Market Report - April 2013

Tuesday, April 09, 2013 by Douglas And Gordon

Market Report – April 2013

“A strong start to the year with capital values moving ahead 4.2%”

Our readers will know that we normally draw data from all over “D&G land” which encompasses Prime Central London and its satellite areas from Hammersmith in the west round to Clapham and Battersea in the East. The results for the first quarter show a strong start to the year with capital values moving ahead 4.2%. On the other hand, rents have continued to soften with an overall decline of 2.1%. However, in this quarter, the performance of the parts is revealing. Prime Central London saw comparatively modest growth of 1.1% in the quarter and a more significant decline in rental values with rents falling back 4.4% on average. On the other hand, the rest of D&G land saw strong capital appreciation with a 5.2% increase and only a modest rental decline of 1.1%.

So, what is happening? Maybe Prime is taking a bit of a breather. The house market in Prime is up nearly 40% since the previous peak in 2007. International investors may well be seeing better value in other parts of London and the squeeze on rents is seeing yields contract quite sharply. Despite a bright start to the year in the stock market, confidence is in short supply. Overall, though, the geopolitical factors that have driven international capital into London remain painfully evident. Who in their right mind would keep their money in Euros, now that bank deposits appear to be fair game for the taxman and the situation in the Middle East, particularly Syria, just seems to get worse.

Non-Prime has enjoyed in capital terms its strongest quarter since the autumn of 2009 with a 5.2% increase. The supply and demand equation is very similar to where it was twelve months ago with 3.6 buyers for every property. Whilst rents on the larger houses have declined in the quarter, they are holding up well for one, two and three bedroom properties.

Reshuffling the data to look at the performance of property values by size of property rather than area produces interesting results. Since the peak of 2007, the larger properties have increased by as much as 35% - 40%. In contrast, one bedroom flats over the same period have increased by only 15% - 20%. We put this down to the difficulty of getting credit for new buyers. Those in the property market already have been able to trade up as they already hold equity in their property but fewer potential first time buyers have been able to find deposits of 25% or 30% which lenders require. These same frustrated buyers provide the rental pool for one and two bedroom flats. One bedroom flats a good rental investment prospect?  

Michael Hodgson