It’s been a tumultuous couple of years at the top-end of the capital’s residential property market, says Rokstone’s Becky Fatemi, and things are not likely too get any easier for agents and developers in the near future as stagnation sets in…
THE PAST: The 2015/16 Triple Whammy
It wasn’t until late 2015 and early 2016 that the impact of George Osborne’s stamp duty overhaul started to hit the £1m+ market in central London. The changes made by the former Chancellor in December 2014, hiking the transaction levy on properties worth more than £937,000, have acted as a drag on transaction volumes and therefore prices.
I have a client who wanted to move from an apartment in Marylebone to a family-sized house in Queens Park but the stamp duty amounted to £250,000. She will therefore make do with the flat. In that instance the economy has lost a sale, a purchase and HMRC has sacrificed the stamp duty. This behaviour has now been backed up by new figures from the London Central Portfolio, which show the impact of stamp duty (read all about LCP’s research on PrimeResi here). The data revealed the sales of luxury apartments in London have collapsed by more than 80% since the spring.
Property is still the safest place to put your money but only for buyers who are looking long term. Confidence is down and people are confused about which way the market is going – there doesn’t seem to be one rule or formula for the London market going into 2017.
Over the last 20 years we saw an influx of Europeans, Russians, Chinese and Middle Eastern buyers. All of which had different preferences which kept developer activity high as they produced what was needed for the market. As demand from some of those nationalities has dropped off, so has the developer imperative to build variation.
Stamp duty racked up the cost of buying but it hasn’t been the only stifling factor: a strong bounce back after the global financial downturn – due to emerging wealth seeking a safe haven in London, combined with historically low interest rates – had taken PCL house prices in Kensington & Chelsea (for example) from £810,781 on average in January 2008 to £1,379,484 in September 2016 (according to Land Registry) making the market expensive.
The general election and talk of mansion tax in 2015 also put the brakes on the market, slowing demand from both domestic and overseas buyers and, finally, the public voted to leave the European Union in June 2016. This quashed buyer appetite at a point when prices were naturally correcting.
THE PRESENT: Caution & Discounting
The market returned in September but as a different and more complex beast.
Caution on the part of both buyers and sellers created a lack of urgency. Some vendors who would have sold following a vote to remain in the European Union decided to sit tight to see which way prices go, and many buyers became far more wary on price. We are waiting to see where the penny will drop – there is a lot of window-shopping going on right now.
A new buyer has emerged: The cost of buying has increased (tax) and the cost of moving has increased. In a slow market, the domestic buyer is now looking for a discount especially as City bonuses (and jobs) are under threat. The overseas buyer is naturally getting a discount given the currency dynamic of dollar to pound.
The key to the luxury property sector in London is motivation not market
So has a new seller: The key to the luxury property sector in London is motivation not market. There is no incentive to move their money out of real estate, it attracts barely any interest elsewhere, and therefore no pressure to sell, unless of course there is a lifestyle imperative such as relocation for work. In fact, in PCL the cycle of selling has extended from every five years to every eight years slowing churn.
Some sales are taking a year to a year-and-a-half to shift, therefore the seller needs patience.
THE FUTURE: Stagnation and a Eurosceptic Silver Lining
I expect off-the-market activity to ramp up in 2017 as vendors don’t want over-exposure on their property. But, be warned, this also makes it harder to rack up viewings; the buyer has to work harder to find the right property.
We are entering a period of stagnation in terms of volumes and therefore price. Prices will come off in the first half of the year to the point when such falls wake the market up again.
It will not become a true buyers’ market place. At first glance this looks like a buyers’ market but as sellers are not desperate to part with property there is not a glut available. When it comes to shifting the perfect property the seller is in control and plenty of demand is coming forward for the right location or the right home.
For those who are selling a “compromise” property the market is different and the buyer is in charge.
Britain is not the only country in the throes of political uncertainty as anti-EU feeling spreads across Europe. Matteo Renzi’s resignation following Italy’s constitutional referendum could be seen as one more Eurosceptic nail in the European Union’s coffin. 2017 is going to be a year of popularity tests for the EU with key elections in France, Germany and the Netherlands.
More uncertainty on the continent will elevate London’s safe haven’s status once again, despite Brexit, and encourage a flight of capital from Europe into the UK capital’s property market.