The regular analysis report from W.A. Ellis points out that the annual rate of change is an improvement from the first quarter when transactions were falling at an annual rate 27%.
It also shows that the average price paid per square foot across the prime central London sector now sits at £1,832 up by 1.4% over the third quarter of 2014.
However, the very top of the market over £5 million has already witnessed the greatest correction in prices with flats and houses being sold for 11.5% less per square foot than in the third quarter of 2014.
‘It would appear that the bubble may already have burst in prime central London but the effect is not as decimating as reports from UBS and Deutsche bank suggest. The government’s intervention in December 2014 by raising Stamp Duty has indeed cooled the very top of the market and the continuous upward spiral has been halted,’ said Richard Barber, the firm’s director.
He pointed out that 36% of all properties currently on the market across the sector are now being marketed at a lower price than they were originally listed at, with the average reduction in price being 8.5% of the original asking price.
‘Continuous capital growth in any market is an unrealistic expectation. However, we believe that the correction has already happened and the above statistics bear this out. Whilst there continues to be pessimistic outlooks on the market supported by strong economic arguments, market activity suggests a different story,’ Barber explained.
‘Affordability will undoubtedly remain the key issue within prime central London but news that the population of the UK is likely to grow by 4.4 million in the next 10 years, will undoubtedly impact on both the letting and sales market. This unprecedented level of population growth will prove to be a continuing factor within the supply and demand chain’ he added.
Meanwhile, in the lettings sector the report says that the short term outlook for the rental market is looking positive as supply continues to outgrow demand over the next few years. Across Greater London, the firm predicts rental values will increase by 5% in the next year and by 21.7% over the next five years to the end of 2020.
Within prime central London, the firm predicts a rise of 3.5% over the coming year, with a slightly more modest prediction of 15.9% over the next five years, which Lucy Morton, head of residential agency at JLL Kensington says still represents a very healthy growth in rental values.
‘This outlook is particularly pleasing given that rental growth over the past two to three years has been minimal in some areas. As demand for rental property continues to rise, the supply of available accommodation is also under threat from the recent withdrawal of tax relief for buy to let landlords. This may result in some landlords, particularly those who are higher rate tax payers with large mortgages on their rental investment, choosing to sell. This will contribute to the predicted increase in rental values,’ she explained.
She also pointed out that despite Government policy being more supportive of owner occupation, initiatives aimed at helping people onto the property ladder are still insufficient to help the vast majority of tenants overcome onerous deposit requirements and affordability criteria, so most will continue to rent.
‘The proportion of people living in privately rented accommodation has increased over the past ten years, with almost half of 25 to 34 year olds now living in rented accommodation, compared to just over 20% 10 years ago. Additionally, the UK economy is stronger than it has been in recent history, with unemployment continuing to decrease and average earnings currently increasing faster than over the past ten years. These conditions will allow more and more young people to move out of their family homes,’ she said.
She also pointed out that the market traditionally slows down at this time of year and the firm agreed twice as many new tenancies in the first half of October as in the second half. ‘This means for those landlords looking for tenants, good presentation is essential to ensure that tenants prefer your property to the competition,’ she added.
