House prices may be flatlining — the value of the average property in England rose by only 0.9% in the 12 months to November 2018, the lowest annual growth rate for seven years, according to LSL Property Services/Acadata — but there are beacons of light amid the gloom. Here we want to express our expert view of the London Property market for 2019.
What does the future hold for the once-booming London prime real estate market, which has seen steep falls in value since the UK’s seismic vote in 2016 to leave the European Union?
With continued lack of clarity on Brexit, a large number of buyers are still holding off from transacting. However, sellers are becoming more realistic on pricing and some buyers, recognizing this, are taking advantage of Brexit jitters to secure their next home at an attractive price.
Let's take a ride and see what’s been happening across the market.
The RICS Survey has, at times, been a good forward indicator of house price movements. It currently sits at -10.5, the lowest it’s been since 2012. Three-month growth on the Nationwide house price index has moved similarly and, aside from May-17, is also the lowest it’s been since 2012 at -0.5%. The ONS index, lagging behind the other indices, has not yet picked up the weaker housing market conditions at the end of 2018.
Source: RICS, Nationwide, ONS
Key changes in buyers trends:
London has continued to push up against mortgaged constraints at a time of fragile buyer sentiment.
Shifting patterns of different buyer types also reveal more about how the market is now operating. Contrary to what we are sometimes asked to believe, the number of first-time buyer transactions has rocketed in the past five years.
The number of home movers has been mostly flat since 2014. Owners now trade up the housing ladder far less often. The average period between moves grew from 9 years in 2007 to 13.5 years in 2017.
The mortgaged buy to let market faces significant challenges. These purchases have fallen by 43% in the past two years, with evidence that highly geared investors are rationalizing their portfolios and refocusing on lower-value, higher-yielding locations. The Developers are re-focusing their strategies and launching their new project in London 3-5 zones rather than in central London.
Cash buyers currently account for about 31% of the market. Though that figure has fallen a little since 2014, these buyers still represent a much bigger proportion of the market that was the case before the credit crunch.
The latest comprehensive data we have on stamp duty receipts relate to the 2017/18 tax year. It suggests that transaction volumes in London’s two central boroughs of Kensington and Chelsea and Westminster have fallen by 35% in the past four years, but that the stamp duty take is still 19% higher than in 2013/14.
Furthermore, sales of properties of more than £1 million across the country as a whole were 25% higher in 2017/18 than four years previously. With a relatively high proportion of purchases bearing the 3% stamp duty surcharge as well as a higher underlying rate of tax, they raised an additional £1 billion in tax revenues over the same period.
In April, the Treasury calculated that cutting each of the marginal 10% and 12% rates of stamp duty by 1% would result in a loss in tax revenues of more than £100 million which made a cut look unlikely. Instead, there are talks about an additional surcharge on non-UK resident buyers of between 1% and 3% that is expected to increase tax revenues by up to £120 million. We will keep checking, whether it will be implemented or not.
We expect the other, more domestic, prime markets of London to benefit from a flow of wealth out of central London during that recovery phase
However, they are more likely to be held back by weak sentiment feeding up from the mainstream housing market. The impact of rising interest rates will also be felt more strongly, given the much higher use of mortgage debt in these markets. That is likely to weaken any ripple effect into the commuter zone.
To summarise, we believe that 2019 will be also challenging for the London property market. Mainly if you are considering your strategy on short-term capital growth. However, if you are looking in a horizon of 5 years and above, and are prepared to wait, you have a good choice of London location spots that will recover quicker than the rest of the market. The times where there is uncertainty creates massive opportunities for professional investors.
The demand is there and there is an enormous deficit in the housing stock in London and across the rest of the UK.
If you want to know more how we helped hundreds of foreign investors to build their London real estate portfolio, contact UK Property Advisors on +44 (0) 755 310 9657. We are a reliable partner and an expert in residential real estate investments in London.
*Some facts of the article are based on Savills data