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London Property Monitor - Q1 2015

Tue 05 May 2015

  • Prime London house prices dropped 0.6% in Q1 2015, but still show 1.7% improvement on last year
  • Prime Central areas experience strongest uplif in values over the past three months
  • Demand for Prime London homes soars 20% in first quarter of 2015

The Q1 story

 
 
*See methodology section for details*

In the run up to the election, average property prices across Prime London continued to fall inQ1 2015, but the rate at which they declined hascalmed since the previous quarter. The quarterlydecrease of 0.6% over the past three months isconsiderably smaller than the 1.5% drop recordedin Q4 2014, in an indication of a stabilising market.

This slowdown has largely been driven bya steeper quarterly drop of 1.8% in Outer PrimeLondon areas, which experienced some of thefastest and most extraordinary price risesacross the capital in 2014. In an about-turn, house prices in popular Battersea, Clapham and Fulham have slipped back.

As the market in these growth areas eases tomore sustainable levels, weve seen a revival inthe fortunes of Prime Central London the onlyportion of the capital to record an uplift inprices during the three months to March 2015.Home values in Prime Central London increased0.3% during Q1 marking the fi rst quarter inmore than a year where growth in traditionalstrongholds such as Pimlico has overtaken theincreases witnessed in cheaper, up-and-comingcorners of the capital like Balham.

The enduring appeal of Prime Central Londonto well-heeled domestic and international buyershas ensured steady growth, as the lower-end ofthe market recalibrates. As a result of this trendreversal, the premium paid for Prime CentralLondon property has risen for the first time infifteen months. Buyers can now expect to paya 34% price premium to live in exclusivePrime Central locations, up from last quarter,and back on an even keel with the ratiowitnessed a year ago.

 

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The story over the past year

Despite little movement on a quarterly basis,Prime London property prices have risen bya healthy 1.7% over the past year, taking averagevalues to 1,553,892.

With property prices typically 25% lower onaveragein Outer Prime areas, homes slightlyfurther out from Londons centre have experiencedthe stronger annual price appreciation, with valuesup 2.1% year-on-year.

One-bedroom properties are experiencing the strongest price growth in these Outer Prime areas of London, as more young professionals choose to prioritise quality of accommodation over an extra bedroom. The average value of one-bedroom homes in these enclaves has risen by 6% over the past twelve months equal to 28,500.

In terms of annual growth across the city,leading the charge is Brook Green, where priceshave climbed by 9% in the past 12 months, animprovement equivalent to more than100,000.Properties in the neighbourhood, which bordersKensington but sits just outside traditionalPrime Central London now command anaverage of 1.26m.Following closely behind is the waterside suburbof Barnes, where average values have risenby 8% (107,000) since the fi rst quarter oflast year. Typical property prices in the areacurrently sit around the1.4m markHowever, desirable Kensington remains thepriciest London postcode, with average valuesin this central precinct exceeding 4m.

Million - pound homes

Now that properties pricedabove 937,000 incur a higherStamp Duty tax, growth at thetop rungs of the ladder appearsto have stalled momentarilywhile the market readjusts.Overall, the proportion ofmillion-pound properties inPrime Central areas of Londonhas increased just 3% in the pastquarter, bringing it back into linewith levels a year ago with 67%of all homes now worth 1m or more.

High-end activity has also been dulled by theupcoming general election, as buyers wait tosee the outcome and the likely implications onproperty regulation or additional taxation.

The implications of any Labour or LiberalDemocrat Mansion Tax would have a profoundimpact on the housing market in the capital. InPrime Central London, where the average houseprice stands at 2,080,742, 38% of propertiesare worth 2m or higher. And in a sign thatthe current speculation has already slowed thepace of growth at the top tiers of the market,the level of 2m+ homes has stayed static overthe past three months, and there has been nomovement on a yearly basis either.

But even with the implementation ofa Mansion Tax, buyers who can afford to invest in the most exclusive and desirableLondon homes will not be discouraged.Any London property taxes are more thanmade up for by the cultural and professionaldraws of the city, as well as the bountiful capitalgains on offer. Buyers will fall into step withthe new Stamp Duty yardstick, and after anyelection we would expect an uptick of top-endactivity to negate any preceding stagnation.

 

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Supply and demand

Over the past three months, demand forPrime London homes has risen by 20%.Yet buyers have been protected fromtooth-and-nail competition as the supplyof available properties on the markethas increased 50% in the past year.This larger pool of available housing stockis behind the more harmonious tradingconditions and realistic price rises wereexperiencing at the moment, making it anideal time for buyers and sellers lookingto make progress up the housing chain.As the usual spring cycle of activity beginsto pick-up in the housing market, heighteneddemand has pushed the number of registeredbuyers per property in Prime London up from10 at the end of 2014 to 12 in March 2015.

Home versus Away

The proportion of transactions accounted for byoverseas and foreign nationality buyers increasedduring the fi rst three months of this year to23% of all Prime London purchases a jumpfrom 20% in Q4 2014. However, this is broadlysimilar to the long-term trend, and broadly in linewith the proportion this time last year (22%).This upswing in foreign buyers has been morepronounced in Prime Central London, growingfrom 21% in Q1 2014 to account for 30% ofall purchases over the past three months.

First-time buyers vying with investors

Investors still make up the largest proportion ofpurchases across all Prime London, accounting for nearly one in three sales (29%) during thefirst quarter of this year. However, this hasreduced signifi cantly from 37% just three monthsago, and their predominance in the market isbeing challenged by fi rst-time buyers of late.First-time buyers are now almost neck-and-neckwith investors in the Prime London property market,representing 28% of purchases throughout thecourse of Q1 2015. This is a considerable jumpin activity from 21% of all sales in the previousthree months.

However, in Prime Central areas, wheretypical values are higher, investors continueto be the unrivalled pre-eminent force in themarket, as owner-occupiers delay purchasedecisions ahead of the general election. Nearlyhalf (49%) of all Prime Central purchasesover the past three months were made byinvestors the highest percentage on ourrecords, climbing from 30% in Q1 2014.

The London Lettings Market

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2015 rental growth has begun at a lively pace particularly in Prime Central areas popular withcorporate lettings or renters from overseas. As thegeneral election campaigns are waged and varioushousing policies are mooted including a MansionTax on top-end property prospective buyers arebiding their time to see how the chips fall, drivingintensifying demand for rented accommodationat the higher tiers of the rental market.

The average weekly rent in Prime Londonhas climbed 2.5% over the last three months,to reach 623. This takes overall annual rentinflation to 4.8% in the year to March 2015.

But it is average rents in Prime Central Londonthat have increased at the fastest quarterlyrate, up 2.6% during Q1. The typical cost ofrenting in Prime Central areas of the capitalnow stands at 712 per week. It is four-bedroomfamily homes in these most desirable centrallocations which have witnessed the strongestannual rent growth, with average rentsjumping 9% over the past twelve months.

Offering more affordable rent prices, Outer Primeareas tend to cater for a more young, professionaldemographic, with typical weekly rents of 564.In these areas, one-bedroom properties are mosthighly sought-after, with rents appreciating atthe quickest pace, rising 5.8% from a year ago.

Looking ahead...

Following the conclusion of the general election, we anticipatea flurry of feel-good activity after the return of some certaintyin the market. In the unlikely event of a majority government,we will suddenly see business resume as usual, and buyersseizing advantage of favourable low interest rates and anincrease in available housing stock. Even if this shot of optimismis prolonged with coalition talks, buyers will still be able toget on with their lives again on a more solid footing, andgreater confi dence will emerge as political ambiguity clears.In the long-term, we anticipate this will result in annualproperty price growth of 4% across Prime London overall,with the Prime Central market outperforming Outer Primesuburbs for the fi rst time in almost three years.

 

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Methodology

The Prime Market Monitor uses a repeat valuationmethodology that tracks values in a robust mix-adjustedbasket of properties across all Prime London in the mainareas in which Marsh & Parsons operates. Prime CentralLondon comprises representative baskets of propertiescovering Chelsea, Kensington, Notting Hill, Holland Park,Pimlico and Earls Court. Outer Prime London comprisesouter areas such as Clapham, Balham, Battersea, Barnes,Little Venice, Fulham and Brook Green. Prime Londonis used to describe all these areas combined includingPrime Central London and Outer Prime London.Supply and demand statistics are based on an auditof Marsh & Parsons registrations and instructionsduring the quarter. Buyer profile information takenfrom Marsh & Parsons quarterly MI data.

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