Last October the real estate company forecast that 2012 would see an additional 5% growth in prices. Just five months into the year growth has already reached 4.7%.
But they warn that two critical issues could have an impact on the rest of the year; the new stamp duty rate of 7% for properties worth £2 million and more and associated uncertainty surrounding company purchases, and the Eurozone crisis.
‘The early evidence is that the market has absorbed the 7% stamp duty rate fairly well. Price growth in the two months since the Budget change has been slower in the £2 million plus sector than the sub £2 million bracket, 1.6% as opposed to 2.7%, but it has remained positive,’ said Liam Bailey, head of residential research.
Sales volumes and new applicants in the £2 million plus sector were broadly flat in April and May, down 1% and 2% respectively on the same period in 2011.
‘Looking at the second issue, while our forecast was based on an assumption that the Eurozone would remain unified, we did assume that growing tensions would continue to drive flight capital into the London market, especially from the Eurozone periphery, and this is precisely what has happened,’ explained Bailey.
‘While it looks very much that the surge in Greek buyers has fallen off sharply since the beginning of the year as those who had the funds to buy have done so, we are now seeing a noticeable uptick in interest from France, Italy, Spain and even German based purchasers looking at the prime London market,’ he pointed out.
‘If the crisis in the Eurozone leads to a break up, will this flow of funds continue to London? Well, the final form of a break up will dictate that. Any country which seems at imminent risk of ejection is likely to see a massive outflow of capital, some of which will end up in bricks and mortar in London. But if we are left with a small core around Germany, the value of that smaller bloc's currency is likely to surge against Sterling, reducing demand from those countries,’ said Bailey.
‘The knock on economic impact on the UK, and the global economy, means London would be caught between weaker economic conditions and a desire from investors for safe assets. Though there is scope for further growth, for the moment we are leaving our 5% growth forecast of the whole of 2012 untouched,’ he added.
Prime central London property prices rose 0.7% in May 2012, contributing to annual growth of 10.7%. It means that prices have risen 47.3% since their post credit crunch low in March 2009. Prices are now at a record high, 12.1% higher than their previous peak in March 2008.
Prices in the sub £2 million and the £2 million plus bracket rose 2.7% and 1.6% respectively in the two months to the end of May following the imposition of the new 7% stamp duty rate.
