The latest market report from Savills shows that prices across the UK’s prime markets fell by an average of 3.3% against an increase of 8.7% across all prime London and 14.1% in prime central London.
This takes prime London prices to a record high and means that £1 million invested in prime regional property at the peak of the market is now worth on average just £829,000 compared to almost £1.1 million in prime London and £1.2 million in prime central London.
Very few areas outside London ended 2011 in positive territory. Only locations such as Sunningdale, Weybridge and Henley saw price rises, in the region of 2%.
Savills says that this was supported in the latter stages of the year by international equity, and makes this niche area of the country, its very top end in particular, pretty much the only location currently able to perform in line with prime London.
In general, the South East lost around 2% of its value as the traditional fuel of these markets, City money, was largely reinvested in prime London.
‘We would normally expect to see a flow of equity out of London in the wake of price recovery in the capital, but that is not yet happening,’ said Lucian Cook, director of Savills residential research.
‘It’s not that domestic owners have stopped trading up, but they are trading up within London and the flow of City money that would normally be the lifeblood of markets such as Guildford is staying put in Parsons Green,’ he explained.
‘The result is that the country is now looking better value than for many years, a factor that we would normally expect to stimulate buying activity,’ he added.
Cornwall, where values fell by around 16% in 2011, is an extreme example of such a trend kicking in. A necessary short, sharp shock adjustment over the middle of the year reflected the absence of discretionary second home buyers whose equity had driven prices to their previous unsustainable high. More realistic pricing over recent weeks, with actual selling prices up to 30% below peak, is just beginning to be reflected in boosted buyer activity.
Savills points out that there has also been a North South divide phenomenon at play that leaves prime residential prices in the Midlands and the North 24% below their 2007 peak. This underperformance is expected to continue through 2012.
In Scotland, increased stock levels of prime property gave buyers greater choice leading to a widening price gap between the best in class and the rest. Prices on average fell by 4.7% across Scotland in 2011 and we expect modest falls this year. Realistic pricing based on today’s market conditions is the key to stimulating these markets.
‘Against the backdrop of a weak and potentially volatile economic recovery we expect the prime regional markets as a whole to react to a softening of prices in the mainstream market, with forecast falls averaging 3% this year,’ said Cook.
‘Nonetheless we expect price movements to outperform the mainstream over the course of the next five years given a lesser reliance on mortgage finance and, ultimately, a progressive flow of housing equity from the capital by way of a ripple effect,’ he added.
