London Property Monitor - Q2 2015
Mon 03 Aug 2015
House prices improve across Prime London in Q2,with 0.8% uptick from previous three-month period
Outer Prime areas experience greatest appreciationwith 1% price increase, while Prime Central Londonmarket is essentially flat, rising at 0.6%
Supply of properties rises 10% in second quarter of 2015,while demand grows by 17%
The Q2 at a glance
The top tier of Londons property marketturned a corner in the spring of 2015, with the first quarterly price increase since Q3 2014 arresting two consecutive three-month periods of reductions. With a decisive election result coming five weeks into Q2, the subsequent economic certainty this afforded allowed sellers and buyers to act with renewed confidence.
The resurgence was mainly driven by typical value increases in Outer Prime London, which averaged the strongest growth across the quarter, of 1%. Price appreciation in Prime Central London was a more modest 0.6%, buthelped contribute to an overall Prime London improvement of 0.8% for the three months ending in June 2015.
Despite the renaissance in Q2, the market hasnt returned to the lofty heights of last year, with values down 1% on the second quarter of 2014 in traditional prime postcodes and 1.1% lower inthe second tier of top London properties. However, it is important to place this in the context of the 13% increase seen in Prime London house prices between Q2 2013 and Q2 2014.
This means that the longer-term two-year comparison shows that Prime London house prices have climbed 12.1% since June 2013. Growth has been even faster in Outer Primeproperty, with values rising 13.9% over the last two years. Therefore, the gradually smaller quarterly and annual changes posted over the past few periods suggest a market finding its natural level and a more sustainable pace of growth.
While increases in Outer Prime house prices have edged ahead of those witnessed right in the heart of the capital, Prime Central London has lost none of its lustre in terms of appeal or demand witnessed from prospective buyers. The premium that purchasers can expect to pay to live in the most exclusive areas currently stands at 29.8%, proving that location really is key for the most discerning buyers.
Average property prices across Prime London as a whole currently stand at 1,582,210. Those looking to buy in the most prestigious Prime Central areas will typically need to part with 2,053,336, while buyers setting theirsights on Outer Prime addresses can expect values around the 1.17m mark.
Four-bedroom homes have seen the largest price bump in the past three months in Prime London with typical property values up 1.3% since Q1 2015. This amounts to a typical 29,694increase in cash terms for such properties.
The picture is the same in Prime Central areas, with family-sized properties in the heart of the capital experiencing the largest quarterly increases with three-bedroom properties 1% more expensive and four-bedroom homes up by 1.7% from the previous quarter.
Pimlico is the new property hotspot in terms of annual price growth, with the area enjoying a 5% increase in typical values since Q2 2014 the equivalent of around 66,000. This figure was boosted by a particularly buoyant second quarter and the average price in the area now stands at 1.36m.
Leafy Barnes maintains its position from Q1 as the area of London with the second highest price growth, with values rising by 3% since Q2 2014, at a rate of 124 per day. It is joined in second place by Earls Court where average prices also rose by 3% over the past 12 months,meaning typical values in the area are now just shy of 1.5m. The traditional prime strongholds of Kensington and Chelsea havent enjoyed such strong quarterly performances, but still represent two of Londons most desirable neighbourhoods.
Price per square foot
The price paid per square foot of property varies vastly across the capital. Overall, the average price per square foot of Prime London property has risen 1% year-on-year.
One square foot of Prime London property is now worth 1,192. But for Prime Central locations, buyers can expect to pay 27% more valued at 1,516 a square foot during Q2 2015. In contrast, Outer Prime areas typically sell for around 896 a square foot.
Supply and demand
Demand for Prime London properties warmed up in the second quarter of 2015, with 17% more people looking to buy than in the first three months of the year. This increased competition has been partly sated by a 10% rise in supply of properties coming onto the market over the same period, but buyers are still having to act decisively to land their first-choice properties.
The supply of properties has improved by more than a third since Q2 2014 and means that there are currently an average of 12 buyers for every registered property for sale in Prime London. This has stabilised from the five-year low of 10 seen in the final months of last year, but remains below the 22 witnessed at the start of 2014 when a supply shortage created something of a logjam in the upper echelons of the capitals housing market.
In Prime Central London, demand is slightly higher than across the capitals market as a whole, with 13 buyers typically registered per available property.
Home versus Away
Foreign nationality buyers continue to be crucial players in the capitals property market accounting for more than a fifth (22%) of all Prime London property purchases in Q2 2015. This marks a slight reduction from 23% of Q1 sales, but is largely on a par with the long-term pattern showing little movement in the context that this figure was 21% a y ear ago. This group has much to do with E uropean buyers choosing to live, work and put down roots in London.
However, in pricier and more internationally recognised Prime Central addresses, there has been an upturn in the production of foreign buyers, again with a European bias to live and work in London. This group made up 34% of all sales during Q2 2015 - a jump from just 30% of property purchases a year ago.
The greatest share of Prime London property purchases are made by investors accounting for 28% of all sales during the three months to June 2015. But this appears to be on a slight downward trajectory, in signs that the market may be balancing out with other types of purchaser such as first-time buyers.
The proportion of investor purchases has fallen from 29% last quarter, and 31% this time last year. At the same time, a quarter of all property sales during Q2 were made by first-time buyers showing a significant upswing from 21% a year ago, and making them the second most prominent player in the property market.
Prime Central London is one of the most sought-after destinations for investing capital, offering strong and solid returns on property. As such, investors are extremely active in these postcodes and accounted for 42% of all property sales over the last three months. This represented a drop from a record-high 49% in Q1, but still showed a steep climb from 34% a year ago, and is markedly above the long-term trend.
The London Lettings Market
Intensified competition in the Prime London lettings market continues to drive up average weekly rents and the typical landlord can now expect to yield 641 every seven days, a 2.8% increase from the previous quarter and 5% more than a year ago.
Landlords in the most coveted pockets of Prime Central London will collect even more (727) on a weekly basis, but the quarterly (2.1%) and annual increases in rents (4.3%) havent been as great. Landlords looking to lease high-end properties slightly further out from the capitals prime epicentre are looking at a more modest 586 per week. This figure has risen by 3.3% from Q1 2015, and on an annual basis the rate of growth has increased to 5.5% in Q2, up from 5.1% the previous quarter.
In terms of property types, it is two-bed homes that have witnessed the strongest growth in rents prices over the past year in Prime London, increasing by 7.4%. In Outer Prime areas, the typical rent for a two-bedroom home has appreciated even faster rising by 8.9% in the twelve months to June 2015.
But in Prime Central London, it is four-bedroom properties which have experienced the strongest rent rises, amounting to 6% year-on-year.
Much of the strong demand for Prime London rentals has previously been attributed to prospective buyers being spooked by the possibility of swingeing taxes on high-end capital property, but demand hasnt subsided since the conclusive election result that ruled any mooted Mansion Tax out.
The conclusive General Election result has afforded the market a certainty it was missing in the first part of Q2 and we have already witnessed something of a post-poll bounce as buyers return to the market with confidence.
As a result, we would expect a quarterly price improvement of 1.5% across Prime London as a whole in Q3 and a 4% uptick over the coming twelve months.
But while London has long been the driving force behind UK house price growth, it may well be forced to take something of a back seat in coming quarters as other regions experience property appreciation at a faster rate.
While the Mansion Tax bullet may well have been dodged, the increase in other property transaction taxes such as Stamp Duty have hit the market hard at the highest levels and therefore the capital has suffered more than anywhere else.
While the market adapts to these new conditions, the sorts of price rises we were witnessing in the heat of 2014 will become a distant memory.
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, Pimlico and Earls Court and South Kensington. Outer 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 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.