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Coutts London Prime Property Index | Q4 2017

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The latest data from the Coutts London Prime Property Index (CLPPI) and an in-depth look at how new developments influence the way the capital is changing

6 min read

Although sales of existing homes have fallen annually, new developments are cropping up across the capital. With prime London prices now back to 2013 levels, price movements have slowed in recent quarters and are set to remain relatively flat for the next two years.

-9%

Annual change in quarterly sales volumes

-0.8%

Annual change in price

3.6%

Annual gross letting yield

  • CHAPTER 01

    Overview

    Up on Q3, but price-sensitive buyers keep prices low

    Buyers in London remain price-sensitive. Discounts on existing prime properties rose to an average of 11% in the last quarter of 2017. As sellers adapt to this new environment, prices fell by 0.8% annually, in line with the downwards trend we’ve seen since the end of 2014. However, the latest quarter saw an improvement in prices of 1.1% for London prime properties compared to the previous quarter, as illustrated by the CLPPI.

    London buy-to-let investors received an average gross yield of 3.6% in the past quarter. It’s our view that returns for buy-to-let investors are increasingly constrained by an unfavourable tax regime, low yields and limited capital growth prospects. In these circumstances short-term gains are likely to be hard to come by.

    Looking forward, we expect prices across prime London markets to remain relatively flat for the next two years while the government manages the process to leave the EU. For those looking for a place to live, the price correction and more recent slowdown in price falls could be enough to tempt buyers back into the market. In our view, confidence is likely to return to markets after 2020, releasing pent-up demand that could see prices rise more quickly.

    The rising tide of new development

    Londoners have grown used to the sight of cranes and construction sites dotted across the capital. More than 26,000 new units are currently under construction or have received permission to start building in post codes covered by the Coutts London Prime Property Index as at December 2017.

    New developments are cropping up throughout the 15 areas we cover, but it’s Central and West & South West London that are leading the charge. While this reflects the degree of demand in these sought-after areas, there is a risk of a potential over-supply of luxury new builds leading to an increase in listing times for them and higher discounts than on existing homes.

    *Kensington, Notting Hill & Holland Park includes units with permission at Earl’s Court, which falls within W14.

    Crossrail’s Elizabeth Line launches in December 2018 and is expected to bring positive knock-on effects in London including plans to pedestrianise parts of Oxford Street. Prices have already risen in the affected areas, but there could be a further boost when the line opens up as footfall increases and amenities around the area improve.

    In addition, new transport links could increase demand in the areas connected by the new line. It will stretch for more than 60 miles from west to east London, calling at 41 stations and is estimated to serve around 200 million people a year, according to Transport for London.

  • CHAPTER 02

    Prime North London

    The slowdown seen in most prime central London markets over the past three years has also rippled out to prime north London markets. Discounts on asking price are on the rise and sales volumes are falling in most prime north markets.

     

    Hampstead & Highgate

    • Prices were 5.8% lower compared to the previous quarter and 6.3% lower than this time last year, a fall of 11% from peak values in Q2 2016.
    • 58% of prime properties were sold below guide price in Q4, with buyers getting an average discount of 11.1% off the asking price.  
    • Sales volumes were down 16% compared to the same period last year.

    St John’s Wood, Regent’s Park & Primrose Hill

    • Prices up 6.6% compared to the last quarter, and 1.2% compared to last year, although still 8.5% below peak values.
    • Average discounts for prime property were 12%. High discounts are likely to make vendors nervous and those who don’t need to sell are unlikely to put property on the market in this environment. Perhaps as a consequence, we’ve seen a 27% annual fall in sales volumes.
    • New developments look interesting with a total of 2,024 units under construction or with planning permission, including the development of the former St John's Wood Barracks, a 2.2 hectare site.

    King’s Cross & Islington

    • The redevelopment and regeneration around King’s Cross means that activity in the area remains strong. There is a high volume of stock under offer and an 18% increase in prime property sales volumes compared to Q4 last year. 
    • Development in the area is set to continue. There are currently 878 residential units under construction and a further 1,003 with planning permission.
    • Investors looking for yield may not consider London as the most interesting market, but this area currently offers the highest average gross rental yield at 4.5%.
    • King’s Cross & Islington also holds the record of the lowest average void period for lettings in prime London of 33 days, not surprising given that Islington is London’s most densely populated borough. 
  • CHAPTER 03

    Prime Central London

    Prime Central London continues to see mixed performance in terms of prices and sales volumes.

    Some prime central markets have had relatively flat price performance over the last few consecutive quarters, such as South Kensington, Bayswater, Notting Hill and Chelsea. Despite this, discounting is still prevalent.

    Sales volumes are also down in most of these markets compared to Q4 2016; Bayswater & Maida Vale is the only area within prime central London that has seen an increase in annual sales volumes. 

     

    Fitzrovia & Marylebone

    • Continues to buck the trend in terms of price growth, growing exponentially over the last few years - over 40% since the beginning of 2013.
    • The development pipeline also looks strong with 991 units currently under construction and a further 1,020 units with planning permission. The development pipeline in this area tends to be smaller, boutique-style developments.

    Mayfair & St James’s

    • Our latest data shows that values in Mayfair have recovered well and prices are now back to peak levels, although sales volumes are 45% below peak trading levels in 2013.
    • This is a niche market, and often where records are set in terms of price per square foot. We often refer to the “scarcity” factor in Mayfair & St James’s which means the data can be limited in this market and often show erratic results. 
  • CHAPTER 04

    Prime West & South West london

    With average gross letting yields currently ranging from 3.5% to 4.1%, income returns on property investments in this area continue to be relatively high for prime London.

    New build activity is very high - the West & South West London areas include almost 40% of new buildings under construction in London, and a quarter of the total volume of units pending construction and for which permission has already been granted. 
     

    Hammersmith & Chiswick and Fulham & Earl’s Court

    • From Hammersmith to Battersea, South West London is undergoing a revival with new St George residential developments which include Fulham Reach, Sovereign Court and Chelsea Creek (being developed by the Berkeley Group).
    • The Earls’ Court area is also undergoing significant regeneration with a phased project that will add 7,500 new homes as well as retail and restaurant facilities by 2035 (being developed by CapCo/LBHF).
    • Prices in Hammersmith & Chiswick decreased by 4.4% whilst sales volumes decreased by 26% and discounts on asking prices increased to 12.3% annually.
    • Equally in Fulham, prime sales reduced by 18% annually at a 9.8% discount on asking price

    Battersea, Clapham & Wandsworth

    • In the wider South West, an additional 20,000 units are set to be built around Nine Elms and Battersea Power Station (as reported by JLL). It’s no surprise therefore that Battersea, Clapham and Wandworth is buzzing with activity and just reached its four-year peak in sales of existing properties

    Wimbledon, Richmond, Putney & Barnes

    • Wimbledon, Richmond, Putney & Barnes continue to perform well; the time for a listed property to be sold reduced by 26.3% annually showing the strength of buyers appetite in this area. Prices also increased by 14.3% annually.
  • CHAPTER 05

    Interactive Map & Postcode Selector Tool

    Use the map and postcode selector below to see how your area performed last quarter.

Key Takeaways

Prime property prices in London rose by 1.1% between Q3 and Q4 2017, but are down -0.8% for the same period last year. Buyer discounts are rising and now stand at 11% of the initial asking price, while sales volumes have also fallen by -9%. Buy-to-let yields stand at an average of 3.6% gross. 

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