The Lonres Spring Review: Carrington on Q1

Lonres Chairman William Carrington looks back on a period of declining transaction levels and deflating prices…

William CarringtonIt is well documented that general elections breed uncertainty – economic and geopolitical risks impact many areas of business and the housing market is no exception.

Transaction levels, which were already beginning to slow over the second half of 2014, have continued a downward trend over the first quarter of this year. Overall prime London transactions in Q1 2015 were down 26.7% on the same period last year.

Prime London round-upHowever, the market is not subdued across all price thresholds. Transactions in the £1–£2m price bracket were down by 8.5% compared to Q1 2014 but down by 35.3% in the £5–10m market. The slowdown is also reported in Manhattan, due to oversupply, with high-end properties taking an average of 147 days to sell (Q4 2014), twice as long as a year ago.

The media continues to talk of economic caution; latterly warning that the US Federal Reserve risks setting off a 1937 style crash when they raise interest rates again. Back then it caused a stock market bubble (combined with printing money – quantitative easing to aid recovery from the 1929 crash) which burst when those self-same rates were raised.

Today, media speculation comes at a time when our own FTSE 100 has just gone through the 7,000 barrier. Christine Legarde has also spoken of a ripple effect which may extend to countries who have borrowed heavily in dollars. India perhaps? The same scenario is that economists and monetarists failed to agree on the cause and the tax payer got clobbered. With such low interest rates, investors appear to have regained their appetite for some of the more “exotic” offerings, while completely forgetting events of the recent past. Yes, sub-prime bonds are back, except that they are now called “non-prime.”

With SAC Capital being the latest casualty of insider trading, that does not stop investors piling their money into hedge funds which, for the sixth year in a row have underperformed the S&P 500. Nor does it stop the average portfolio manager’s pay from increasing 8% from 2013 to $2.4m! (source: Bloomberg Businessweek) One market worth watching from April will be the Scottish housing market, when the Land and Buildings Transaction Tax (LBTT) takes effect.

While the Labour Party’s promise to introduce a mansion tax adds to the mix, I have no doubt that the Scottish government’s tinkering will have an impact on the property market above £500,000 throughout the whole of Scotland, not just in Edinburgh, Glasgow and Aberdeen. At this level, SDLT would result in a charge of £15k, while LBTT would be £23,350. At £1m, this widens with SDLT at £43,750 and LBTT at £78,350. Watching this, as I do, from the English border in Northumberland, there is already a great deal of unease amongst sellers.

From our own research, you can see a decline in transactions across the PCL spectrum and sales prices deflating. The lettings market is more buoyant than the sales market but even here there is an air of underlying caution among agents.

Finally, as the longer days are upon us, thoughts turn once more to the ever popular Lonres London Magazine Tennis Cup. The event is now fully subscribed and the first matches will take place in May. The finals are planned for the 10th of September and we wish everyone taking part the very best of luck. I won’t be entering this year as I have tennis elbow but for those with long memories, I recall winning the previous version of the tournament 20 years ago! Hey ho!

  • Annual change in transaction in the sales and lettings market of prime London
    (click to enlarge)

Annual change in transactions in the sales and lettings market of prime London

The Lonres Residential Review, Spring 2015