Prices in this sector rose by 0.3% in April and have been broadly flat in recent months with annual growth dipping to 2.8% in April, according to the latest report from real estate firm Knight Frank.
Indeed, it is the lowest rate since November 2009, a period when the market had begun to rebound following the collapse of Lehman Brothers the previous year.
After an exceptionally strong run of growth that saw prime central London property cement its global reputation as a safe investment, political uncertainty has now replaced economic uncertainty, according to Knight Frank associate Tom Bill.
‘During an election campaign where the opinion polls remain deadlocked and a clear cut outcome is not immediately guaranteed, some sellers are waiting for more clarity before acting, which has led to pent-up demand,’ he said.
He pointed out, however, that irrespective of the outcome, a growing number of vendors are lining up properties for sale once the election is over, which suggests there will be a bounce in transaction levels.
He also explained that in the sales market demand remains robust, primarily on the back of a strengthening UK economy but also from overseas buyers who view London as an attractive place to live given the shifting nature of geo-political uncertainty around the world.
‘Tight supply and strong demand has in some instances led to a stand-off between buyers and sellers in the expectation that more stock will appear after the election. As a result, viewings were 14% lower in the year to March 2015 than the previous year,’ said Bill.
‘While there is less political uncertainty in lower price brackets and price growth broadly remains stronger below £2 million, there remains strong appetite for higher value property. Some deals have been done as sellers have adjusted asking prices down to reflect the fact growth has cooled across the various price bands,’ he explained.
‘It is also worth noting that annual price growth in prime central London has been slowing for three years, which means that some degree of political uncertainty is already priced in,’ he added.
According to Bill, over the last year, the prime central London lettings market has benefited from uncertainty in the sales market surrounding the outcome of the general election and a number of buyers have opted to rent until the outcome is clear, though demand has been more broadly driven by the strengthening UK economy.
‘As the election moves closer, this trend has become less marked as a universal sense of hesitation permeates both the lettings and sales markets. Some prospective tenants have been holding out for the election result before deciding whether to rent or buy which, combined with the Easter holiday, led to fairly subdued activity across many markets in April after a strong start to 2015,’ Bill said.
The positive underlying economic trend drove rental values 0.5% higher in April, which was the strongest rise in six months and means there has been no decline for 14 months. Annual growth was 4.1%, which is the highest it has been in more than three years. It also means that rental value growth exceeds price growth in prime central London, which has not been the case for almost four years.
‘In similar fashion to the sales market, there is a sense that pent-up demand has been created in the lettings market in recent weeks. Any post-election bounce in activity will be buoyed by a seasonal pick-up in demand in the student and corporate markets,’ Bill pointed out.
The strength of the market was reflected in the fact the number of tenancies agreed in the year to March rose 18% while the number started increased by 28%. Meanwhile, the number of viewings and new prospective tenants rose 13% and 16%, respectively.
Gross rental yields held at 2.92% in April, the result of a modest rise in sales values in April that was largely driven by price growth in areas including Islington, Hyde Park and the City.
