Property prices in London’s prime residential market were down 2.1% in the year to September 2016 but there are embryonic signs of strengthening demand, the latest index report suggests.
There are signs of increasing activity with interest in the lower end of the market for properties priced in the £2 million to £5 million bracket rising, according to the index from international property firm Knight Frank.
In particular higher rates of stamp duty are increasingly being reflected in asking prices and the number of new prospective buyers registering in that price bracket rose 8.7% between January and August 2016 compared to the same period in 2015.
But there are considerable variations within the market with Chelsea seeing prices fall by 8.9% while in Islington prices are up by 3.6% year on year. Prices fell by 7.5% in Hyde Park, by 5.9% in Knightsbridge, by 5.3% in Notting Hill, by 5.2% in Kensington, by 4.7% in South Kensington, by 4.2% in Riverside, by 0.8% in Belgravia, by 0.7% in Marylebone, by 0.5% in Kings Cross, and by 0.3% in Mayfair.
In St John’s Wood prices were static and the rest of the price rises were all in the east of the prime central London market with City and Fringe and Tower Bridge the only other sectors joining Islington with price growth at 4.8% and 2.3% respectively.
Meanwhile, the total number of registered buyers and properties under offer rose 9.2% and 8.7% respectively over the same period, the index report also shows. Demand in lower price brackets remains stronger and across the whole market the total number of properties under offer was up by 39.3% while new prospective buyers rose by 26.2% in the three months to August on a year on year basis.
‘Stamp duty remains a decidedly bigger influence on the market than the European Union referendum and in some instances the uncertainty surrounding Brexit has been a catalyst for overdue price reductions,’ said Tom Bill, head of residential research at Knight Frank.
‘While it would be premature to suggest an inflection point is approaching, leading indicators are turning positive in the £2 million to £5 million price bracket, a section of the market that has felt the effects of higher stamp duty more markedly than other segments, as the chart below shows,’ he explained.
‘Combined with a favourable currency movement for buyers denominated in overseas currencies, this has created added momentum in the market in recent months. This is demonstrated by the fact demand indicators have been even stronger in the three months to August,’ he added.
‘This increased activity has yet to translate into higher transaction levels and overall volumes remain down by just under a fifth compared to 2015. Furthermore, in a sign that some buyers remain cautious, the average number of days a property remained on the market was 14% higher between January and August this year than 2015,’ Bill concluded.
The lower prices are bringing prospective buyers back to the market, and the drop in the value of sterling since the Brexit vote is making UK assets particularly attractive to overseas buyers, according to Camilla Dell, managing director of property buying agency Black Brick.
However, buyers are cautious amid concerns that overall the prime central London market may have further to fall. ‘No-one wants to overpay for a property and, amidst continuing market uncertainty, many of our clients are looking ahead and asking whether they might be better off waiting for further falls, Dell said.
‘The big question is what happens with Brexit and the only honest answer is that no one knows. This uncertainty is having an impact on supply. Many prospective vendors are choosing to let their properties rather than sell, while continuing low interest rates mean there is little financing pressure on borrowers,’ she explained.
‘Meanwhile, there is speculation that some developers might be looking to cut their losses on new developments, but our view is that any such distressed sales are more likely to be carried out through large-scale transactions with institutional investors, rather than on a per unit basis,’ she added.
She believes that it is impossible to predict the exact bottom of this market. ‘But if prospective buyers hang around too long, the risk there may still be bargains to be had, but all the good stuff will have gone,’ said Dell.
She also pointed out that the announcement from Apple that it is to become the anchor tenant at the redeveloped Battersea Power Station represents a vote of confidence in the capital. ‘The announcement is a boost for the wider regeneration of the area. It is likely to attract other tech companies to that part of London, which has seen a sudden rise in high profile residential developments,’ she concluded.
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