Growth in prime London property slows

Jun 29, 2012 - PropertyGuru.com.sg

  

By Andrew Batt:

London's prime residential property values rose by an average of 0.9 percent in the second quarter of 2012, and the 6.0 percent annual price growth was at its lowest level since September 2009, according to new analysis from international real estate advisor Savills.

Despite this, the firm says the fundamentals of the market remain strong and annual growth is expected to remain in positive territory.

Price growth in prime central London slowed to just 0.4 percent in the quarter in a sector that has outperformed the market since 2009, leaving values 20.9 percent up on peak compared to the all London average of 14.1 percent.

Ultra prime £10-million-plus (S$20-million-plus) properties saw marginal growth of just 0.2 percent in the quarter, but continue to outperform the market at 8.6 percent year on year, leaving values an extraordinary 29.5 percent over their previous peak and 57.7 percent from their March 2009 low.

Savills stands by its 2012 forecast for 3.0 percent growth.

Lucian Cook, Director of Savills Research, said: "It is now three years since the markets bottomed out and we've seen a period of intense activity and price growth, but it now seems unlikely that the market will have the capacity for further price growth in the short term."

"Heightened uncertainty in the Euro Zone, a reduction in currency play over recent weeks, and changes to stamp duty on properties worth more than £2 million (S$4 million) have been catalysts for a slowing in the market, albeit offset by London's safe haven appeal."

"Volatility is an expected feature of the early state of a housing market cycle. As such, our forecasts assumed a pause in price growth in prime central London, and it now looks as if stamp duty changes could be the trigger for a period of static prices, but the longer term fundamentals for this market - constrained stock and global wealth generation - look sound."

Year to date growth stands at 3.4 percent in prime central London, and Savills now expects the market to plateau for a period. Five year growth is forecast to be around 23 percent.

Savills noted there are signs of greater resilience in the core central markets, not least based on the appeal of the best addresses to international investors. Chelsea, Mayfair, Belgravia and Knightsbridge all showed growth of 1.2 percent or more in the second quarter, averaging 8.9 percent annual growth and 24.2 percent since peak.

In contrast, the slightly more fringe locations, particularly those associated with financial and business services sector buyers such as South Kensington, Notting Hill, Kensington and Holland Park, showed small price falls of -1.4 percent. Annual growth fell below the all prime London average at 5.4 percent, but ahead since peak at 18.1 percent.

Cook added:  "Overseas buyers remained committed to the very best central locations - accounting for 58 percent of buyers in the first half of 2012 - but stamp duty changes mean they are finding it more difficult to structure transactions in a way that protects their wider tax position. A transition to the new regime is making the market pause for thought."

Greater quarterly growth has been seen in less fully priced parts of the prime London market beyond prime central London.

International demand has been less of a market driver in these locations, resulting in a slower, but less volatile recovery, and there has been less use of the offshore ownership structures specifically targeted in the last budget.

In the prime markets of North London, prices rose by 1.6 percent in the quarter but just 3.9 percent year on year. Meanwhile, the effective absence of any  new development in the prime East of City markets means much less stock is available than would normally be the case, allowing price growth to gain a stronger foothold over the past year. Values rose by 1.5 and 4.6 percent year on year.

The prime South West, which runs from Battersea and Wandsworth, through to Wimbledon and Barnes, has shown higher levels of growth since peak, but slowed to 0.9 percent in the second quarter, in line with the all prime London average. This suggests rising caution in an area dominated by domestic family buyers employed in the business and financial services sector, coupled with the impact of the budget which has seen prices of some family homes chipped below the £2 million (S$4 million) mark.