The Central London property market could see a surge in activity when the uncertainty surrounding Brexit eases, according to London Central Portfolio (LCP).
Naomi Heaton, chief executive of the property investment firm, says there is a palpable level of interest in the Central London market from investors who recognise that price discounts are probably at their greatest and sterling at its weakest.
“This makes it a good time in the market cycle to invest,” she says. “Whilst Brexit uncertainty is still holding many back, as soon as there is a clear direction of travel, there is likely to be a significant surge of activity.
“With domestic buyers, it can be a more difficult decision emotionally if the value of their property has fallen, even though the economics of trading up will be in their favour. Overlaid on this is the general concern about their future, in an extremely uncertain environment and if the economy starts to flag, it is likely that the domestic market will stagnate and prices will weaken.”
July data from LCP reveals a slightly more encouraging picture for Prime Central London, with annual prices increasing by 1.5 per cent to £1.9 million. However, annual transactions to July stand at 3,242, down to just 62 sales per week. This is fewer than the lowest point in the Global Financial Crisis.
There are indications that the fall in transactions is bottoming out. With a drop of just 5 per cent over the year, this is the lowest fall since 2014. This was buoyed by a surge in sales over the last quarter, reflecting the flurry of activity prior to the original Brexit deadline of 29 March.
Annual prices in Greater London are up by 1.9 per cent, outperforming 2018, but in England and Wales (excluding Greater London) annual price growth remains static at 0.8 per cent – the weakest performance since 2011. Heaton says the impetus for price growth varies across the country.
“In Prime Central London, the impact of taxes over the last few years and Brexit uncertainty have probably taken their toll and price discounts are likely to be at their lowest point,” she explains. “This sets the scene to push up prices and the increase in buying activity seen over the last few months has changed the market dynamic.
“An increase in activity normally presages price growth, however, with the Brexit situation reaching fever pitch, it is possible that investors will pull back to see what the fall out is and whether sterling will weaken further. On the domestic front, it may be as simple as buyers and sellers no longer having the patience to sit out the Brexit negotiations and wanting to get on with their lives. However, a significant economic fallout from Brexit could well dampen this market again.”
The data also reveals new build transactions in Greater London are plummeting, with an annual fall of 20.1 per cent to 11,591. In Prime Central London, too, annual new build transactions stand at just 417 – a fall of 52 per cent from two years ago. More positively, annual new build sales in England and Wales have increased by 5.7 per cent, reaching 98,922 and maintaining record heights.
Heaton says new build developments, which proliferated following the recovery from the Global Financial Crisis, have hit a brick wall of stamp duty hikes, with the top rate rising from 5 per cent to 12 per cent and an additional rate of 3 per cent for second homes.
“Often targeted to foreign investors, this pulled the rug out from under the new build market,” says Heaton. “In addition, these properties are currently trading at a premium of over 17 per cent compared with existing stock, which can create a barrier to the domestic market (unless they are benefitting from the help to buy scheme, which requires new build purchases).”
Overall, Heaton suggests there will be a recovery in the Prime Central London property market after Brexit because it is one of the most globally desirable destinations with very limited stock. “All previous market cycles suggest that there will be a recovery and it probably will be speedy, with increased prices and transactions,” she adds.
In the rest of the country, the fallout from Brexit will dictate the speed of recovery. “History suggests that any pick up will be slower. Indeed, average prices have only recently recovered in real terms from the global financial crisis in 2009 and now there may be another dampener on the horizon,” Heaton says.
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