Super-deal surge behind PCL ‘recovery’

'The increase in average prices appears to reflect a greater proportion of high-value properties being sold, rather than any significant underlying growth,' says LCP

A “surge” of high-value deals – including a £90m record-breaker in Knightsbridge – drove a marked uplift in prices and transaction volumes across Prime Central London during Q2, according to new analysis of Land Registry data.

London Central Portfolio and Acadata calculated the average price in PCL to be £1,946,151 by the end of June, after a quarterly uplift of 7.9%, although much of that increase is being attributed to a few big-ticket buyers taking advantage of chunky price chops and favourable conditions at the top end.

While it may not have fallen into either of those categories, Q2’s blockbusting £90m deal at The Knightsbridge Apartments (reported here back in May) was the most expensive sale ever to transact through the Land Registry…

As a result of this flurry of high-end transactions, the top 10% of the market outperformed – which is something we haven’t heard said in a while – posting a 20% increase in average prices. Take that top 10% sector out of the equation, however, and average quarterly price growth in PCL worked out at a “more typical” 4.5%. Performance in the buy-to-let-sector was “sluggish” by comparison, with price growth of just 1.3% for properties under £810,000.

Encouragingly, sales volumes strengthened across the board, with an annual increase of 4.8% to 3,885, but again the top end shone, with the £5m-£10m bracket seeing an increase of 23% over Q1 – the highest recorded across all price ranges. It’s worth noting the PCL market was seeing transactions up at 6,044 during the same period in 2013, before SDLT-fuelled stagnation set in.

A very different story is emerging in the sub-£1m segment of the PCL market, however, where sales volumes fell by 9%.

Looking at Greater London, quarterly price growth came in at 4%, taking the average to £634,234, although the total number of sales fell to a meagre 88,545 (practically half that of 10 years ago) after an annual decrease of 24%.

There was hardly any quarterly price growth to speak of across England and Wales (0.27%; average to £287,823). Transactions fell by 12%, with the annual total of 844,380 marking a seven-year low.

Naomi Heaton, CEO of LCP: “The increase in average prices appears to reflect a greater proportion of high value properties being sold, rather than any significant underlying growth. Not only have we seen some very large individual sales but transaction data shows the £5m – £10m bracket was the most active in Q2 with a 23% increase over Q1. This can be attributed to international homebuyers taking advantage of notable price discounts, alongside beneficial currency exchange rates. The buy to let sector, on the other hand, is seeing a much slower picture as investors continue to adopt a wait and see attitude.

“Looking at the monthly breakdown gives us a clearer picture of what is really happening in the market overall. Whilst bumper transactions boosted average prices to as high as £2.2m in April and May, which included the most expensive sale to register through Land Registry at £90m, June reflected a more sedate picture with average prices falling back to £1.65m.

“Greater London is principally a domestic market and whilst prices continue to show growth, slowing sales volumes reflect the current state of the UK economy. Concerns around Brexit have impacted the ‘feel good’ factor which drives buyers’ decisions, whilst affordability issues resulting from caps on mortgage lending have hampered buyers ability to trade up or get onto the housing ladder. Falling sales volumes are also exacerbated by problems within the new build sector. This has seen international speculators pull back in the face of uncertain or negative returns. It is reported that the number of new building starts in London will fall to just 21,500 this year, meaning only 18,000 new homes will be built by 2021.

“Despite Government measures to reduce Stamp Duty for 98% of the market and schemes to promote activity such as Help to Buy, weaker sentiment and restrictions on borrowing continue to impact on the domestic market in England and Wales. With static price growth in Q2 and annual transactions levels falling a further 12.3%, the Government seriously needs to address the growing affordability issues within the sector and support the building of more low-cost housing for buyers. The artificial stimulus packages and tax reliefs do not appear to be reinvigorating new buying activity.”