31st May 2023
House price forecasters are powerful players in the world of property. Their spreadsheets and number crunching are capable of generating a sense of panic or confidence in a housing market, and creating booms and busts accordingly.
They can also be very wrong.
As summer begins there are no signs that house prices in London – or indeed across the UK – are in any danger of the double-digit price falls that were being predicted at the start of the year.
Instead what we are seeing is a very selective market which has more in common with the pre-pandemic market than with the ups and downs we have seen since 2020.
Buyers are still out there, particularly cash buyers operating at the top end of the market, but despite healthy budgets they are not willing to pay over the odds for properties. They are also taking the time to be very choosy when it comes to location and specification.
As a result, while prices are holding firm, the number of deals being made is the indicator which has taken a hit.
Across Prime Central London the market is having a very sticky start to the summer – and we’re not talking about the weather.
According to house price analyst LonRes prices are flatlining and the number of sales being agreed has sunk like a stone.
Sales activity in PCL in April was 34.7 per cent lower than in 2022, found LonRes, with the year-to-date total down more than 24 per cent. The number of properties under offer is down 11 per cent year on year, as anxious buyers hold back.
An exception to the deadlock between buyers and sellers is in the £5m-plus market, which picked up in April, after a slow March. Agreed sales were up 26 per cent on last year and are more than 50% above the average levels seen between 2017 and 2019.
The same uptick is to be found in London’s super-prime £10m-plus market which Knight Frank reports is enjoying a long overdue recovery. In the year to March buyers in this sector spent £3.1 billion on 161 properties, up from the £2.5 billion spent the previous year, making it the strongest year since 2016.
The reason for this two-track market is simple. “The people who are buying at the moment are wealthier clients who are less reliant on mortgage finance,” said Camilla Dell, managing partner of Black Brick. “They include overseas buyers who are still buying in London because of the weak pound, and they tend to have bigger budgets.”
Dell suspects it will take time for vendors to accept the fact that buyers are far more price sensitive than they were at the peak of the pandemic and start pricing homes at the lower end of the PCL scale at a level to tempt buyers. Until their ambitions align, transactions will remain low.
“I have found that there tends to be a long delay, in a market which is slowing, for that message to sink in for sellers that they need to be realistic about prices,” she said. “We are just starting to see prices coming down a bit – even where we have been previously told that a seller is in no hurry – and some sellers are becoming more amenable to negotiation.”
At the tail end of 2022 house price forecasters were busy predicting doom and gloom for the year ahead. Reeling from the aftermath of the mini budget Savills predicted London property would see price drops of 12.5 per cent this year (with PCL falling two per cent, and prime outer London seven per cent). Capital Economics suggested price falls of more than ten per cent, while Knight Frank warned of a six per cent drop.
Almost six months into the new year, and those predictions appear to be far off the money. Halifax reported that, in the year to March, average prices in the capital were down by 0.9 per cent. And according to Rightmove average asking prices actually rose 2.8 per cent during April, to £696,477.
Rightmove found that the strongest annual growth was in well established, prime and prime fringe locations, plus those close to the City of London. Hackney led the boroughs, (with asking price growth of 5.3 per cent), followed by Southwark (4.3 per cent), Camden (3.7 per cent), and Westminster (3.6 per cent).
“Those 2023 forecasts were always ridiculous,” said Caspar Harvard-Walls, a partner at Black Brick. “The problem was that they did affect buyer confidence and sentiment.”
What Harvard-Walls sees happening in London is normalisation. Interest rates are no longer at a record low, and the race for space inspired by the pandemic is over.
“We were just spoiled during the Covid-19 market,” said Harvard-Walls. “It was a false reality, a completely unusual set of circumstances. Now buyers are saying hold on, that property is the wrong price, and that is how it should be.”
Once upon a time property speculators could earn themselves an easy and reasonably quick buck by buying an off-plan property, waiting a year or two and then reassigning its contract to another buyer before completion, a practice known as flipping.
Flipping only stacks up when prices are rising, however, and new figures from estate agent Hamptons show that the number of new homes sold prior to completion has hit the lowest level in a decade. In London the number of new homes sold off plan, as opposed to after completion, has plummeted from more than 70 per cent in 2016 to just over 40 per cent. It blames the parlous state of Britain’s buy to let market – landlords are falling over themselves to sell their rentals in the face of increasing regulation, including the much-vaunted Renters Reform Bill, and falling yields.
But there are exceptions to every rule, and Dell said that when a developer builds a great scheme in a sought-after location, off plan sales will be strong. Notable recent examples include the lavish Clarges Mayfair, where most homes sold off plan at record prices for the area, and Chiltern Place, Marylebone, another off-plan success for developer Ronson Capital Partners.
“When you get the right development in the right location, there is still a massive demand,” said Dell. “I currently have clients looking to acquire a total of 12 off-plan apartments in a new build I am tracking in W1. When you start to get out of PCL there is more of a problem with off plan sales. Buyers are still being asked to pay a big premium because it is a new home, and they are not getting a PCL address.”
Another factor which should prop up the prices of top end new build apartments in the coming years is increasing scarcity. Local councils, under pressure to build as many new homes as possible, are starting to act against supersized lateral apartments.
Westminster Council’s local plan already prevents planning consent being granted for homes that are bigger than 200 sq m. Kensington and Chelsea Council is considering a similar ban on “oversized” units.
This will be a big hit to luxury developers because since 2021 two thirds of £5m-plus new build sales have involved homes of 200sq m or more. And it also means that the stock of large, new homes will dwindle fast. Savills estimates that there are just over 600 £5m-plus units on sale, under construction, or in the pipeline, and it suggests these schemes will be completely sold out within five years.
Britain’s feudal leasehold system has long vexed flat owners, fed up with being forced to pay spiralling annual ground rents, and watching managing agents take huge commissions on maintenance and repair works.
Unfortunately, it appears that the Government is backing away from its pledge to scrap the hated system this year.
The legal complexities of unpicking centuries of property law have been blamed for the reversal in strategy. Instead, the Government wants to cap ground rent at 0.1 per cent of a property’s value – at present owners pay anything from a few hundred pounds a year to many thousands. It is also likely to try and restrict the amount leaseholders must pay for service charges and other fees.
Critics point out that there is no timeframe for these new arrangements to come into force. “Escalating ground rents cannot go soon enough,” said Harvard-Walls. “It is a completely unfair system.”
“We have had to pull out of deals because of this issue,” agreed Dell. “Clients don’t like it, and lenders can have an issue with it.”
Many of our client’s own and like to buy property globally. Purchasing overseas in unfamiliar markets requires expertise, guidance, and trusted partners. That’s why we’ve made it our mission to partner with top buying agents in key locations.
Each month we will be bringing you an “in focus” look at one of the new markets that we now cover, from Paris to Berlin, New York to Miami, Dubai to Sydney. But this month we take a look at the delights of Palm Beach:
The great Florida migration has been one of the most notable property chain reactions of the pandemic.
Affluent relocators freed from their offices and allowed to work from home have flooded into the sunshine state, partly for its zero income tax regime and partly for its many lifestyle benefits. Other buyers have come looking for holiday homes which they see as a more economical option to paying regular (and spiralling) hotel bills.
Palm Beach is Florida’s most storied, glossiest coastal town, set on a 18-mile long barrier island linked to the mainland by a series of bridges.
Its reputation as a retreat for the wealthy dates back to the 19th century when its first hotels were opened. Today it has a reputation as a haven for billionaires, for the upscale shopping and dining, on Worth Avenue, for its tennis and golf clubs, and for the sheer natural beauty of its beaches.
The population of this ultimate winter colony more than triples between November and April thanks to its glorious climate: Palm Beach enjoys almost 3,000 hours of sunshine per year and even its chilliest months, December and January, have an average high of 24 degrees.
The hottest property tickets right now are well maintained condos in popular buildings and turnkey waterfront houses. Homes slightly off the water have been a harder sell – which means that there are bargains to be had from buyers who are not set on a sea view.
Black Brick’s global network of trusted property experts includes a great team in Palm Beach. If a life of surfing, snorkelling, sailing, and sunbathing, in a property market with great potential appeals, do get in touch with Managing Partner Camilla Dell.
Our American client had never bought a property in the UK, so she hired Black Brick to help her buy a base close to where her son was living in west London.
She wasn’t keen on a terraced house, and her preference was for a modern apartment no more than ten years old, close to Chiswick’s vibrant High Road.
This was a tricky request because there are not many new homes being built in this established neighbourhood, but we were aware of Chiswick Green, a boutique development of 50 homes.
We studied the development carefully, coming to conclusion that the best option was a two-bedroom flat on the 4th floor with a terrace overlooking Turnham Green.
The asking price was £1,125,000 but we were able to negotiate a six-figure reduction and contracts were exchanged at just over £1m, or £1,316 per square foot.
And since our buyer was unfamiliar with the UK’s buying process, we also helped her find a mortgage and solicitor to steer through the sale.
Black Brick doesn’t only help its clients buy new properties. Sometimes we are asked to assist in the sale of a property, the most recent of which is a very smart mansion apartment in a building within a short walk of the King’s Road. This brilliantly located two-bedroom flat is in a well-maintained building with a lift, and we think it would be a perfect choice for a buyer in search of a pied-a-terre in a peaceful street.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.