Annual deal numbers reach ‘an all-time low’ in Prime Central London

Just 3,406 resi sales were recorded in PCL in the last year; a 41% fall on the previous 12 months

While property prices growth and transaction numbers continue to fall across Greater London and the wider country, Prime Central London – when looked at in detail – presents a rather more nuanced picture, according to analysis by investment house / fund manager / property buying agency London Central Portfolio.

Just-released Land Registry Data for Q1 2017 indicates that the average price in PCL actually picked up a touch in the first three months of the year – but that sales numbers have thoroughly tanked, falling by 41% across the year to reach what the company calls “an all-time low”.

That nudge up in the average value “may not reflect any genuine underlying price appreciation”, warns LCP: a few particularly big deals skewed the numbers upwards, and there are a few other factors at play.

On a rolling annual basis, prices are now 5.4% higher than two years ago (Q1 2015); that’s an improvement on the 2.2% delivered in Q2 2016, and comes largely as a result of investors doing what they do; favouring safe havens in the face of global uncertainty, and taking advantage of currency discounts. “Whilst positive news, this does not appear to be a return to long term trend,” notes LCP, “but rather the knock on effect of other market dynamics.”

PCL Greater London England & Wales
Q1 2017 Average Price

£1,914,789

£610,141

£284,487

% Change vs Q4 2016 +4.6% +1.2% +0.29%
Q1 2017 Sales Volumes

3,406

82,694

820,478

% Change vs Q4 2016

-21.4%

-19.2%

-26.1%


Key Stats: Prime Central London in Q1 2017

  • Average prices reached £1,914,789, following quarterly price growth of 4.6%.
  • This has been buoyed by a greater proportion of more expensive properties being transacted, with an 8.5% annual increase in transactions between £2m – £5m.
  • In contrast, transactions remain significantly down. Sales in Q1 fell 21% compared to Q4 2016.
  • On an annual basis, just 3,406 sales took place, a fall of 41% over the previous year.
  • A 57% fall in new build sales over £5m was recorded in Q1.
  • Sales levels are the lowest level on record, even less than during the Global Financial Crisis.
  • PCL showed signs of price growth in Q1 2017, reflecting a 4.6% quarterly increase to £1.9m, despite Brexit and tax headwinds.

Key Stats: Greater London in Q1 2017

  • Average Prices now stand at £610,141
  • This follows lacklustre quarterly price growth of 1.2%
  • Over the previous annual quarter (Q1 2016) price growth was just 1.5%
  • Like PCL, transactions have reached the lowest level on record, with just 82,694 taking place.
  • Sales in Q1 fell 19% over Q4 2016 and 32% on an annual basis
  • Despite being largely unaffected by the relentless introduction of new taxes affecting PCL, demand in Greater London saw notable falls over the last quarter. Sales were down 19% over the end of last year, whilst quarterly price growth also stagnated, seeing a marginal increase of 1.2%.

Key Stats: England and Wales in Q1 2017

  • Average Prices now stand at £284,487
  • This follows negligible quarterly price growth of 0.29%
  • Over the previous annual quarter (Q1 2016) price growth actually fell 0.2%
  • On a rolling annual basis, price growth was a below inflation 2%
  • Like the rest of the market, transactions remain down, with just 820,478 taking place.
  • Sales in Q1 fell 26% over Q4 2016 and 17% on an annual basis
  • As was seen at the end of last year, the trend of slowing price growth has continued in England and Wales in Q1 2017. Like Greater London, weaker sentiment and restrictions on mortgage lending have brought the steady growth seen from 2013 to 2015, when the market made a long overdue recovery from the Credit Crunch, to an abrupt slow down. In the first quarter of this year, prices increased just 0.29%, bringing annual price growth to a below inflation 2%.
  • According to the latest Land Registry statistics, transactions were also down 26% in Q1 2017 with only 820,478 sales taking place over the last 12 months.

Slashed transaction total can be attributed to a couple of principle causes: Tax changes, which are acting as a deterrent to purchases, and current owners – particularly of lower-value properties – holding on to their stock until the market picks up.

But the luxury new-build sector has seen the biggest reduction in sales. Following three successive Stamp Duty increases since 2012, a rise from 5% to 15% for some purchases, alongside other aggressive tax hits on foreign ownership, Land Reg data tells of a very marked 57% fall in new build sales over £5m.

LCP’s picked up on another trend in the latest batch of Land Reg data: buyers – particularly at the top-end of the market – are increasingly acquiring in their own names, rather than in companies. This “de-enveloping” of their existing properties looks to be driven by the forthcoming “look through” non-dom Inheritance Tax (40%), coupled with the Annual Tax for Enveloped Dwellings (up to £218,000p.a.), which has made purchasing through corporate wrappers less attractive. HMRC data reflects this, with a 14% fall in owner occupied properties above £2m held in companies since 2013.

Naomi Heaton, CEO of London Central Portfolio: “The increase in average prices is likely to reflect a greater proportion of higher value properties being sold, rather than any real underlying price growth. Transaction data shows that the £2m to £5m bracket was the most active last year, reflecting the only annual increase in sales (8.5%). This can, in part, be attributed to international homebuyers taking advantage of significant price discounts offered on top-end properties and beneficial currency exchange rates. Prices are now 13% cheaper for dollar denominated investors than the beginning of 2015.

“The distorting effect on average prices due to a greater proportion of higher value sales reflected in the quarterly statistics is removed by analysing Land Registry’s monthly index, which only records like-for-like sales. This shows a 3.2% price increase in The City of Westminster whilst Kensington & Chelsea has seen a 0.7% price fall over the last year. Once combined, this indicates a very low level of growth. With the unexpected result of the snap UK General Election, even this growth is likely to be reversed as confidence wavers once again.

Issues such as Brexit and rising inflation are impacting the ‘feel good’ factor which drives buyers’ decisions

“Greater London is principally a domestic market and these sluggish results reflect the current state of the UK economy. Issues such as Brexit and rising inflation are impacting the ‘feel good’ factor which drives buyers’ decisions. It is also due to new caps on mortgage lending restricting borrowing to 4.5 times salaries, hampering buyers’ ability to get onto the housing ladder or trade up. This is being exacerbated by the growing new build crisis which has seen international speculators pull back in the face of uncertain or negative returns. In 2016, we saw a 51% decrease in new build sales above £5m in Inner London.

“Despite Government initiatives to support aspiring buyers with reductions in basic rate Stamp Duty and their flagship Help to Buy scheme, sales in England and Wales remain concerningly low. They saw their biggest quarterly fall in six years in Q1, equivalent to the fall during the financial crisis. With falling transactions across every sector, the Government needs to take a serious look at how they can get the property market moving again.”

londoncentralportfolio.com