London Property - Time to take advantage of a soft prime market
The domestic housing sector (including rental property) has been one of the key driving factors in the UK’s slow-but-steady economic recovery over the past 12 to 18 months. However, in London – normally a relatively recession-proof real estate market – the picture has been mixed, with some prime areas in particular showing a dip in value for both the residential and rental markets during 2014. While prime London house prices rose by 4.9% in the first half of the year, they then fell back considerably by –2.2% in the second half, giving an overall annual net growth of just 2.6%.
Generally, throughout 2014, the housing sector has remained a few steps ahead of the general economic recovery, although it is expected that this level of growth in real-term value will start to slow throughout 2015. The first quarter of 2015 will probably see the usual flurry of activity, particularly as the market tries to pre-empt any impact on the implementation of electoral reforms after May. But overall the market seems to be staying relatively soft, with no wild swings in prime values, particularly in London.
The impact of Stamp Duty
Perhaps one of the biggest factors during 2014 was the change in stamp duty thresholds. Lower value prime property (in the £1-2million band) felt less of an impact, whereas slightly larger fluctuations were seen in the £4million+ band, where prices fell by –1.3% year-on-year.
Buy-to-Let and Rental
The sheer level of demand for rental property has meant that rents in the private sector have increased sharply as demand constantly outstrips supply. This makes Buy-to-Let one of the busiest sectors in real estate, in both prime locations and in more outlying areas.
Prime Market Figures
During 2014, prime market figures in mid-range prices (from £1million to £3million) have been reasonably stable, if a little contracted compared to other areas, with a year-on-year growth rate of 1-3%.
High value prices (over £3million) have actually dipped down. Price movements for properties with a value of over £3million have fallen by –1.1%, while the drop has been more pronounced in properties with a value of over £5million, dropping by –2.7%. However, the higher value London prime market (£5million+) still remained relatively fluid throughout 2014, with well over 500 properties in this band selling throughout the year, garnering an aggregate value of £5.5billion. This could be due to the number of international investors now citing central London as a rich investment location for property portfolios, especially in prime locations such as Kensington and Chelsea and Westminster. Up and coming areas like Richmond, and fashionable parts of London’s East End such as Haringey and Tower Hamlets have also shown steady but positive growth in the value of prime residential property of between 1-3% on average, despite a relatively soft market throughout 2014.
2015 - A Buyer’s Market?
Figures released from the Royal Institution of Chartered Surveyors suggest that the response to this relatively soft prime market is surprising, with 57% of people believing that now is in fact a good time to sell. This is presumably in response to any possible negative influence the market may sustain due to the forthcoming election and the implementation of government policies. The prime market will tend to be somewhat muted in the run-up to the election in May, while rumours of a ‘mansion tax’ could also depress prices further, which could in turn throw up some very interesting opportunities for overseas investors.
Indications are that the property ‘bubble’ may contract during 2015. However, there’s no indication of a ‘burst’ just yet, so prime real estate should remain a safe (if relatively low yield) investment. And while movement has been sluggish throughout 2014, this year could see an increase in the amount of foreign investors moving into the Buy-to-Rent market in particular, where demand for rental property is continually outstripping supply despite a small drop in landlord yields in some locations. The first two quarters of 2015 could certainly be a buyer’s market, particularly in the prime real estate market.
All figures and quotes are accurate at the time of publishing
Sales: Vanet Property Asset Management is a trading name of Countrywide Estate Agents, Registered in England Number 00789476. Registered Office: Greenwood House, 1st Floor, 91-99 New London Road, Chelmsford, Essex, CM2 0PP
Lettings: Vanet Property Asset Management is a trading name of Countrywide Residential Lettings Limited, Registered Office: Greenwood House, 1st Floor, 91-99 New London Road, Chelmsford, Essex, CM2 0PP.
Registered in England Number 02995024 which is an agent and subsidiary of Countrywide Estate Agents, Registered Office: Greenwood House, 1st Floor, 91-99 New London Road, Chelmsford, Essex, CM2 0PP.
Registered in England Number 00789476. Countrywide Residential Lettings Limited is regulated by RICS. Countrywide Estate Agents is an appointed representative of Countrywide Principal Services Limited which is authorised and regulated by the Financial Conduct Authority.