Parts of the prime central London property market are returning to positive growth but overall in the sector average prices were 0.7% down in the year to December 2018 after bottoming out at the start of 2017.
The latest analysis from real estate firm Knight Frank also shows that sales volumes increased 5% in the six months to November and the market is moving towards recovery mode.
Tom bill, head of London residential research at Knight Frank pointed out that while average prices fell 0.7% on an annual basis, this was the most modest rate of decline recorded since June 2016.
‘The broadly flat result provides further evidence that the price declines of up to 7% recorded in the middle of last year are bottoming out. Indeed, an analysis of pricing on a more local basis across prime central London shows that the number of areas that recorded a rise in prices during the month continued to grow in December,’ he said, adding that this was the highest monthly level since May 2016.
However, there is still no consistent pattern across different price bands. For example, average prices rose 1.9% in the year to December for homes valued at between £5 million and £10 million, compared to a fall of 1.2% for properties priced at between £1 million and £2 million.
Bill explained that higher rates of stamp duty had a more immediate and marked impact at the higher level of the market last year which led to a quicker response in asking price adjustments and a more rapid recovery this year.
While pricing of £1 million to £2 million homes seemed more resilient in late 2016, there is evidence that prices have instead been adjusting this year, the report suggests. Asking price data underlines this trend, showing that reductions in asking prices have been more prevalent below £2 million in 2017.
Indeed, some 40% of sub-£2 million properties in prime central London underwent an asking price reduction in the year to November 2017, according to data from property portal Rightmove. This compares to some 29% of £5 million plus properties undergoing a price reduction over the same period.
Activity also continued to rise modestly in December. There was a 5% like-for-like increase in sales volumes in the six months to November 2017, LonRes data shows. ‘We don’t expect sales volumes to improve in a meaningful way until the market adjusts fully to higher transaction costs,’ said Bill.
The report explains that political uncertainty has not been the primary reason for the relative slowdown in sales volumes and price declines in prime central London. It is tax changes have that have been the fundamental cause of pricing tension between buyers and sellers.
However, is also explains that the political backdrop has altered the more intangible dynamic of sentiment. This, in turn, has prolonged the period over which asking prices have adjusted to higher transaction costs.
‘Two general elections and a referendum since 2015 mean political uncertainty has played an important role. While there would be a material impact on prime central London property markets in the event of a large scale exodus of financial services workers from London, there are few indications this would happen. Instead, as a greater sense of pragmatism appears to take hold in Brexit talks, it is the stability of the UK government rather than the contents of the deal that would arguably have a greater impact,’ Bill said.
He explained that in the week following the breakthrough Brexit deal on 08 December there was a Government Parliamentary defeat over the extent to which MPs will have a final say on the shape of the deal, reopening questions about how able the Government will be to implement its version of Brexit.
However, he added that it is worth noting that a version of Brexit that has the backing of a majority in Parliament may lead to a more consensual outcome that is less subject to challenge.
‘The indirect role played by politics perhaps explains the limited anecdotal evidence that the 08 December deal bolstered demand. Given the extended nature of Brexit talks, asking price reductions are likely to remain the key prerequisite for increasing market liquidity in 2018,’ Bill concluded.
