An overview of London's sales market
The dominant theme across the London market remains the constrained supply. Although this is true of all areas to some extent, as the London market has become even more polarised, central London seems to be hardest hit, with the mid to upper price bands the most impacted. This ongoing low supply continues to push up prices, with agents in some areas reporting significant pricing levels being achieved. Across the area as a whole, average sales prices have risen by 5.8% since the end of 2010.
Supply may remain tight, but deals are still being done (boosted in part by the early Spring rush to beat the April 6th rise in stamp duty affecting the £1m+ market). Transaction levels rose throughout 2010 and have continued to rise in the first months of 2011. Around 45% of agents surveyed expect instructions to increase over 2011; and with committed buyers ready to absorb some increase in stock they also expect transaction levels to rise over the year. That said, in the most heavily constrained Central market 29% of agents expect transaction levels to be lower in 2011 than in 2010, compared to just 17% in the South area where supply is more readily available.
Demand, particularly for prime properties, remains strong in London. With political and economic uncertainty around the world and the ongoing attractiveness of Sterling, London continues to hold its status as an attractive global investment opportunity. Our survey indicates 42% of agents reporting increased foreign demand over the past three months (44% in the Central area, 51% in the West, although just 16% of agents in the North). Owner occupiers are also returning to the market. Given this strong demand and constrained supply, the market is increasingly frustrating for purchasers. In order for buyers to secure the properties they want, the past year has seen greater commitment and stronger offers being made. As well as pushing up prices, this also means that the level of pricing achieved has increased to an average of 97.6% in Q1 2011 - this is the highest level since the peak of the market in 2007. It is also a feature of the current market that more sales are going to sealed bids - 36% of agents report an increase in the past three months, although this is less evident outside central areas (just 22% of agents in the North area have reported an increase).
If, as some agents expect, more stock does come to the market over 2011, at present it seems there is sufficient demand to absorb some increase without impacting on pricing levels. Indeed, a fifth of agents surveyed expect prices to rise by more than 5% over 2011. The greater risk for the London market is that it becomes stagnant as vendors choose to stay put rather than enter a tricky and uncertain market. Committed buyers are ready to move (at the right price) but unless more stock is released these buyers will become increasingly disheartened and pull out of the market altogether. For those vendors who do bite the bullet the answer is not to push prices too strongly or the market could very quickly overheat.
An overview of London's lettings market
As stock levels in the sales market stay low, stymied purchasers continue to turn to the rental market for their accommodation needs. However, with stock levels here equally constrained and existing occupiers choosing to stay put, those wishing to move within or into the area are facing increasing difficulties.
In 2010, despite a stronger third quarter, there were 20% less rental properties available for letting over the year, compared to 2009 which contributed to a 10% rise in rental values over that year. Early indications for 2011 suggest that stock levels have increased slightly compared to the same period in 2010, although they are lower in London’s North and West areas. Nonetheless, supply remains tight, not helped by many existing tenants extending their leases and thereby further contributing to the low levels of available stock. The level of houses available for rent seems to be particularly constrained, making up just 9.6% of lets across the area in 2010, the lowest level for five years. As a result, rental growth for houses outperformed that of flats in 2010. Houses were especially strong in the Central area, although boosted by a couple of high value lets ie. rental of 11 Brick Street for £40,000 per week, and 5 Tregunter Road in SW10 for £20,000 per week.
While stock levels are so low, simultaneously demand remains strong. The latest ARLA report from March 2011 says that demand for rental property will continue to outstrip supply for much of 2011 and into next year. The RICS survey also reports strong rental growth, particularly in London as demand continues to rise while supply remains tight. As a result, properties are letting faster. The average time to let was quicker in 2010 (1.6 months) compared to previous years, and early indications are that it is even faster in 2011 (1.5 months). This is the same across all price levels - another indication of strong demand.
Rents continue to rise slowly across London, although with tenants’ incomes taking a hit and some increase in supply, rents are not growing at such a fast pace as in 2010. Across our catchment area we have seen a 1% rise in rents from 2010 levels in the first two months of 2011. However, the agents surveyed were still optimistic about rental growth over 2011, with just 7% expecting to see any falls in rental values. Over a quarter of agents expect rents to rise by more than 5%, with those in the West (where supply is tightest) being most optimistic. As supply eases slightly, activity in the rental market is not as frenzied as that being experienced in the current sales market. That said, any significant increase in supply seems unlikely and the market looks set to continue in similar vein over the rest of 2011, with low stock levels being further impacted by increased renewals, as tenants choose to stay put rather than enter an uncertain market.
This newsletter was written for Lonres by Dataloft. Dataloft analyses and reports on the dynamics of local housing markets. Through gathering and managing a detailed set of residential property data, Dataloft provides a unique insight into what drives local housing markets.