London Property - where are we going
Tuesday, September 09, 2014 by Ed Mead
No one likes uncertainty and it’s difficult to think of a time when there was more. But for London buyers the last few years have been frustrating and no less so for agents. Notwithstanding the fact that London has performed better than elsewhere it is as well to remember that its 7 years since the market first faltered and 5 years since the market bottomed out.
It’s been an odd period with central London opting out of the real world and creating an economic zone no longer driven by domestic forces. Unlike the 90s where mortgage fuelled City buyers drove values up and were then forced to sell as even they couldn’t afford mortgages underpinned by a 15% base rate. New central London buyers have almost all paid with cash so the mark to market principle won’t affect them. Yes, currency/black swan events may do but after decades of wondering whether areas surrounding PCL will ever truly take off they now have done, and for good I think, with areas of Emerging Primes now seeing £1000 per square foot as a standard – a true test of the label “Prime”.
Sensible discourse about prices is impossible given the noise around “soaring” or “crashing” prices and a plethora of ill presented statistics has led to some howling headlines over the last few years. The worst being one I saw on the Yahoo Finance pages that had misinterpreted a Rightmove asking price release thus “UK Property Prices Suffer 'Largest Decrease Ever' As London Real Estate Goes Into Full-Scale Collapse” – Amazing.
Despite the uncertainty and an underlying disparity in house price and wage growth the fact remains that price growth is on a par with long term trends and the free market appears to be working with buyers simply not paying ever increasing prices and sellers now having to reduce asking prices. Press talk of a bubble has simply evaporated as there never was one and given inflation of c. 25 – 30% since the last peak and trough rises suddenly don’t look that stellar. The overspill into areas of Emerging Prime was a one year burst but is now plateauing, interest rate rises seem to be factored in to most people’s ownership proposition, and price rises are easing. Our view is that they’ll remain flat for Q3 & 4 after having seen c. 9% in Q1 reducing to 2.5% in Q2. All in all this sounds like a sensible market. For London estate agents whilst they’ve been luckier than some it’s been an ultra-competitive market with many players opening new offices with just as many new ones emerging, all against a back drop of hugely reduced transactions.
If the market can behave as intelligently as this when there’s such uncertainty about hopefully we have a chance to return to a more mobile market post-Election next year. Rumours of the demise of the market would seem to be wide of the mark.