There are signs of uncertainty in central London’s prime property market but the outlook for residential prices is still good.
All the recent reports have shown that the strong price growth seen in this sector is slowing and the latest from Strutt & Parker indicates that in the second quarter of the number of transactions in the sub £2 million market was down by 17.2% on the same quarter last year.
The £5 million plus market fared much better, with a 18.6% increase in transactions whilst the £2 million to £5 million bracket stayed relatively stable with a fall of just 0.5%.
‘The drop in values and volumes in the sub £2 million market has come as a surprise. The prime central London market is volatile and those buying around the £2 million mark are becoming increasingly nervous of the election in 10 months’ time,’ said Stephanie McMahon, head of research at Strutt & Parker.
‘Having said this, the whispers of mansion tax and the on-going geopolitical issues seem to have had very little effect on the sales market in the £2 million to £5 million category,’ she added.
Kensington and Notting Hill performed the strongest with 9.1% growth, and the firm said this is thanks to a balanced supply and demand market. Knightsbridge and Belgravia’s performance was the poorest, with a 26.3% decrease in transactions.
The lettings market performed better. There were 2,862 property lets agreed in during the second quarter which was 3.6% above the quarterly average for the past five years. Achieved rents by price band also remained positive above the £1,500 per week threshold.
‘Our London lettings network of offices has bucked the trend, reporting a year on year transactional increase of 61%. We foresee a continued supply shortage of rental properties as tenant demand increases,’ said Zoe Rose, head of London Lettings.
Strutt & Parker and its retained economic advisors Volterra are predicting 4.5% growth for residential house prices in prime central London in 2014 compared to 8% for the UK as a whole.
‘The prime central London market is particularly difficult to forecast because it is made up of a wide range of locations and price ranges. For example, transaction levels in the £2 million to £5 million price bracket have remained high in the second quarter of 2014, although there is some evidence that volumes have dropped in the £10 million plus category,’ explained McMahon.
‘The economic foundations would certainly suggest that prices may continue to rise at the same rates over the next few years, but the biggest perceived uncertainty surrounding the prime central London market over 2014/2015 will continue to be the looming election and the possibility of a mansion tax. We therefore expect that price growth during the remainder of 2014, and even more so in 2015, will be sensitive to prevailing political press and expectations,’ she added.
According to Andrew Scott, head of London Residential, the effects of the election are clearly being felt across the market. ‘As usual everyone is wondering if this is the start of some big slide that will see billions wiped off values overnight. Contrary to what the nervous might think, I have seen London getting stronger and more sought after over the past 30 years so panic not, it is just an election,’ he said.