London’s prime property market will continue to stagnate but still offers the best bet for long-term investors, according to real estate agency Rokstone.
“It wasn't until late 2015 and early 2016 that the impact of George Osborne's stamp duty overhaul started to hit the £1-million plus market in central London,” says Becky Fatemi, Managing Director of Rokstone, pointing out that the changes made by the former Chancellor in December 2014 have acted as a drag on transaction volumes and prices.
Latest figures from the London Central Portfolio reveal the sales of luxury apartments in London have collapsed by more than 80 per cent since the spring, she adds.
“Property is still the safest place to put your money but only for buyers who are looking long term. Confidence is down and people are confused about which way the market is going – there doesn’t seem to be one rule or formula for the London market going into 2017,” Fatemi says.
She continues: “Over the last 20 years we saw an influx of European, Russian, Chinese and Middle Eastern buyers, all of whom had different preferences, which kept developer activity high as they produced what was needed for the market. As demand from some of those nationalities has dropped off, so has the developer imperative to build variation.”
Stamp duty it hasn’t been the only stifling factor: a strong bounce back after the global financial downturn - due to emerging wealth seeking a safe haven in London, combined with historically low interest rates - had taken PCL (prime central London) house prices in Kensington & Chelsea, for example, from £810,781 on average in January 2008 to £1.37 million in September 2016, according to Land Registry.
The general election and talk of mansion tax in 2015 also put the brakes on the market, slowing demand from both domestic and overseas buyers and, finally, the public voted to leave the European Union in June 2016, she points out.
“This quashed buyer appetite at a point when prices were naturally correcting,” she says.
CAUTION AND DISCOUNTING
Caution on the part of both buyers and sellers created a lack of urgency, she says.
“Some vendors who would have sold following a vote to remain in the European Union decided to sit tight to see which way prices go, and many buyers became far more wary on price. We are waiting to see where the penny will drop – there is a lot of window-shopping going on right now.”
A new buyer has emerged: The cost of buying has increased (tax) and the cost of moving has increased. In a slow market, the domestic buyer is now looking for a discount especially as City bonuses (and jobs) are under threat. The overseas buyer is naturally getting a discount given the currency dynamic of dollar to pound.
So has a new seller. “The key to the luxury property sector in London is motivation not market. There is no incentive to move their money out of real estate, it attracts barely any interest elsewhere, and therefore no pressure to sell, unless of course there is a lifestyle imperative such as relocation for work. In fact, in PCL the cycle of selling has extended from every five years to every eight years slowing churn,” Fatemi says.
Some sales are taking a year to a year-and-a-half to shift, therefore the seller needs patience, she adds.
Fatemi expects off-the-market activity to ramp up in 2017 but buyers will have to work harder to find the right property.
“We are entering a period of stagnation in terms of volumes and therefore price. Prices will come off in the first half of the year to the point when such falls wake up the market again. At first glance this looks like a buyers’ market but as sellers are not desperate to part with property there is no glut. When it comes to shifting the perfect property the seller is in control and plenty of demand is coming forward for the right location or right home.
Britain is not the only country in the throes of political uncertainty as anti-EU feeling spreads across Europe. Matteo Renzi’s resignation following Italy’s constitutional referendum could be seen as one more Eurosceptic nail in the European Union’s coffin. 2017 is going to be a year of popularity tests for the EU with key elections in France, Germany and the Netherlands.
“More uncertainty on the continent will elevate London’s safe haven’s status once again, despite Brexit, and encourage a flight of capital from Europe into the UK capital’s property market,” she concludes.
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