Market Report - June 2014

Wednesday, July 02, 2014 by Douglas And Gordon

Market Report - June 2014

“At this stage, it is volumes that are falling, not values”

Word on the street is that the Central London residential sales property market has cooled off during this last quarter. Certainly, in comparison with the first quarter of the year, buyers are no longer prepared to throw themselves headlong at asking prices and be bid up in competition. There are also fewer buyers registering - down 8%, year on year. On the supply side, stock levels are pretty similar to those of twelve months ago. So although the period has been characterised by falling “asking prices”, it is too early to deduce that prices have actually fallen. The quarterly review of prices in D&G land still shows an increase overall of 2.1% - the smallest quarterly rise since the third quarter of 2012 but a rise all the same. So at this stage, it is volumes that are falling – down 10%, year on year – not values.

As has been the case for the last year or so, Prime Central London has fared less well with a 1.2% increase in the quarter, compared with double – 2.4% - in Emerging Prime. With the election now less than a year away, political factors will weigh more and more on the thoughts of international buyers. Political sabre rattling by parties against international owners who do not impact on the ballot boxes are not helpful. On the other hand, an improving employment situation in Central London and demographics continue to maintain demand for accommodation - purchase where possible, renting if not. We therefore think that broadly, prices will stagnate in Prime Central London and continue to move up in Emerging Prime.

The picture in the Lettings market is very different. In this quarter, registrations from new applicants are up 31%, year on year. Supply has gone some way to match that with a 24% increase, year on year. The increase in demand is specifically attached to the improving employment situation. In the quarter overall, rents have increased by an average of 1.8% but again, as with sales prices, the majority of the increase coming in the Emerging Prime area. There is speculation that the Mortgage Market Review provisions have impacted on the ability of people to get mortgages and this is behind both the slowdown in transactions in the sales market and the increase in demand for rented accommodation. Whatever the reason, the increased demand for rental property is there and we feel that on the back of this, rents will start to rise, having overall been pretty flat over the last four years.

From the investment point of view (see Gross Capital Yield), we would expect to see the downward trend of yields over the last four years begin to be reversed.

(Health Warning: all figures quoted in this report relate to either the whole of D&G land or are split between Prime and Emerging Prime. Different areas perform in different ways and even different types of property within those areas have their own market dynamics, so do ask your local Douglas & Gordon office for specific advice, rather than make assumptions based on average numbers!).

Michael Hodgson FRICS