There are signs of lethargy in the prime property market in central London ahead of the vote on the future of the UK in the European Union, according to a new research report.
But beyond the distraction of the EU referendum there are signs that demand is strengthening, according to the research from international real estate firm Knight Frank.
Overall annual growth in the prime central London property market slowed to 0.1% in May, the lowest since October 2009 and the Brexit effect means demand is subdued even where asking prices have fallen 10% or more.
On top of this the number of active buyers to available properties has halved over the last year and Tom Bill, head of London residential research at Knight Frank, described it as a price sensitive market.
‘Demand remains relatively subdued but in a change from recent months, the primary cause in May was the Brexit vote rather than new rates of stamp duty. Indeed, there are overlapping layers of uncertainty affecting supply and demand that are difficult to differentiate but which produce a cumulative impact,’ Bill explained.
‘There has been a discernible Brexit effect on the UK economy as decisions are delayed and the London property market is no exception. Buyers and sellers are postponing decisions because of the prospect of entering unchartered economic and political territory,’ he said.
‘The market has become price-sensitive due to higher levels of stamp duty, but an indication of the Brexit effect is that demand in May has remained subdued even for properties where asking prices have fallen by 10% or more,’ he pointed out.
He also pointed out that demand was already more restrained as a result of the impact of two stamp duty increases in the space of 18 months and the ratio of active buyers per available property in prime central London has fallen to 4.8 from 10 over the last year.
However, despite the looming referendum, there are signs underlying demand is strengthening, according to Bill as buyers drop asking prices to reflect higher transaction costs.
The number of transactions between January and the middle of May was flat this year compared to 2015. Meanwhile, viewings increased 31% between January and April versus last year, suggesting a degree of pent-up demand.
Overall, prices have grown 2.4% over the last two years and it has been three and a half years since annual growth was last above 10% in October 2012.
A breakdown of the figures show that in the 12 months to May 2016 prices have increased 7.4% in Islington, by 6.3% in the City, by 1.9% in Mayfair, by 1,7% in Kensington, by 1.3% in Tower Bridge and by 0.3% in Riverside.
Prices remained unchanged in St John’s Wood and Marylebone but fell by 7.5% in Knightsbridge, by 4.8% in Hyde Park, by 4.6% in South Kensington, by 3.5% in Chelsea, by 1.7% in Kensington, by 1.5% in Notting Hill, and by 0.2% in Belgravia.
The report also points out that housing was the key political battleground ahead of May’s London Mayoral election, with both candidates pledging to build more homes to address affordability concerns.
Sadiq Khan, the winning candidate, said he wants to double the amount of houses built to 50,000 a year by 2020. He also plans to increase the number of affordable homes and has talked about tighter restrictions on overseas buyers and controlling rents.
Full details have not emerged but the high level of political scrutiny on housing means the new Mayor is likely to adopt an approach that is economically viable for developers in order to ensure his target is met, according to Professor Tony Travers, a local government expert at the London School of Economics.
‘All the evidence so far is that pragmatism is triumphing over ideology. The last thing he will want to do is emit signals that undermine the capacity to deliver at least as many homes as last year. What is essential is that the number of new homes built doesn’t fall,’ he said.
‘What was unusual about the 2016 Mayoral election was that enough numbers were traded by the candidates to create a measurable benchmark, which his opponents in 2020 will point to if he falls short. With that in mind he needs to keep developers broadly onside,’ he added.
He explained that the relatively slow pace of announcements regarding policies and appointments since Khan won the election, was also a sign of a pragmatic approach. ‘If this is an indication of what is to come, the lack of rash promises suggests the cautious approach of a professional politician,’ he said.
However, the backdrop of the EU referendum has dominated Khan’s early days in office. ‘If the UK voted to leave and London voted to stay in, the Mayor would be well within his rights to argue for greater autonomy from the rest of the UK to ensure the city’s economy is protected,’ added Travers.
