Prime central London sales and lettings markets booming
Residential property price in prime central London have increased by approximately 8 to 9% over the first half of this year, new research shows, and the letting market is also booming.
A large proportion of buyers are from overseas, up 15% year on year and gazumping is becoming increasingly common in rental sector, according to the latest report from W A Ellis.
The firm has seen a 50% increase in tenancy agreements during June due to student renters and some landlords are already adapting tenancy agreements in anticipation of next year's Olympic games.
‘The property market in prime central London is extremely resilient and continues to buck the trend for house price increases. We have seen a very busy spring market with price per square foot values in prime areas far exceeding the 2007 peaks. The Office for National Statistics state that the average UK house price has reduced by 0.3% over the first quarter of this year, but in our market, we've seen increases in the region of 8% to 9%,’ said Daniel Wiggin, a partner at W A Ellis.
The average house price throughout the country is £204,439, which in Knightsbridge, will buy just a small two bedroom flat with one bathroom and a 4.25 year lease and the premium for a lease extension of 90 years will be in excess of £1 million.
‘This shows the enormous difference between our particular area and the UK nationally. In fact, it is true to say that underground car parking spaces of approximately 19 feet by 8 feet, in the recognised Knightsbridge blocks are often sold for prices in excess of the national average house price,’ explained Wiggin.
‘Recently, we marketed a flat in Knightsbridge which had been in the same ownership for over 35 years and needed modernisation. We had 30 viewings in the first two days and through careful management, we went through an informal tender and managed to achieve the very highest price possible for our client together with many backup bids. This example clearly denotes the strength of the prime central London market. For the longer term, it is predicted that residential property values in prime central London could increase by 33.4% in the next four years,’ he
One reason is the low stock levels in this sector. ‘I think that a return to more typical market conditions is unlikely. We must accept that the severe shortage of good quality flats and houses within the market is here to stay. One explanation for the low levels of properties coming on to the sales market could be that people are increasingly viewing prime central London property as a long term investment,’ Wiggin explained.
He points to the huge increase in foreign buyers. In the first quarter of 2011, 70% of the firm’s buyers were from overseas, an increase of 15% from the same period last year. Foreign investors do not need to sell, and in many cases, their investments here are seen as the equivalent of a high interest bank account, he added.
‘This means that domestic interest rates are now not as influential in the market as foreign exchange rates, and so we look closely at political posturing in other counties and international markets in order to predict what will happen in the market. The dollar remains relatively weak against the pound which does not help us, however, sterling continues to be relatively weak against the euro, which is attracting European buyers, said Wiggin.
Lucy Morton, senior partner and head of lettings at W A Ellis, said that the lettings market in prime central London continues to go from strength to strength. ‘In June, we completed 50% more tenancy agreements than our usual monthly average. This increase is largely thanks to an influx of students and families who are keen to finalise their accommodation arrangements ahead of the start of the new academic year in September,’ she said.
‘Also, because there is a shortage of studio flats and one bedroom apartments on the lettings market, those that are available are hugely sought after by students and therefore, rents have increased by as much as 10% since the beginning of the year.’
She pointed out that gazumping, where a vendor/landlord accepts an offer only to pull out later on in the deal after receiving a better offer, is a phenomenon which, until now, was usually only seen on the sales market, but is becoming increasingly common on the rental market.
‘We were recently in a bidding war on an apartment in Chelsea, which was being marketed at £595 per week. Our applicant offered £600 per week initially in a bid to secure the flat but eventually, the flat achieved considerably in excess of this figure, such is the demand for good quality one bedroom properties,’ she explained.
‘We had two asking price offers on a stunning apartment in Lowndes Square, Belgravia, at the start of marketing at £2,750 per week. Bids started to escalate, ending in 'best and finals' being taken and the landlord secured a tenancy in excess of £3,000 per week for a two year tenancy with the first year paid up front, such was the strength of the bidder.’
She expects the short term let market to remain extremely active as over the summer historically, people come to the capital for various events such as Ascot, The Henley Festival and Goodwood, as well as, Ramadan which has fallen early this year.
‘Next year, the Olympics will be in town and demand for short term lets is expected to be high. In anticipation of this, many landlords are already adapting their tenancy agreements to include break clauses so that they can benefit from the games. It may be possible to achieve up to six times the usual weekly rent during the three weeks of the Olympics, but possible void periods before and after the games could have a significant impact on potential financial gain,’ she added.