London Property Monitor - Q2 2013
Mon 22 Jul 2013
- The average price of Prime Central London property is now over 2m for the first time
- Almost half of Prime London homes (47.7%) are now worth 1m - up by 5.8% from 2012 (41.9%)
- Prime London outpaces Prime Central London for the fifth quarter running, with higher quarterly growth than the central areas alone but Prime Central London is beginning to close the gap
- 18 registered buyers per property
Prices Continue to Rise
Following a 9.3% annual rise, the average price of Prime Central London property now stands at over 2m, with the average property in this area now costing 2,006,102 - equivalent to 1,476 per square foot. Prime Central London is continually fashionable among both UK and overseas buyers, however the current imbalance between supply and demand continues to work as a catalyst for price growth.
For the past five quarters running, growth in Prime London as a whole has outpaced Prime Central London, experiencing consistently higher quarterly growth than its most central parts alone - interestingly however, the race is now becoming more even. Prime London property grew in value by 3.6% between Q1 and Q2 2013, compared to a 3.4% quarterly growth in Prime Central London. This is just a 0.2% faster growth, compared to the previous quarter when Prime London outpaced Prime Central London by 1.6%. Prime Central London continues to provide an economic sanctuary for owners and investors looking to protect their funds and generate an income greater than it is possible to accumulate in most UK banks.
Million Pound Homes
Despite the introduction of the 7% stamp duty tax, the number of properties worth 2m or more has continued to increase. Almost a quarter (24.6%) of Prime London property is currently worth 2m or more, up from 19.9% in March 2013 and 18.2% at the same point in 2012.
The price increases are particularly pronounced in properties that were worth more than 3m in January 2010.At the beginning of 2010, the average price of a property in this category was 4,509,739. This same basket of properties now has an average price of 5,481,884 a 20% increase in just 3.5 years. Given such strong capital returns, it is easy to see why high value Prime London property makes such an attractive investment opportunity.
The property type experiencing the most rapid growth increases are two-bedroom properties in Prime London, which appreciated by 6% in value during the last quarter. The slowest movers were one-bedroom properties in Prime Central London, which rose in value by a modest 1% compared to the previous quarter.
Two-bedroom Prime London property was also the fastest growing category last quarter, and marks the point where the gap in growth between Prime Central London and Prime London is narrowing. In Q4 2012, an average two-bedroom property in Prime Central London was worth 48% more than an average two-bedroom property in Prime London. In Q1 2013 this gap narrowed to 45% and in the last quarter to June the gap narrowed to just 40%. Two-bedroom properties in Prime London generally offer better value for money than smaller properties in more central areas leading to many first-time buyers moving to parts of south and south west London in particular in search of an ideal environment to lay down roots.
Across London as a whole, the premium being paid for property in Prime Central areas stands at 42.6%. This represents a slight drop from 42.8% in Q1 2013, and is significantly lower than the Q1 2012 peak of 47%, reflecting the better value and increased appeal of Non-Central Prime London areas.
Supply versus Demand
There has been a substantial increase in the number of registered buyers in the past quarter, with 11% more than in Q1 2013. Shown in the following graph, there are now 18 buyers per property an increase of 4 compared to the last quarter, and an increase of 2 compared to the same time last year.
Increased lending activity as a result of Government initiatives, such as the Funding for Lending and Help to Buy schemes, is helping many first-time buyers onto the housing ladder. Recent figures released by the Council of Mortgage Lenders have shown that mortgage lending has increased to its highest level since the start of the credit crunch. Low interest rates are also encouraging buyers to make purchases while repayments are maintained at an affordable level.
Volume of Transactions
The volume of property transactions in Prime London overall has increased by 40% during the last quarter, and by 15% compared to the previous year. To some extent, these improvements could be attributed to the changing seasons and disproportionally low Spring 2012 figures due to the Queens Jubilee. However, the improved sales figures are nonetheless testament to the significant increase in buyers entering the market many of whom have been helped by improved lending conditions.
But in Prime Central London, the volume of transactions is actually in decline. In the last quarter, there were 38% fewer transactions in Prime Central London compared to the same quarter last year. As a proportion of total transactions, Prime Central London accounted for just 21% of property sold in the last quarter, compared to 28% in Q1 2013 and 39% in Q2 2012.
Following continued uncertainty in the Eurozone, the volatility of the stock market, and the strong performance of residential property as an asset class, financially cautious Prime Central London owners are holding onto homes and investment properties for longer, thus reducing the supply of homes coming onto the market. The lack of available housing stock in Prime Central areas puts increased pressure on Non-Central Prime areas with both investors and first-time buyers jostling in competition for the best properties.
UK and Overseas Buyers
There has been an increase in the proportion of overseas and foreign nationalities buying in Prime Central London, reversing the trend seen in the last quarter. Overseas and foreign nationalities made up 46% of the purchases in Prime Central London a 13% increase from the previous quarter and a 6% increase from the same quarter last year.
There has also been a slight increase in the buying activities of overseas and foreign nationalities in Prime London. This group represents 33% of the last quarters purchases across Prime London an increase of 3% from the last quarter, and an increase of 1% from the same quarter last year.
The Governments Funding for Lending scheme has improved conditions on the ground for many first-time buyers, with purchases by this segment of the market increasing again in the second quarter of 2013. This group contributed to a third (33%) of all purchases made in Prime London during Q2 2013, a 1% increase from the previous quarter and a 2% increase from the same quarter last year. In terms of the volume of transactions, there has been a 44% increase in purchases by first-time buyers compared to the previous quarter, and a 21% increase by the same quarter last year.
Increase in Investor Activity
The volume of investors operating in Prime London has increased compared to the last quarter and last year. In Q2 2013, 29% of all purchases made were by investors an increase of 1% from the previous quarter and by 2% from the previous year.
In Prime Central London, investors have regained lost ground from the previous quarter and now represent the largest slice of buying power in this area to date. Investors made up 38% of all purchases in Prime Central London in Q2 2013 an increase of 31% from the previous quarter and an 11% increase from the previous year. The appeal of Prime Central London property and its potential for generous capital gains at a time of wider economic uncertainty remains a key driver for purchases from both UK and overseas buyers.
The long-term effects of Government initiatives including Funding for Lending and Help to Buy are yet to be seen. But in the short-term, these stimuli initiatives combined with low interest rates represent a unique opportunity to strengthen the UK housing market. Prices are expected to continue their orderly rise, bolstered by demand from both UK and overseas purchasers.
The Prime Market Monitor uses a repeat valuation methodology that tracks values in a robust mix-adjusted basket of properties across Prime London in the main areas in which Marsh & Parsons operates. Prime Central London comprises representative baskets of properties covering Chelsea, Kensington, Notting Hill, Holland Park and Pimlico. Non-Central Prime London comprises outer areas such as Clapham, Balham, Battersea, Barnes, Little Venice, Fulham, North Kensington and Brook Green.Prime London is used to describe all these areas combined including Prime Central London and Non-Central Prime London.
Supply and demand statistics are based on an audit of Marsh & Parsons registrations and instructions during the quarter. Buyer profile information taken from Marsh & Parsons quarterly MI data. Lending data is taken from the latest CML statistics available.