Growth of London’s prime residential property market slows
02-07-2012
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But the fundamentals of the market remain strong and annual growth is expected to remain in positive territory, according to new analysis from international real estate adviser, Savills.
Price growth in prime central London slowed to just 0.4% in the quarter in a sector that has outperformed the market since 2009, leaving values 20.9% up on peak compared to the all London average of 14.1%.
Ultra prime £10 million plus properties saw marginal growth of just 0.2% in the quarter, but continue to outperform the market at 8.6% year on year, leaving values 29.5% over their previous peak and 57.7% from their March 2009 low.
‘It is now three years since the markets bottomed out and we’ve seen a period of intense activity and price growth, but it now seems unlikely that the market will have the capacity for further price growth in the short term,’ said Lucian Cook, director of Savills research.
‘Heightened uncertainty in the eurozone, a reduction in currency play over recent weeks, and changes to stamp duty on properties worth over £2 million have been catalysts for a slowing in the market, albeit offset by London’s safe haven appeal,’ he explained.
‘Volatility is an expected feature of the early state of a housing market cycle. As such, our forecasts assumed a pause in price growth in prime central London, and it now looks as if stamp duty changes could be the trigger for a period of static prices, but the longer term fundamentals for this market including constrained stock and global wealth generation, look sound,’ he added.
Year to date growth stands at 3.4% in prime central London and Savills now expects the market to plateau for a period. Five year growth is forecast to be around 23%.
There are signs of greater resilience in the core central markets, not least based on the appeal of the best addresses to international investors. Chelsea, Mayfair, Belgravia and Knightsbridge all showed growth of 1.2% or more in the second quarter, averaging 8.9% annual growth and 24.2% since the peak of the market.
In contrast, the slightly more fringe locations, particularly those associated with financial and business services sector buyers such as South Kensington, Notting Hill, Kensington and Holland Park, showed small price falls of 1.4%. Annual growth fell below the all prime London average at 5.4% but ahead since the peak at 18.1%.
‘Overseas buyers remained committed to the very best central locations, accounting for 58% of buyers in the first half of 2012, but stamp duty changes mean they are finding it more difficult to structure transactions in a way that protects their wider tax position. A transition to the new regime is making the market pause for thought,’ Cook pointed out.
Greater quarterly growth has been seen in less fully priced parts of the prime London market beyond prime central London, the analysis also says.
International demand has been less of a market driver in these locations, resulting in a slower, but less volatile recovery, and there has been less use of the offshore ownership structures specifically targeted in the last budget.
In the prime markets of North London prices rose by 1.6% in the quarter but just 3.9% year on year. Meanwhile, the effective absence of any new development in the prime East of City markets, means much less stock is available than would normally be the case, allowing price growth to gain a stronger foothold over the past year. Values rose by 1.5% and 4.6% year on year.
The prime south west, which runs from Battersea and Wandsworth, through to Wimbledon and Barnes, has shown higher levels of growth since peak, but slowed to 0.9% in the second quarter, in line with the all prime London average. This suggests rising caution in an area dominated by domestic family buyers employed in the business and financial services sector, coupled with the impact of the budget which has seen prices of some family homes chipped below the £2 million mark.
