Spring 2011 Market Report

Wednesday, July 13, 2011 by Douglas And Gordon

“….Prices are scaling past peaks”

Throughout 2010, prices were pushing close to the peaks of 2007/08. In the first quarter of 2011, across the board, Douglas & Gordon’s sales and lettings offices have reported increases that have taken both properties to buy and to rent over record levels. Overall, in “D&G land”, Sale prices increased by 3.4% in the quarter and Rental prices by 2.4% (taking annual increases to 9.5% and 10.7%). Is this increase uniform across the region? The prime areas of Kensington and Chelsea, Knightsbridge, Belgravia and Notting Hill have performed more strongly with a quarterly increase in sales values of 5% and rental 2.5% (13.9% and 12.5% year on year, respectively). 

It can be a painful part of preparing market reports to look back at prior predictions. In our winter report, “Outlook 2011” we stated that “the key component…will be the amount of stock – and unless this increases, we might all be surprised by the level of price increases. On balance, over the year we predict an increase of 5% but this may prove to be conservative”. The performance of our market has been in line with that (hedged!) prediction. The balance of supply (properties available), and demand (buyer applications), would seem to underpin price increases. Supply, already low, has shrunk year on year by 3% but the number of buyer applications is up 22%. So, indeed, with Prime property already up 5% in the first quarter, our prediction does look “conservative”. How much further will they go in 2011? I think we will duck that one until the end of the current quarter! On the Lettings side, supply, also at historically low levels, is flat year on year and the number of applicants up 6%. These equations help to explain why prices are scaling past peaks. 

Despite the comparative gloom in the outlook for the UK economy, it is hard to see reasons for a change in the direction of the market. There is anecdotal evidence of unrest in North Africa and the Middle East pushing funds into the “safe haven” of Central London, so any weakening in domestic demand is likely to be taken up by international demand. London, the “safe haven” is not a new phenomenon but it does appear to be escalating as the number of high net worth people worldwide also escalates. The question we now have to start asking ourselves is “is this changing the whole structure of the Central London Residential market?” The pattern seems to be that an increasing proportion of property sales are to overseas buyers, not necessarily buying as an investment to let out, who view their London properties as a safe deposit, possibly a bolt hole – a long term hold. Stock levels in the Sales market are likely to stay low in this environment and to the extent that overseas buyers are not acquiring to let out, the Lettings market will remain short of property.

Michael Hodgson