Growth in prime residential property market in London slows in third quarter

Thursday, 27 October 2011

Prime residential property in central London has shown strong price growth over the past year of 13.6% but the rate of growth slowed to just 1.1% in the third quarter, a new report shows.

The analysis from Savills also shows that prices rose by an average of just 1.1% over the three months to the end of September compared to 6.4% from January to June.

There is continuing demand from overseas buyers looking for a global safe haven investment and some 58% of buyers were foreign nationals, with over one in five buying for investment. Less than half of buyers were acquiring property for use as their main residence and British buyers accounted for less than half of all purchases.
 
Those prime markets dominated by domestic demand have generally shown lower levels of price growth. But all prime London remains relatively buoyant compared to the mainstream UK market.

Within prime South West London, values rose by 1.3% in the quarter, taking annual price growth to 7.1%. This continued price growth has been underpinned by low levels of available stock. Those households selling prime family homes in the area are tending to recycle their housing wealth locally rather than make a move into the commuter belt.

The relative strength of the sub-markets is also seen in the sale price asking price ratio. In both central London and the prime markets of North London, including Hampstead and Islington, sale prices averaged 1% to 2% above asking price in the three months to the end of September.
 
By contrast, in South West London and the prime East of City markets they were 5% and 6% below asking price respectively.
 
The prime markets of Wapping and Canary Wharf have generally seen the least strong recovery since the downturn, although prices are 1.7% above their 2007 peak, with year to date growth of 4%. These areas have seen reduced levels of owner occupier demand from those employed in the financial and business services sector, but this has presented investment opportunities which have attracted overseas interest.

In 2011 demand from business related tenants appears to have been constrained by the economic backdrop. Corporate lettings accounted for 10% of the market in 2010, but just 7% in the first three quarters of 2011 Prime London property has seen a very pronounced recovery since the downturn and has so far escaped the ‘second slip’ seen in many mainstream and regional markets since mid 2010.

The report points out that there are some factors that could reduce demand over the period of the next six to twelve months. Because buyers from the financial and business services sector make up a high proportion of demand, the downturn in the stock markets and continued concerns within the banking sector are an issue. The large scale return of City bonus money to the housing market still remains some way off.
 
Recent events, including continued troubles in the Eurozone economy, the downgrading of America’s debt, and the impact that these could have on global wealth generation, also present an increased risk to the market.
 
But for the time being, significant amounts of global equity are still flowing into the prime markets of London. Global social and economic uncertainty continues to underpin demand for prime central London residential property as a ‘safe haven’ investment.

Rental growth in the prime markets of London slowed to just 0.4% over the course of the third quarter of 2011, with small falls witnessed in some markets. This follows strong growth in the previous 18 months.