FORECAST: PCL property prices could be 12% down by 2020, while UK-wide values soar 24%

Strutt & Parker hedges five-year market predictions for Prime Central London with best case/worst case scenarios

Property values in Prime Central London are likely to end this year 10% lower than they started it, says Strutt & Parker, but that’s where any form of certainty ends. The firm has divvied its five-year PCL forecasts into two very different scenarios: one results in a 5% price increase after five years, the other in a 12% drop.

There seems to be a bit more consensus on a national scale, with just the one forecast scenario putting house price inflation at +5% next year, rising to +24% by 2020.

Here’s what Strutt & Parker is forecasting:

The increase in Stamp Duty Land Tax (SDLT) for additional homebuyers, combined with a gradually more punitive tax system for the wealthy has been reported to have had a bigger effect on PCL house prices than Brexit, and has slowed demand. The outcome of Brexit for the UK economy, and its particular impact on financial institutions’ location choices remains to be seen, but a prolonged period of uncertainty is likely as negotiations continue, even after Article 50 is triggered. Going forward, with more sellers being prepared to review pricing and entertain reasonable offers, the market may have found a level which will provide a spur to transaction levels, and as a result, there may be a lessening of downward pressure on prices. The market is expected to continue to experience low transaction levels as buyers and sellers await more certainty on the economic outlook, and as such the risk is predominantly on the downside. Although the implications of Brexit will not be fully understood for some time to come, the PCL market is likely to remain a safe haven for investors’ money in the long term and therefore price growth is expected to return from 2019 onwards.

Sales

2016

2017

2018

2019

2020

5 Year to 2020

Prime Central London – best case

-10%

0%

0%

8%

8%

5%

Prime Central London – downside risk

-10%

-5%

-5%

4%

4%

-12%

UK

5%

5%

4%

4%

4%

24%

Lettings

2016

2017

2018

2019

2020

5 Year to 2020

Prime Central London – Lettings

0%

0%

2.5%

2.5%

2.5%

 8%

Informing those tea leaves, Strutt & Parker’s data forQ3 2016 showed an uplift of 4.6% in UK domestic market buyers in PCL when compared to the same period last year. Overall, however, both the volume of sales and the sum of the selling prices have fallen by 47% between Q3 2015 and Q3 2016 (according to LonRes and S&P stats). A total of 384 properties were sold in PCL during the third quarter of 2016.

  • Historic number of sales in PCL

historic-number-of-sales-in-pcl

There are pockets of enduring international demand, though, with a slight increase of buyers coming from both Western Europe and Asia relative to Q2 2016.

  • Known PCL buyer nationalities for Q3 2016 (removing UK – domestic market)

known-pcl-buyer-nationalities-for-q3-2016-removing-uk-domestic-market

The current economic conditions, alongside the new Stamp Duty Land Tax for additional homes, are also having a combined impact on the PCL lettings market – which is 36% down compared to Q3 2015. However, Knightsbridge and Belgravia reported that volumes were up 10% compared to Q2 2016.

  • Historic agreed lets in PCL

historic-agreed-lets-in-pcl

  • Tenant profiles in PCL Q3 2016

tenant-profiles-in-pcl-q3-2016

Charlie Willis, Head of London Residential at Strutt & Parker: “The low volume of transactions is indicative of a market where only properties at realistic prices with motivated sellers are completing. We have seen a noticeable increase in viewing from committed buyers, throughout later September and October, and this has led to an uptick in transaction volumes. Particularly where sellers have been realistic and adjusted asking prices according to market sentiment.

“The fall in sterling against certain currencies following the Brexit vote, particularly the dollar and the swiss franc, has definitely been a major contributing factor to the increase in buyers we have seen from Europe and Asia since June. For overseas buyers, this currency play instantly wipes out the formerly prohibitive cost of 15% Stamp Duty on the most expensive properties.”

Kate Eales, National Head of Lettings at Strutt & Parker: “Despite volumes of lettings transactions being down year on year in PCL, we have seen tenancy length increase, as well as a surge of demand in ‘super prime’ with transactions up 50% year on year in properties over £8,000 per week.”

struttandparker.com