Prime London property could fall 40%
Tue 23 Jul 2013
House prices in the capital could lose up to 4% of its value if the US changes its monetary policy too quickly.
According to a report published by Fathom Consulting and commissioned by Development Securities, the property market in Central London is currently overvalued, with price gains in recent years not justified by economic fundamentals.
Fathom suggested that the growth has been a result of the London market being viewed as a safe haven for overseas investors.
The report said: We found that only around one half of the further substantial appreciation of PCL property prices through 2012 and into 2013 can be justified by economic fundamentals. On that basis, we find some risk that a modest bubble has started to form in the PCL market."
It believes that if the US stops its version of Quantitatve Easing too quickly, that could cause the London bubble to pop.
Fathom stated: In our view, the current biggest threat to PCL property prices is that the US Federal Reserve begins to taper its asset purchase programme prematurely, causing the US economy to weaken, sparking off a rapid fall in the price of risky assets, including gold, equities and PCL property. This is not our central view, but it is a risk.
The average prime central London property is now worth over 2m, according to the estate agent Marsh & Parsons. On average, property in these areas rose in value by 3.4% in the last quarter alone.
However, the 40% rise in transactions across prime London was driven by activity in the outer regions of the city the volume of transactions in central areas actually fell by 38%.
Marsh & Parsons chief executive Peter Rollings said: Its true that the imbalance of supply and demand is pushing property prices higher in Prime London areas. But its also creating an excellent time to sell property. Helped by the rapidly improving availability of mortgages, buyers are queuing up for the chance to buy a prime London home. Property is changing hands in record time and for close to the asking price, with 98% of the asking price for Prime London property regularly being achieved.