PRIME CENTRAL LONDON RESIDENTIAL PROPERTY MARKET
Prices across prime Central London have been softening since the peak of June 2014 as buyers and sellers realign their expectations on ‘realistic valuations’.
Higher taxes and political and economic uncertainty led to a softening of prices across prime Central London (PCL) throughout 2016. According to Savills Research, prices in PCL are down 13.2% compared to the peak of June 2014. The latest reports from Knight Frank now indicate that demand indicators, sales volumes and price growth are showing signs of stabilising and that price declines appear to be bottoming out.
Although some buyers may be tempted to hold off transacting until after 8 June, we believe this will have little real impact on transactions, which continue to be sluggish because of stamp duty levels.
While outer London continues to outperform central London, could there be a renaissance of interest given the significant fall in prices in prime central London since 2014?
Low stock levels and competition for ‘best in class’ properties
In comparison to the new build market, there is a shortage of supply of existing or traditional stock. Many vendors are reluctant to lower prices. If they can’t achieve their desired price, they often decide not to move, instead withdrawing their property from the market. Extending a property rather than ‘up-sizing’ is sometimes more financially viable. There are few forced sellers, too, given low interest rates and lower exposure to high loan-to-value mortgages. This shortage of new listings coming to the market will go some way to insulate prices.
There is neither lack of financial firepower among buyers, nor a lack of appetite to invest in London, but given the high levels of purchase tax it is more needs-driven than it used to be. Buyers will not compromise on quality and will not over-pay. Bailey notes that “buyers who know London well are particularly active because they recognise that this is a good moment to buy a ‘trophy’ property that in a stronger market there would be much more competition for.”
While outer London continues to outperform central London, could there be a renaissance of interest given the significant fall in prices in prime central London since 2014? We expect the shift to be gradual but as the year progresses we expect prices to continue to become more aligned with buyer expectations of value, and therefore help the market become more fluid.
When asked about calling the ‘bottom’ of the market, Bailey said that in his experience “if you look too hard for it, you’ll most likely miss it.” Instead he advises buyers to focus on buying the very best quality property within their budget, as this type of best-in-class property generally stands the test of time.