Forecast season may be upon us, but headline figures are of little use in the micro-markets of prime London, says Camilla Dell…
As we approach the year end, the UK’s leading agents and property analysts have the tough job of predicting the outlook of the property market. This year, their job is tougher than ever as the UK market faces extreme uncertainty as a consequence of the Brexit vote. Not only will the terms of the UK’s relationship with the EU have a profound effect on the country’s overall economic performance over the next few years, but the treatment of the financial sector will bear particularly on the London property market.
The collective response to this uncertainty is expected to be inaction, with both JLL and Savills predicting no growth for Prime Central London (PCL) in 2017. This is followed by a growth of 15.2% and 20.8% respectively over five years to 2021. Although we largely agree, we caution the usefulness of a single number for such a heterogeneous market as prime London. As we have seen in the past, just as some geographic areas have performed better than others; some parts of the market are likely to outperform the average.
For example, we expect the lower end, below £1 million, to remain active and resilient, supported by government programmes, such as Right to Buy. Furthermore, the current stamp duty regime continues to make properties at this end of the market relatively attractive to investors. This implies that outer prime locations are likely to do better than a more traditional – and more expensive – PCL.
There will also be outliers at the higher end of the market; we’re seeing stock dry up as vendors refuse to countenance the discounts needed to close deals. This can have effects in both directions; those sellers which come to the market are likely to be highly motivated to sell, and open to offers, while limited supply can see buyers pay up for high quality properties.
For the opposite reason, we remain very cautious on the new-build segment, which we think is still the most vulnerable part of the market. Some parts of London are flooded with supply and we’re likely to see properties offered with substantial discounts.
Of course, there is a near-term wildcard, in the Chancellor of the Exchequer’s Autumn Statement, due on 23 November. Budgets under George Osborne delivered raid after raid on the property market and we don’t know what – if anything – Philip Hammond has up his sleeve.