations in outer London and the home counties, such as Wimbledon, Wentworth Estate and Beaconsfield.

As such, they are particularly well-versed in the vagaries of this market.

Here, CEO and Co-founder, Uma Rajah talks through the common misconceptions she faces and reflects on what people need to know:

“The kind of property that we focus on funding is typically high-end residential real estate. One of the reasons why we have this strategy is because the prime market is very resilient, particularly in London.

“It has its own unique property cycle which is completely independent from the rest of the London market and the wider UK property market.

“It has its own ecosystem, driven by very limited stock availability relative to demand and because it has very unique buyers and sellers with very different characteristics. As a result it performs quite differently.”

“PCL prices have been in decline since 2014.

“Depending on who you speak to, prices are now between 18 and 20 percent below the last peak at the end of 2014.

“Most people don't know this, it is a huge misconception. People just assume that the residential property market is homogenous, and the different parts all behave the same-that the markets all go up at the same time and come down at the same time, and transactions might be, increasing or decreasing at the same rate in different parts of the market.

“But that's not true, it is very nuanced. I think that's what makes it really interesting to work in the industry.

“It also makes it quite complicated. As a participant in the market, whether you're buying or investing, you really need a deep understanding of what's going on in your micro part of the market.”

“There were predictions the market was going to flatten out and start to recover just pre-Covid, but that was stalled by the pandemic.

But now we’re at the point where this year the market is expecting stabilisation and is forecasting that we'll now move into the positive growth part of the cycle in the years to come.

We know the property market is cyclical and prices will go up and down. And at the time the prime market turned in 2014, it was absolutely due a correction. The market was very overheated.

But it's taken probably longer than you would expect to complete that part of the cycle because of factors such as Covid and all these unexpected events that occurred during that downturn phase.”

“We’ve been lending since 2016. During this time our borrowers have been successfully returning the capital and interest to us. And the loans have performed very well, even though we were operating in a falling market.

That's because the key thing is to do the necessary due diligence on borrowers and focus on collaborating with the best developers who are building great quality product in the best postcodes and to provide sensible levels of leverage that provide headroom to accommodate further price falls.

If you're backing the right assets in the right postcode, our view is that there's always going to be demand. There is very limited stock, and that's one of the key things I think that impacts this market and really differentiates it; there is only one Grosvenor Square. And for people who want to be in those locations, there is a strong demand. Particularly if the asset has been developed to a high standard.

We feel quite confident somebody, somewhere, will want that prime asset, whether that's a local purchaser or an overseas purchaser. I think the fact that you have very exclusive areas with very restricted stock is important.

It's not like New York where somebody can suddenly pile in and say, ‘Right, I'm going to build a tower block here.’ Our planning rules will not allow that. You can't just throw up a huge tower block in Mayfair!”

“I think the international appeal of London has always been good and can be attributed to its uniqueness.

It has historically been a very attractive place for ultra-high net worth individuals to put some of their wealth.

Most very wealthy people will have a high level of exposure to real estate. And if they're going to invest in real estate, then London tends to be a very attractive place, particularly for overseas investors.

From its unrivalled cultural appeal, with fantastic leisure and retail, to its position as a global financial superpower, London has a lot to offer. The benefit of the favourable time zone, the language, good legal and education systems are other factors that attracts these overseas investors. London remains competitive relative to other alternative cities globally which tend to attract these types of buyers

There's a lot of reasons why I think London has always had a strong appeal and they don't appear to change with time.”

“From what we have seen in the market, PCL hasn't been impacted by the Ukrainian war, or the Russian sanctions.

People assumed these factors would have had a damaging effect on the high-end market because everyone was going to flee, but that hasn’t been the case.

If people from one particular country are not as interested, then there will usually be people from other countries that will be. As long as there is wealth creation in one country or another, London will be a magnet for them.”

“The market is more insulated from things like Brexit, though it is not completely immune to some of the same dynamics that affect the broader market — it works in a unique way.

For example, with interest rates going up so much last year, that had a big impact on the mainstream property market because mortgage affordability became a real issue.

Whereas if you look at the high-end market, particularly the PCL market, there's a much higher proportion of cash purchases.

They're much less dependent on mortgages. This provides some insulation from the impact of this factor.”

It is its own little world.”

“Historically these sorts of prime investments were only available to ultra-high net worth individuals or institutions because the minimum investment sizes are in the millions.

We founded CapitalRise in response to this, and we built a digital platform that enables a broad range of investors to invest in these loans. The loans are always secured against the underlying real estate, which could be a flat in Mayfair, or a flat in Chelsea, or a house in the Wentworth estate.

It's a very unique investment proposition that historically just wasn't available to people before.

Our platform FCA regulated and as such we are subject to certain restrictions. And there's quite strict eligibility criteria around the types of investors that can invest in our product. You need to be either a high-net worth individual, a self-certified, sophisticated investor, or a corporate investor to invest in our projects.

But subject to eligibility, it is very much a platform that allows a much broader range of investors to invest in our loans.

The minimum ticket size is £1000 rather than in the millions.

The other benefit it offers is diversification. Rather than putting all of your investment into one asset and one postcode, the platform enables people to conveniently spread their investments across multiple different projects.

Since it is asset backed, you have downside protection. In an absolute worst-case scenario, if the borrower was unable to repay the loan we could force the sale of the asset in order to repay investors. The fact that it's secured against an underlying asset in a part of the property market that's very hard to access, is quite attractive to people.

I think it's a relatively more accessible investment opportunity for people to understand compared to other complicated investment instruments that might be available on the market.

I think this is quite easy for people to understand how it works and what the risks are and be able to make a judgement about whether or not it's something that is suitable for them and suits their risk appetite.

And people in the UK love property!

That’s what’s nice here. This part of the market is fascinating to many people.

It's just that glimpse into this world that historically you'd have been completely shut out from, and that’s why we set up CapitalRise, to give people a route into this exclusive part of the market.”

CapitalRise is a leading specialist prime property finance company and the only dedicated prime property finance provider for developments in London and the Home Counties. CapitalRise was a winner at the British Bank Awards in 2023 – its fourth consecutive win. The company was also named in J.P. Morgan’s Top 200 female-powered businesses report for 2021.