Discount £130mn mansion sale signals London high-end housing squeeze

A mansion overlooking Regent’s Park has sold for under £130mn, a discount of more than £50mn on its asking price, in a sign that rising development costs and the departure of wealthy Russian buyers are hitting the top of London’s housing market.

Indian businessman Ajay Kalsi has struck a deal to buy 1-18 York Terrace East, a row of Grade-I listed homes spanning 95,000 square feet, according to four people with knowledge of the deal.

The cut-price sale ends a difficult chapter for the previous owners of the John Nash-designed property, while offering a rare insight into the challenges of operating at the secretive top end of the capital’s housing market.

Developer Zenprop bought the property in 2016, and the company’s chief executive Derrick Beare told the Financial Times in 2020 that his goal was to secure planning permission, renovate the 1820s block, extend the lease with freeholder The Crown Estate and sell up.

But the developer’s plan to flip the property for a profit soured as the housing market turned. Average prices for “prime” homes in London are 17.6 per cent below their 2014 peak, according to estate agent Savills.

“It’s been a long process, a terrible experience. [There was] Brexit, a pandemic and then a war. Now the market is really tough because of rising construction costs,” said one person involved with the sale.

Wealthy foreign buyers are a mainstay of London’s prime market, but their numbers dwindled during the Covid pandemic and are yet to rebound. Russian buyers, once commonplace in central London, have been a declining presence in recent years and have all but vanished since Vladimir Putin’s invasion of Ukraine earlier this year.

“There are no Russians obviously, few Chinese and very few Arab buyers,” said Andrew Langton, chair of Aylesford International, the company marketing York Terrace East alongside Savills.

The domestic super-rich have filled the gap in the high-end property market, parking their cash in £5mn-plus homes at a record rate, according to Savills. Even so, housebuyers seeking sanctuary from rising inflation are not targeting complex renovation projects such as York Terrace East.

Due to spiralling construction costs, caused by inflation and rising interest rates, the price of refitting York Terrace East is likely to be more than £100mn, according to people with knowledge of the property.

Kalsi did not respond to a request for comment or clarify his plans for the building, which has permission to be turned into 26 flats and two houses.

The discounted sale is a signal that the rising cost of construction materials is weighing on the top end of the market.

“No sooner have you bought [the property] than you hit the concrete wall of building costs, going up by the day for bricks, cement, wood, everything. Build costs [could be] well over £1,000 per square foot,” said one person involved in the deal.

“What was £185mn is now £130mn. Is that a question of build cost inflation and uncertainty about end users, with the Russians knocked out of the market?” said the person.

But York Terrace East has its own unique complications. In February 2020, billionaire property investors the Reuben brothers extended a loan against the property of between £90mn-£100mn, with interest payments of as much as £700,000 a month, according to four people familiar with the arrangement.

Kalsi has taken on the loan as part of the sale but is likely to refinance the property, according to two of the people.

The Reubens declined to comment.

Beare declined to comment; when the Zenprop chief tried to sell for £185mn in 2020, he said the aim was “to get my money back and move on”.

Several people with knowledge of the sale say the company has booked a substantial loss on the property, though it is not clear how much Zenprop has spent on it to date.

“It’s been a nightmare. Getting out will be an immense relief,” said one.