At dinner parties - being an estate agent is a bit like being a doctor. As soon as I introduce myself as an agent, the first thing I’m asked is “how much is my property worth”, in the same vein that a doctor is likely to be asked about a nagging joint pain as soon as their profession is disclosed! Well, I do a lot less valuing of property these days, but I do, as most of my readers are hopefully aware, keep a very close eye on the London property market and pride myself in knowing what prices are doing. Of course, I’m not for one minute comparing my expertise to the heroism of the medical profession – but property is my passion. I live and breathe it every day. So here’s a little bit about what I think is going to happen this year – and the reasons for my predictions. And……if you do want to know how much your property is worth, you know where to find me!
I anticipate that property prices will rise again in the first part of the year before steadying, with an overall average increase of around 5%. This is not dissimilar to the 2011 trend where we saw a substantial increase in the first half of the year. House prices in prime central London locations such as Kensington & Chelsea and Westminster are actually at their highest on record, having risen 10.1% and 9.1% respectively, overall in the last 12 months.* So is there room for more growth?
In 2011, prime buyer demand rose dramatically, compared to the previous year and with no improvement in the amount of property coming onto the market, I can’t see this demand dwindling. In fact, it was this demand that saw the number of London properties selling for more than £1m actually 8% higher than the previous year despite the bleaker national picture.**
Economic anxiety reined in activity in the autumn, but as the uncertainty continues over the Eurozone this year, an increasing number of international buyers will look to London’s prime property market as a secure port in the ongoing economic storm. We’re already seeing a growing number of investors pull money from the stock markets to place in property, and this will continue as the financial crisis continues. But it’s not just international buyers. So far this year, we’ve registered nearly 800 buyers, many of whom are living locally and look at central London property as 'gold….with an income'.
I do believe there are particular hotspots in London – Fulham and Barnes being two examples. With the severe shortage of properties coming onto the market in central prime London, these desirable, neighbouring and accessible locations will be real areas of growth in the coming twelve months. They saw rises of nearly 5% last year and as they accommodate the overspill of demand from Kensington & Chelsea buyers, sales prices will rise even faster this year.
And what about the rental market? Well, there’s even more good news for homeowners and investors – in 2011 the London rental market improved more rapidly than the sales market. Marsh & Parsons has seen the average mainstream rent rise by 15% in 2011,*** driven somewhat by the increasing number of wealthy families renting between house purchases but mainly due to the ongoing lack of affordable mortgage finance for those with anything less than a 25% deposit. Based on current trends, Marsh & Parsons forecast that rents will rise by another 15% in 2012, with booming demand at the 'volume' end of the market (one and two bed flats) balanced against a more sluggish corporate lettings market. It’s obvious – a shortage of quality property for sale in the most popular prime areas will inevitably drive up demand from both interim and long term renters, pushing rents upwards.
However, on the downside, demand in the corporate lettings market for properties renting for more than £1,000 per week has leveled off in recent months, with City firms cutting their relocation budgets. As companies look to keep costs down in the coming year, further growth will come from the lower levels of the market.
Overall, the 2012 market has started extremely brightly with large numbers of new buyers and renters entering the market. Match this with limited supply, low returns on most other asset classes and it’s not surprising that London continues to be a destination of choice for buyers from all corners of the world.
*Land Registry House prices for October 2011, compared to October 2010
**Based on latest Land Registry transaction figures
***Marsh & Parsons rental data