Realistic pricing is helping the prime residential property market in London which has been hit by higher tax and uncertainty surrounding Brexit, new research suggests.
It means that prices are becoming more aligned with buyer expectations and as a result in some locations the fall in values is being addressed, according to the latest report from international real estate advisor Savills.
Average house prices across all prime London fell by 2.2% in the final three months of 2016 which left values down 4.9% year on year. They are still some 5.8% down from stamp duty changes in December 2014 which had a major impact on the sector.
It is the highest value markets of prime central London that continue to be most affected by the stamp duty effect, with prices down by an average of 6.9% year on year and down 12.5% in total since the December 2014 peak.
By contrast, in outer prime London, where the average value is just below £2 million, prices fell 4% in 2016 and are now just 2.7% down from where they were two years ago, according to the prime property index.
‘Committed sellers increasingly understand the need to factor in both the additional stamp duty and economic uncertainty to their price expectations in order to attract still very cautious buyers,’ said Lucian Cook, Savills UK head of residential research.
‘We saw a real dearth of transactions over the late spring and summer months following the race to beat the new 3 per cent surcharge. But further price adjustments, coupled with the currency play for international buyers, appear to have triggered greater buyer commitment and prime London sales volumes picked up significantly in September, October and November before easing back in December,’ he added.
According to data from Lonres, central London sales of properties worth over £1 million were 21% down year on year in 2016. In the three months to the end of July, transaction volumes were running at about half the same period in 2015, but in the last quarter of the year had recovered to within 16% of 2015 full year numbers.
Savills own market intelligence suggests that from January to the end of November there were around 320 sales worth over £5 million in London with a total of over £3.7 billion spent in this part of the market. In volume terms, sales were 17% below those in this bracket in the same 11 month period of 2015.
The Savills report points out that contrary to some reports, the very top end of the market has been more active than in 2015. In the 11 months to the end of November £1.43 billion was spent on properties worth over £20 million compared to £1.07billion in 2015.
‘Recent market activity demonstrates the continued appeal of prime London property at the right price. But buyer sentiment remains fragile,’ Cook explained.
‘Improved transaction levels are the result of adjusted pricing and should not be seen as a precursor to price rises in the foreseeable future. High stamp duty rates and the uncertainty created by negotiations to leave Europe will still need to be factored into expectations on value,’ he added.
Savills forecast for prime London anticipates no price growth over the next two years with a recovery to trend growth not coming until 2019. The forecast is for prime central London growth to total 21% in the five years to the end of 2021.
