London Property Monitor - Q1 2016
Fri 22 Apr 2016
Home values across Prime London grew by 2.6% between Q1 2015 and Q1 2016, largely driven by growth in Outer Prime London, which averaged price increases of 2.9% on an annual basis
- Buyer demand up 9% year-on-year across Prime London but rises to 19% in popular Outer Prime belt, with 16 buyers chasing every available property on the market
- Spike in investor and second-home purchases in Q1 2016, as buyers sought to beat the Stamp Duty surcharge
Q1 at a glance
The Prime London housing market has enjoyed steady growth in Q1 of this year, rising 0.2% on a quarterly basis and 2.6% on an annual basis.
This growth was largely driven by price growth in Outer Prime London, where prices rose by 0.5% between Q4 2015 and Q1 2016 and by 2.9% year-on-year.
The Prime London housing market has enjoyed steady growth in Q1 of this year, rising 0.2% on a quarterly basis and 2.6% on an annual basis.This growth was largely driven by price growth in Outer Prime London, where prices rose by 0.5% between Q4 2015 and Q1 2016 and by 2.9% year-on-year.
Despite Prime Central Londons more muted growth rates in Q1 increasing by just 0.1% on a quarterly basis and 2.4% on a twelve-month comparator the central zone still commands a significant price premium. On average, buyers in Prime Central London paid an extra 29.7% for property in the area down only 0.3 percentage points from a year ago.
Average property price per square foot also mirrors these growth patterns. Across all of Prime London, the average property price per square foot stood at 1,233 in Q1 2016. Prime Central London homes typically demand 1,612 per square foot, while the average value per square foot in Outer Prime London remains somewhat lower reaching 907 in the first quarter of the year.
Outer Prime London has its time in the sun
Outer Prime London is undoubtedly enjoying a significant growth spurt. Many young professionals and aspirational families see these enclaves as great places to become homeowners, owing to their strong transport links, exciting cosmopolitan atmosphere, and better affordability.
As such, Clapham enjoyed the highest rate of annual price growth in Q1 2016, registering a 10.5% increase compared to Q1 2015. Balham, also in the Outer Prime ring, boasted the second-fastest 12-monthly price expansion in Q1 at 7.2%.
Theres a similar story on a quarterly basis. Balham was the best-performing spot during Q1, with values here increasing 3.4% since December 2015, while Clapham came in second with price growth of 2.8% on Q4.
One-beds versus four-beds
Across all of Prime London, one-bedroom homes were the star performers of Q1, with their average value rising 0.8% in the last quarter. This trend was most pronounced in Outer Prime areas popular with first-time buyers and young professionals, with one-bedroom properties typically increasing in price by 1.5% during the quarter, and 4.7% over the last year.
However across Prime London as a whole, four-bedroom homes were king on an annual basis, with their value growing 4.4% on average over the past twelve months. In Prime Central areas, this rose to a 5.3% year-on-year change.
Supply and demand
Compared to the same point last year, buyer demand has seen a 9% rise across all Prime London, while the supply of available properties on the market has contracted 2% over the same period. Between Q4 2015 and Q1 2016, demand has climbed by 0.9%, while supply has fallen by 5%. As a result, competition in the market has ramped up with 14 registered buyers for every property across all of Prime London. This has notched up from 13 in Q4 2015, and 12 a year previously.
Behind these figures are vastly divergent rates of supply and demand in Outer and Prime Central London. Since March 2015, buyer demand in Outer Prime London has grown by almost a fifth (19.4%). Conversely, demand in Prime Central fell by 3.6% over the same 12-month period. The supply of homes for sale in Outer Prime London has decreased by 11.9% on an annual basis, while increasing 11% year-on-year in the Prime Central area.
Outer Prime London is experiencing higher levels of competition as a result, with 16 registered buyers for every property on the market during Q1, up from 14 in the previous quarter, and 12 a year ago. In Prime Central London, the ratio of available properties to buyers has been in a decline, and stands at 12 in Q1 2016 down from 13 in Q1 2015.
Outer Prime London is experiencing white-hot demand at the moment, luring buyers with great transport connections and amenities, plus a leafier lifestyle, without the same price premium. But supply is struggling to keep pace, as house-builders cant keep up with the pace needed. Across the capital, Balham and Little Venice boast the highest number of applicants for every property on the market, at 21.
In contrast, supply in Prime Central London has been boosted in recent years by the increased uptake of Permitted Development Rights, which has led to may under-used office spaces in Covent Garden, Soho and Mayfair being converted into luxurious, high-end homes. This balance will now be readdressed. But demand in Prime Central London has steadied since the Government made it more expensive to purchase properties over the 925,000 Stamp Duty threshold.
But famous Prime Central addresses retain enduring popularity among high-end buyers and investors looking for stable returns, with Notting Hill boasting 16 prospective buyers for every home for sale.
Investors and second-home owners
The recent introduction of an additional 3% stamp duty on second homes and buy-to-let investments has had a huge impact on sales activity in the first three months of the year.
Trying to beat the new levy, buy-to-let investors were easily the most prolific buyers across Prime London in Q1 2016, accounting for more than a third (36%) of all purchases. This represents a significant spike up from 26% the previous quarter, and 29% a year previously and this quarterly and annual uptick shows a sudden reversal in the longer-term trend for weakening investor influence in the London property market.
Similarly, those purchasing an additional residence became the second most prominent type of buyer in Prime London over the period from January to March. The short-term sense of urgency among this sector is seen even more strongly, with second-home owners jumping to represent nearly a quarter (23%) of all Q1 property purchases in Prime London up from just 14% the previous quarter.
In the more exclusive enclave of Prime Central London, this group even overtook the investor share, to become the most common buyer type during the quarter. The vast majority (41%) of all property purchases within Prime Central London were made by those buying an additional residence, up from 24% in Q4 2015. Meanwhile, investors accounted for 35% of all Prime Central London property sales in the first three months of 2016. With increased competition from second-home owners, this slipped slightly from 36% the previous quarter.
As those buying additional properties for investment or other purposes became most prevalent in the Prime London property market ahead of the Stamp Duty switch, the proportion of cash buyers also rose. Two-fifths (40%) of Prime London property purchases were made by cash buyers in Q1, increasing from 34% in Q4 2015, and 36% a year previously. In Prime Central London, the proportion of cash buyers is even higher, at 46%.
Overseas and foreign nationality buyers are also more concentrated in internationally renowned addresses in Prime Central London. Nearly a third (31%) of purchases made during the first three months of 2016 were from overseas and foreign nationality buyers, up from 28% the previous quarter. Across all Prime London with domestic buyers more prevalent in Outer areas overseas and foreign nationality buyers accounted for a smaller proportion of sales, at 20%. This represented a minor drop on a quarterly basis from 21%, and a fall from 23% compared to a year ago.
After a marginal 0.5% increase in the first quarter of 2016, average weekly rents across Prime London currently stand at 628. This three-month improvement was largely driven by a 0.9% uptick in rental prices in Londons epicentre, with Outer Prime London recording more modest growth of 0.2% since the turn of the year.
This trend is reversed when analysing annual changes, with areas away from Londons heart commanding higher rent increases since the beginning of 2015 than those centrally. While Prime Central renters are currently paying 1.8% more than they would have been a year ago, those on the fringes have had to contend with an extra percentage point more on top of that, having witnessed a 2.8% rise. This means that renters in Outer Prime London typically pay around 576 a week at present, while tenants in Prime Central postcodes face 710 weekly rent.
One-bedroom properties have seen the steepest increases in rents on an annual basis, with the significant 4.5% hike in weekly rents for more bijou apartments in Outer Prime areas driving an overall Prime London improvement of 3.2% for such properties. Conversely, larger properties have become affordable to rent in the most aspirational areas, with four-bedroom properties now 2.6% cheaper to rent in Prime Central London than they were a year ago.
On a three-month basis, it is those seeking more space that have been harder hit by rent increases than those looking for more compact living quarters. Rents on prime three-bedroom properties have risen 2.5% since the beginning of the year, with this trend even more pronounced in Prime Central London where the increase has been 4.3%. Those seeking boltholes have fared better since the turn of the year, with rents for one-bedroom properties down 1.4% across Prime London as a whole and as much as 3.6% in the luxury epicentre of the capital.
The number of registered tenants per available rental property has maintained its recent equilibrium at eight. Competition for rentals is fiercest in Pimlico and Clapham where there are 20 interested parties for every property that comes on to the market. Fulham and Balham arent far behind, with 16 and 15 applicants per let.
The road ahead
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.