Upper end of prime central London market sees sales rise, buy to let declines

Sales of homes towards the upper end of the prime property market in central London increased by 23% in the second quarter of 2017 and have tripled compared to last year, the latest analysis suggests.

The surge has come in the £5 million to £10 million sector with sales now representing 45% of all purchases in and houses in the trophy address sector have also become more popular with sales up 4.1% and prices up 4.9%.

The analysis from London Central Portfolio (LCP) shows, however, that the number of buy to let investors in the prime market has seen a significant decrease, falling by a third. Typically targeting properties under £1 million, the average purchase price for the buy to let sector has fallen 27% to £816,429 over the last 12 months.

It also shows that the number of flat sales have fallen 11% and prices have increased by just 2.6% and a lack of interest in new build is continuing with a fall of 55% in sales compared with a fall of 9% for the prime central London market overall.

In terms of nationality, buyers from Far East Asia represent the biggest purchaser, making up 36% of sales over the last 12 months, followed by Indian and Middle Eastern buyers at 22% and 21% respectively.

Overall, following two years of subdued price growth as buyers have adjusted to continuous changes in the residential tax regime and political and economic uncertainty due to Brexit and two general elections, the prime central London showed an uptick in the second quarter of the year.

The report points out that according to Land Registry data, average prices reached £1.9 million following quarterly growth of 5.8%, boosted by a handful of high value sales. Transactions have remained at very low levels with just 3,750 sales over the last 12 months.

A detailed analysis of the headline figures by LCP demonstrates a notable change in buying behaviour, contributing to the price rally this year with the number of buy to let investors seeing a significant decrease over the last 12 months, with their share of purchases falling one third from 85% to 55%.

Home buyers, on the other hand, who have been increasingly attracted by discounts available on luxury properties, continuing low interest rates and exchange rate benefits, now represent 45% of all purchases, triple their share from the previous year.

The report says that this influx of opportunistic home buyers has resulted in a notable increase in high value sales, with transaction data showing the £5 million to £10 million price bracket was the most active in the second quarter of 2017.

Activity has been much slower in the £1 million and under sector which is largely dominated by buy to let investors. This sector saw a 9.4% decrease in sales and with the majority of investment purchases now being marketed by highly motivated sellers, the average purchase price for rental investors has fallen a significant 27% to £816,429 over the last year.

‘As international home buyers identify attractive discounts on top end properties, particularly as sterling remains weak, they have actively re-entered the market, snapping up deals in London’s best addresses,’ said Naomi Heaton, LCP chief executive officer.

She pointed out that an increasing appetite from home buyers and a ‘wait and see’ attitude from investors has also contributed to the growing popularity of central London houses compared with flats. House sales saw a quarterly increase of 4.1% with a 4.9% increase in average prices. This compares with the flats sector where transactions fell a significant 11% and prices increased just 2.6%.

‘Savvy buyers are recognising the attractions of unique older properties and the added value potential of refurbishment in the current unsettled economic climate. Against this backdrop, new build speculators have pulled back in the face of uncertain or negative returns and the disadvantages of over supplied and commoditised stock,’ Heaton explained.

‘A favourite of Chinese investors, capital controls may also be contributing to falling transactions in this sector. LCP have undertaken no purchases for Chinese buyers this year, whilst Knight Frank reported an 80% withdrawal at IFN’s Real Estate Roundtable this month,’ she added.