insights-property-solid-ground

Prices across prime Central London have been softening since the peak of June 2014 as buyers and sellers realign their expectations on ‘realistic valuations’.

Higher taxes and political and economic uncertainty led to a softening of prices across prime Central London (PCL) throughout 2016. According to Savills Research, prices in PCL are down 13.2% compared to the peak of June 2014. The latest reports from Knight Frank now indicate that demand indicators, sales volumes and price growth are showing signs of stabilising and that price declines appear to be bottoming out. 

Although some buyers may be tempted to hold off transacting until after 8 June, we believe this will have little real impact on transactions, which continue to be sluggish because of stamp duty levels.

Political headwinds prevail

Political uncertainty shows no sign of easing, with a UK general election to be held on 8 June and Brexit negotiations expected to continue into 2019. Robert Bailey, founder of Robert Bailey Property, one of London’s leading buying specialist firms and on our panel of approved buying agents, recently noted that commentators are forever predicting a mass exodus from London but that the ‘lifestyle’ factors that make the city so compelling are hard to match elsewhere. “For business people, it’s about the judicial system, time zone, language and international travel connections. For families, they value the unrivalled education system, comparative security and vast open spaces. And for young professionals, the international dynamic and extensive entertainment options all add to the attraction.”  

Although some buyers may be tempted to hold off transacting until after 8 June, we believe this will have little real impact on transactions, which continue to be sluggish because of stamp duty levels.


London’s Luxury Living

We remain cautious on the discretionary luxury new build market. Unlike a street of identical Victorian houses, for example, new builds are much harder to value based on what has actually sold because there is generally little in the way of precedent. Asking prices can often be highly subjective, particularly with penthouses, where there can be extraordinary discounts to be had.  Bailey advises that “most importantly [buyers should] avoid the ugly-ducklings of tomorrow.” He notes that few schemes stand out from the crowd, and those that do – such as Neo Bankside and Barts Square – do so because they have been well conceived with attractive design and good quality construction. 

Service charges for new build schemes can be the sting in the tail. Even if buyers can afford the price tag, most resist spending high sums on facilities they do not want. Servicing costs are not always well understood and can add significant costs to owning a property in the longer term.

While many new developments offer a wide range of services - from club rooms, spa’s and golf simulators to pools and gyms - all these facilities come at a price and some new developments are seeing slower capital growth because of the high annual service charges that these add-ons attract. Many buyers from overseas, who only come to the UK for four or six weeks a year, are finding the additional cost these luxury extras difficult to justify.

In this regard, investors should be wary when considering these buildings and think long and hard about the effect service charges could have on capital appreciation.  With off-plan sales slowing and the number of new build completions on the rise, there is likely to be further downward pressure on prices in this market.

While outer London continues to outperform central London, could there be a renaissance of interest given the significant fall in prices in prime central London since 2014?

Low stock levels and competition for ‘best in class’ properties

In comparison to the new build market, there is a shortage of supply of existing or traditional stock.  Many vendors are reluctant to lower prices. If they can’t achieve their desired price, they often decide not to move, instead withdrawing their property from the market. Extending a property rather than ‘up-sizing’ is sometimes more financially viable. There are few forced sellers, too, given low interest rates and lower exposure to high loan-to-value mortgages. This shortage of new listings coming to the market will go some way to insulate prices.

There is neither lack of financial firepower among buyers, nor a lack of appetite to invest in London, but given the high levels of purchase tax it is more needs-driven than it used to be.   Buyers will not compromise on quality and will not over-pay. Bailey notes that “buyers who know London well are particularly active because they recognise that this is a good moment to buy a ‘trophy’ property that in a stronger market there would be much more competition for.” 


Tide Turning?

While outer London continues to outperform central London, could there be a renaissance of interest given the significant fall in prices in prime central London since 2014? We expect the shift to be gradual but as the year progresses we expect prices to continue to become more aligned with buyer expectations of value, and therefore help the market become more fluid.

When asked about calling the ‘bottom’ of the market, Bailey said that in his experience “if you look too hard for it, you’ll most likely miss it.” Instead he advises buyers to focus on buying the very best quality property within their budget, as this type of best-in-class property generally stands the test of time. 

For more information on any of our lending products please speak to your Private Banker. If you are new to Coutts please speak to Business Development on 0207 753 1365.

If you require further information regarding the residential real estate service we offer, please contact: Katherine O’Shea: katherine.o’shea@coutts.com

NEWS AND 

INSIGHTS

  • London Residential Property Market

    01 Feb 2017
    London Residential Property Market Coutts sees another subdued year for London property in 2017 as Brexit negotiations develop, but the outer boroughs could perform better than prime central London.
  • Bristol Residential Property Market

    08 Feb 2017
    Bristol Residential Property Market Bristol’s property market is currently hotter than London’s. Coutts reveals what’s behind this boom and what it means for homeowners and investors.
  • Update on UK Residential Property

    13 Jul 2016
    Update on UK Residential Property Post Brexit uncertainty is pressuring UK property in the short run, but longer term we see limited supply keeping a floor under UK houseprices

Become a client

When you become a client of Coutts, you will be part of an exclusive network.

BAC_link_mobile
Read more »