How the Brexit vote was ‘a surprise lifeline’ for PCL’s property market

Sterling's decline after the referendum result was behind a 16% jump in PCL transactions, says Carter Jonas

2016, as we know, wasn’t a cracker for most prime London property agents, with values falling and deal numbers slumping. But “Brexit was a surprise lifeline”, argues Carter Jonas, heralding a currency-driven upturn towards the end of the year, which offset at least a bit of the market’s overall underperformance.

All-told, Carter Jonas’ workings indicate that house prices fell by 5.9% in Prime Central London in 2016, with transaction volumes down 35% compared to 2015. Outer Prime property prices were also knocked, falling 2.9% compared to 12 months prior.

The top-end of the market, still beleaguered by 2014’s stamp duty reforms, was hit again by the introduction of a 3% SDLT levy on additional properties in April 2016. The surprise Brexit referendum result, however, proved to be a “lifeline” for agents in Prime Central London, as sterling tanked – making British assets veritable bargains for buyers with dollars, yen or any other currency to spend.

A sudden influx of buyers with US, Singapore and Hong Kong dollars taking advantage of double-digit discounts from favourable currency exchange rates significant boosted transaction levels in the aftermath of the vote: Carter Jonas reports a 16% jump from Q3 to Q4, leading to a 1.8% bounce back in PCL values in the final three months of the year.

Similarly, Outer Prime experienced a 1.5% recovery in Q4, albeit after a strong start to the year with price rises of 2.5% in Q1 of 2016. Prices were boosted in March by a surge in investor activity ahead of the introduction of the 3% SDLT surcharge, with transaction volumes up by a thorough 108.5% compared to March 2015; however, for the year, transaction volumes settled at 25% below those recorded at the market peak in 2015.

While prices flattened out over the summer and eventually softened following the referendum result, values made a marginal recovery and were up 1.5% in Q4.

Prime Central London values by area

Area Average achieved £PSF (as of Dec 2016)
Mayfair & St James’s £2,145
Knightsbridge & Belgravia £1,948
South Kensington £1,796
Chelsea £1,761
Kensington £1,613
Marylebone £1,524
Holland Park & Notting Hill £1,395
Victoria £1,282
Hyde Park & Bayswater £1,245

Outer Prime (South West) sold values by area

Area Average achieved £PSF (as of Dec 2016)
Fulham £958
Battersea £855
Barnes & East Sheen £811
Clapham £808
Wandsworth £789
Putney £767

Tim Macpherson, Head of London Residential at Carter Jonas: “2016 brought a host of challenges to PCL and Outer Prime property, but the market was quick to adapt and seek out new opportunities, which could be a catalyst for a pendulum swing in favour of buyers as we enter 2017.

“Buyer uncertainty initiated the re-evaluation of asking prices, which saw the over-inflation of 2015 taper off, creating better value in the market, while the Bank of England safeguarded low interest rates until 2019, resulting in favourable buying conditions.

“The uptick in transactions and capital values in PCL and Outer Prime in Q4 indicates that a revival could be imminent in London’s core market of between £1m and £3m, as buyers seize the opportunity to uncover value in its upper echelons. However, unless stamp duty is revised, price growth at the top end of the market will be limited for the foreseeable future, as transactional friction proves too great a surcharge to overcome.”

The lettings arena in both PCL and Outer Prime proved to be a much more stable place through 2016, with PCL’s average rental value standing just 0.7% down in December compared to a year earlier, and Outer Prime coming in 1.7% up after 12 months.

March’s mad rush of investors resulted in an influx of stock in April, at which point rents softened slightly – but values were restored by May, with tenants keen to take advantage of price reductions, which absorbed additional stock. It was clear by Q4, says Carter Jonas, that PCL and Outer Prime lettings markets had avoided any significant challenges, with the proportion of properties achieving over asking price in PCL at its highest for the year.

The percentage of lettings that achieved asking price in Outer Prime fell in Q4, which is marginally more than might have been anticipated at this time of year, but overall rents still rose 0.5% in Q4, painting a mixed picture. However, with rents in PCL and Outer Prime tracking just below the Retail Price Index (RPI), which is running at just over 2%, rental increases – albeit in single digits – are expected to resume over the coming 12 months.

Lisa Simon, Head of Lettings at Carter Jonas London: “With such a minimal decline in rental values in PCL and growth in Outer Prime in 2016, coupled with evidence that rents are tracking the upward trajectory of RPI, we have every reason to be cautiously optimistic for 2017. Despite the unprecedented headwinds of 2016, the performance of lettings exceeded expectation, emphasising the solid foundation in which the market is grounded, which stands us in good stead for the year ahead.”