Investing in History: London’s Listed Homes Offer More Than Luxury

London's historic homes present a unique opportunity for the real estate investor: They offer not only stunning architectural features you're unlikely to find in newer builds or in other cities, but also the chance to own a piece of the past.

"There are very few of these, and they’re considered to be some of the most beautiful buildings in the world," said Becky Fatemi, director of Rokstone’s London office. "There are very few cities with buildings that predate the 1700s, and buying one is like making an investment in a piece of art."

But it's a unique investor who will be drawn to such homes, as along with one-of-a-kind aesthetics and an aura of history come hurdles that require an extra degree of patience, time, and expense.

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That's because properties that are "listed"—that is, legally protected for being of special architectural and historic interest—cannot be altered as newer developments can. Instead, owners must navigate complex bureaucratic channels with the assistance of experts to ensure that they maintain their home’s historic value whenever they renovate.

Over 600 buildings in London are listed; there are hundreds of thousands of listed properties across the United Kingdom. Listed buildings fall into several categories: Grade I buildings are of "exceptional interest," and also the rarest; Grade II buildings are of special interest, and the most common, making up over 90%of all listed properties; Grade II* buildings fall in between these two classifications. According to Historic England, a property must be more than 30 years old to qualify for listing, and some listed buildings were constructed before the 1700s.

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But while listed homes are admired for their aesthetics and the way they reflect English heritage, there's no guarantee that they will deliver higher returns on your investment than other types of luxury properties. Whether purchasing a listed property is a smart investment, then, may be in the eye of the beholder.

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The Pros and Cons of Listed Buildings

"There is certainly a big appeal to listed properties from an aesthetic perspective. They’re invariably stunning, and one of the benefits is high ceilings, which a lot of buyers are interested in," said Robert Cox, sales manager at Harrods Estates. "The flip side is that there are restrictions as to what you can change. For a lot of buyers who want that beautiful-fronted property with all the usual mod cons of a new home, it can sometimes be a little tricky to get that."

A property’s listing generally covers the entire home, both facade and interiors, and in order to renovate any part of it, homeowners must first get approvals. Historic England lays out the process for making alterations to a listed home, which includes applying to a local planning authority to ensure the proposed changes won’t diminish the home’s historical character.

The process is complex enough that listed homeowners typically will hire a planning consultant to help them navigate their renovations.

"Especially with Grade I homes, you can’t change windows or colors, or even just a doorknob or staircase without approval," Ms. Fatemi said.

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"The actual costs associated with refurbishing a listed building are generally pretty much in line with refurbishment costs for all similar-sized buildings," said Noel de Keyzer, director of Savills’ Knightsbridge office. "What differs is the amount of time required to obtain planning permission for any refurbishment work."

The potential hurdles associated with listed homes dissuade some investors, particularly those from overseas who lack insider knowledge of London real estate, in addition to the time to go through its bureaucratic channels.

"In the past, when supply hasn’t been so generous, a lot of people considered listed buildings," said Marcus O’Brien, sales negotiator at Beauchamp Estates. "But now a lot of overseas investors who are cash rich and time poor don’t want to be taking these on."

It’s a certain type of investor, then, who will be drawn to listed buildings, one who craves a unique property that is unmistakably British, with an aura of history that can’t be found elsewhere. Another advantage of listed properties is that that historic feeling is often not just limited to the home, but extends throughout the surrounding neighborhood.

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"The nature of London’s built heritage means that if one house is listed, the whole terrace or street, even surrounding treats could be listed or protected in some way," Mr. De Keyzer said. "On this basis, a listing often not only protects the character of a single home, it can also maintain the character of a neighborhood."

Potential for Appreciation

Given the unique character of listed buildings, prospective buyers might expect that such properties would offer better returns than newer developments.

Data indicates, however, that homes built during particular eras are valued more highly than others. The average value of prime resale properties is £1,200 (US$1,671) per square foot, according to Savills Prime London Index for the fourth quarter of 2017. Georgian properties commanding the highest premiums, with prices per square foot at 26.6% above average. Edwardian-era homes, on the other hand, actually sell at a slight discount of 4.1% below average, according to the index.

And the fact that a property is historically listed alone does not necessarily mean higher home values; potential buyers are still seeking other attributes, as well.

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"Ultimately, the value is always going to be driven by location," Mr. Cox said. "If a building is listed, it’s not so much the listing itself that will increase saleability, though it certainly will increase the number of people that would be interested."

A combination of historic charm and a central location is likely to attract the most interest from prospective buyers, agreed Alex Ross, an agent with Savills Marylebone.

Finding a Balance Between Old and New

Occasionally, there are opportunities for investors to buy property that has both historical significance and modern amenities, which offers them the freedom to make updates without any bureaucratic hurdles.

Mr. O’Brien pointed to Oceanic House as one such example: The Grade II listed building, once the headquarters of the White Star Line, which sold tickets to passengers on the Titanic, was converted to six luxury apartments and a duplex penthouse.

"It still has nautical windows on the upper floors, and you can feel the history within it," Mr. O’Brien said. Interiors, though, are contemporary.

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The conversion stemmed from an initiative to create more residential stock by converting formerly commercial spaces, in the wake of a post-recession housing shortage.

Properties like these, Mr. Cox said, offer "the best of both worlds."

These properties are rare, though, as many historical buildings are not large enough to allow for conversions like the one Oceanic House underwent.

Buyers who crave something unique but are daunted by the prospect of investing in a listed home, should take heart, as London boasts an abundance of properties that have that sense of history but are not listed.

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"The majority of prime central London, including Mayfair and Belgravia, is pretty much a conservation area," Mr. Cox said. "The majority of properties are historic, whether or not they have a listing. That’s part of the appeal for overseas buyers.

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