London Property Monitor - Q4 2014
Thu 22 Jan 2015
- House prices dropped 1.6% in Q4 2014, in the first quarterly fall witnessed since Q2 2011 as the market re-calibrates
- Yet overall, values have climbed 6.4% year-on-year - and Outer Prime London records the strongest annual rise, with 9% growth
- 10% increase of available property for sale in final quarter of 2014 strengthens buyers hands
Price growth overview
Solid house price growth in the first half of 2014 slowed to just a 0.5% increase in the third quarter and actually dipped slightly in the final three months of the year as the supply of properties for sale increased and demand mellowed. Annual increases at the top end of the prime market remains solid, but quarterly increases hint at a calmer end to 2014 than the frenetic activity seen earlier in the year.
Outer Prime London in particular is leading the pack when it comes to house price inflation. And average values in Outer Prime London decreased by the smallest percentage in Q4, adjusting by just 1.1% comapred to a 1.6% reduction in Prime London property as a whole and a 2.1% correction in Prime Central London. All areas recorded annual increases, with Outer Prime leading the way (9%), followed by Prime London (6.4%) and Prime Central London (4.3%).
In monetary terms, this means the average Prime London property price now stands at 1.57m, an increase of 94,643 from the typical value at the end of 2013.
Outer Prime outstrips Central Prime
Property in Prime Central London remains highly desirable and sought-after, but it is the Outer Prime area that has seen the greatest annual price growth year-on-year. In some respects, this region offers buyers the best of both worlds in that it affords easy access to the centre while offering more space than densely populated central areas.
Balham has long been a favourite among young professionals and its increasing popularity among families is mirrored by the fact it experienced the greatest annual price growth in the year to December, with typical values soaring by 21%. Brook Green enjoyed the next greatest increase with a 19% annual rise.
To put Balham's house price rises in even keener perspective, traditional prime strongholds such as Kensington and Holland Park both saw value rise by 8% over the same period.
Average house prices in Clapham (902,283) and Balham (914,500) remain below the million-pound mark, while typical values in prestigious Kensington are more than four times higher (4,000,345).
Given the fact that house price increases in many Outer Prime areas have outflanked those in their more central counterparts, the premium buyers can expect to pay for Prime Central property has fallen to its lowest level on record, but still remains a sizeable percentage at 40% in Q4 2014 from a high of 47% in 2011.
Property type breakdown
In terms of the types of properties currently finding favour with London buyers, it is smaller abodes that are proving more popular than family homes at present. One- and two-bedroom homes have risen more in value annually than properties with three and four bedrooms across all parts of Prime London.
This pattern is particularly pronounced in Outer Prime London where one-beds have experienced a 13% yearly uplift and two-beds have appreciated by 15%. By way of contrast, four-bedroom properties in the region have increased by 8%. In Prime London generally and Prime Central London in particular, one-bed properties have enjoyed strong price growth driven by purchases from City workers seeking a pied-a-terreas well as corporate acquisitions for overseas workers.
In terms of actual prices, three-bed properties in Prime Central London have risen the highest, with a yearly increase of 161,978 bringing the average to 2,524,933. This represents a daily increase of 444 and a weekly rise of 3,115.
Million-pound market steadies
Ahead of the general election, Labour proposals for a Mansion Tax appear to have cooled the top end of the market, with the proportion of million-pound properties across Prime London tailing off slightly in the last quarter.
Currently, 54% of all Prime London homes are worth 1million or more, representing a small decrease from 56% in Q3. Even in world-renowned Prime Central areas of the capital, the proportion of million-pound properties has fallen from 70% to 68% over the last quarter of 2014. In Outer Prime London, 46% of property has a million pound price tag, dipping from 47% the previous quarter.
Homes worth 2million or more now account for under a quarter (24%) of all Prime London properties, lower than the 27% market share recorded in Q3. However, in Prime Central London, where the average price of a three-bedroom property stands at 2,524,933, the proportion of homes valued at 2million or above has held steady at 42%. In the more affordable Outer Prime villages, just 14% of properties surpass the 2million price threshold.
With properties priced above 937,000 now liable for a higher Stamp Duty levy, it will be interesting to see whether the Chancellors reforms temporarily distort the market on the highest rungs of the property ladder in the short-term. But ultimately, this revamp will not deter buyers from investing in the most expensive London properties. The attractive capital gains on offer, combined with the cultural and professional appeals of living in the capital, make it a premium that buyers deem to be worth paying, and merely puts London on a par with other international cities, which have typically had higher property taxes.
Surging supply calms buyer competition
In the past quarter, the supply of Prime London homes on the market has soared 26% to square up to demand, and this has calmed trading conditions and cooled house price growth. The range of choice available to buyers has greatly expanded, and this is trimming asking prices back from overblown levels, making it a prime time to buy.
With an increased pool of available housing stock, the number of registered buyers per property in Prime London has relaxed over the past quarter, from 12 in September to 11 in December. However, we expect demand to pick up in the first half of 2015, typically the busiest time of year for the property market.
In the highly sought after addresses of Prime Central London, demand is intensified and remains more stable, and on average there were 14 buyers competing for every available property throughout Q4 2014.
UK buyers & investors dominate the market
UK buyers were in full force in the Prime London property market in 2014, accounting for 78% of purchases over the year. This shows a considerable annual uplift from a consistent 70% witnessed across 2013 and 2012.
During the fourth quarter of the year, overseas and foreign nationality buyers made up just one-fifth (20%) of all Prime London property purchases. This represents a steady decline from 25% in Q3, and 28% during the same period last year.
This quarterly trend has been evident even in Prime Central areas of the capital, which are typically the hotspots for overseas investors. Here, the proportion of overseas and foreign nationality buyers fell from 37% in Q3 2014 to only 30% in the last quarter. This is also down from 38% a year ago.
Across all of 2014, the proportion of Prime Central London purchases made by overseas and foreign nationality buyers totalled 45%, a sharp increase from 38% the previous year.
The overwhelming majority of Prime London buyers during Q4 2014 were investors, accounting for 37% of all purchases rising to the highest proportion on record. This has jumped from 26% in Q3. Investors were also the most active buyers in the Prime Central London market, representing 38% of all sales, increasing from 36% the previous quarter.
First-time buyer activity slowed in the final three months of the past year, with just 21% of Prime London purchases made by new buyers. This is the lowest proportion seen during 2014, down from a high of 27% in Q1.
Corporate lettings boost rental market
Average rents in Prime London decreased a modest 0.5% during Q4, mirroring the long-term seasonal pattern for lettings. But over the course of 2014 as a whole, rents have grown healthily.
The average weekly rent across all Prime London currently stands at 608, up a robust 4.7% from a year ago. The cost of renting in Prime Central areas of the capital now averages 694 a week.
The emerging young professional hubs of Outer Prime London continue to offer the most affordable rents, and tenants can expect to pay 558 per week on average. Rents in these areas are also climbing at a steadier pace, rising 2.6% over the past year.
2014 saw a considerable surge in corporate lettings, and heightened demand for rented accommodation in most desirable central city locations has driven Prime Central rents up by 5% in the past twelve months. Annual rent growth increased to 10.1% for a four-bedroom property in Prime Central London.
As the general election approaches, many families relocating to the capital for work are opting to wait and see the political outcome and any taxation repercussions before buying, boosting demand at the higher end of the rental market.
Looking to 2015...
We expect house price growth to follow a shallower trajectory in 2015, with Prime London property values increasing 3-5% over the coming year, and prices to remain stable in the first quarter. In Outer Prime areas, prices are forecast to experience the strongest rise, buoyed by high demand for more affordable homes in the capital.
Ahead of the general election, there will be an uplift in lettings. Rising demand for corporate tenancies has reawakened growth in the rental market during 2014, and this is set to ramp up a notch in 2015, with annual rent rises of 10% predicted.
The Prime Market Monitor uses a repeat valuation methodology that tracks values in a robust mix-adjusted basket of properties across all 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. OuterPrimeLondon comprises outer areas such as Clapham, Balham, Battersea, Barnes, Little Venice, Fulham and Brook Green. Prime London is used to describe all these areas combined including Prime Central London and Outer 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.