Opportunity and progress in stormy conditions
By Keith Gorny, Director
After years of heading into the office via my local newsagent on Kensington Park Road, where I take a daily glance at the neatly arranged front pages, its clear to me that bad news must sell newspapers. Recently, quick to exploit our fears,the media have seized upon slowing house price inflation and have enjoyed head-lining gloomy speculation as imminent, unavoidable housing market melt-down. The less dramatic and less eye catching reality, that “things aren’t that bad” is left to the fi ne print of the last paragraph. Recent monthly data churned out by the various lenders and property institutions reports a more subdued national market. However, given their reliance on completion data, these national statistics reflect sales that were agreed months ago and do little to provide an insight into local and current activity or sentiment.
This review looks at what is happening in our immediate area. We will briefly consider the factors that have infl uenced market activity over the last couple of months before assessing those that will determine the market’s trend as we move into spring. While some in our industry appear to have adopted a generally negative outlook, revising forecasts down and predicting stagnation, our approach, enthusiasm, experience and innovative marketing methods has enabled usto meet the challenge of this less certain period and to produce some exceptional prices for our clients already this year.
Last couple of Months: Market Turmoil?
As you are no doubt aware, recent commentary has been dominated by the international credit crunch and the impact it may have on our market. The negative sentiment this commentary encouraged contributed to an Autumn market in 2007 that was characterized by a severe lack of new buyers and indecision amongst existing buyers. Global credit tightening spread to the mortgage markets reducing the products available to fi rst time buyers and borrowers considered less secure. Investment banks acknowledged their uncertain exposure to bad debt generated in the American sub prime housing market and continued to post losses. The fall-out in the City of less "deal" activity, falling profi tability, smaller bonuses and potential job losses did impact values in Notting Hill/Holland Park but not as much as might have been expected.
Marsh & Parsons sales statistics below £2 million show a rather benign pattern when compared to sales over £2 million. With UK investment banks awarding record bonuses in spring 2007 the upper end of the market was driven to record highs only to experience a rapid turnaround in sentiment as the credit crunch began to take hold (see above). The recovery of properties with a value over £2 million at the tail end of 2007 may have been encouraged by the chancellor’s interest rate cut but we suspect city bonuses and latent demand offers a better explanation. While some analysts estimate that bonus payments are some 20% down on last year and much is being paid in stock, the sums involved are still signifi cant. Supply would need to have increased considerably for us to have experienced a sustained fall in house values through this period. With the level of equity in the London house market at an all time high (property value minus mortgage debt) and with interest rates having peaked the kind of
forced selling required was not forthcoming. In fact the opposite was evident - vendors withholding stock and not wanting to sell into what they perceived to be a slower market. Then, as now, negative market commentary needed to be met by positive agency work. Confidence needed to be won.
Now: A safe harbour in stormy seas
This year has started well with a good level of buyer registrations through January and plenty of speculative offers being made. Given recent commentary it is understandable that buyers felt empowered and were looking to strike deals at bargain prices. Traditionally, the property market picks up in mid January when schools go back and bonuses are known. Over the last couple of years the surge in activity has started earlier, often in December, as City workers confident of large spring bonuses buy early, with readily available debt, in an attempt to beat the inevitable spring rises. This year has been a little different. With uncertain rewards in the wake of the credit crunch prospective buyers were more cautious in January and the agreed transaction levels were down on the previous couple of years. As we moved into February prospective buyers have come to understand that vendors who fail to reach their price objective simply don’t sell. As a result buyers are now meeting fair prices and we agreed a record number of transactions in the first week of February. Our area is more resilient than most as vendors sell through choice rather than necessity; incoming purchasers can take some comfort in this additional layer of "supply and demand" security. The market appears to be adopting a more traditional shape with February marking the return of committed buyers meaning we are enjoying good transaction levels and brisk business. Assuming the correct selling strategy is adopted, we are achieving premiums comparable with the best achieved last year - some 20% up on January 2007. The positive results this strategy produces are demonstrated in some of the record sale values we have recently achieved - Hereford Road £3,950,000 (£250k over asking price), Westbourne Park Road £3,500,000 (£250k over asking price), Holland Park £1,337,000 (£337k over asking price) Penzance Place £2,500,000. Successes in February include Conduit Mews with an offer 100k over asking price and Stanley Gardens with an offer 125k over asking price.
Going Forward: Bright prospects
Over the last few years London has consolidated its position as the financial capital of the world. Unsurprisingly this makes Notting Hill and Holland Park, with their excellent transport links to the City, highly sought after locations, attracting buyers from all over the world. However, our area’s appeal goes beyond convenience to the City - the wealth of boutique shopping, restaurants and bars, the beautiful architecture and glorious parks have wide global appeal. A growing range of international buyers are supporting our market and demand from oil and commodity rich countries remains strong. Unaffected by the credit crisis and stock market turbulence, attracted by our secure political environment and a low management investment, these buyers remain bullish. At the time of writing the chancellor is weighing up the option of a flat 18% capital gains levy, a positive injection that will spur the buy-to-let sector, improve liquidity and boost prices. This new rate will make property investment one of the most tax efficient investment vehicles in the UK. "Non –Dom" tax legislation is under review. Under pressure from many quarters and under the threat of an exodus I would hope the chancellor would look to restore some City confidence by recognizing the importance of wealth generating Non-Doms and water down current proposals.
Should City job losses materialize and global markets remain tight, in the short term, property purchase will become more discretionary. If recent history repeats itself (the months following the dot com bust), there will be a short period of consolidation over the next year which will provide buying opportunities. However, with its favourable time zone and solid infrastructures London is well placed to gain a larger share of the global financial services market over the coming years and with increased employment we will see an increase in demand. Would be buyers don’t want to miss the bounce - London property values have doubled in value every ten years over the last century!