Despite fears of a global economic slowdown, the UK economy is currently performing fairly well and is expected to grow at above 2% per annum over the next 5 years. And while this impacts property trends, there are a number of other factors playing a big part in the Prime Central London (PCL) market.
Brexit
With the referendum on whether the UK should stay in the European Union (EU) coming on June 23rd, the property market is in a funny place. Uncertainty means that many buyers and sellers are adopting a ‘wait and see’ approach.
London in particular is anticipated to feel the effect of nervous buyers, the consequence of which is likely to be a drop in trading in the lead up and immediate aftermath. It’ll only be once the dust is settled and agreements signed that the market will once again be able to breathe again.
Foreign investors
Sadiq Khan was recently voted in as the new Mayor of London – and part of his policy is to limit the number of foreign investors buying property in London.
Strutt & Parker’s data for the first quarter of 2016 showed that nearly 36% of all buyers in PCL were originally from overseas. There was also a significant increase seen from UK buyers living abroad when compared to the same period last year.
But there has been a marked drop in buyers from Asia and Europe when compared to the same period last year (-20% and -84% respectively). This can likely be attributed to the uncertainty surrounding the EU referendum and the Mayoral elections.
UK economy
The UK economy, as mentioned above, is performing well and house prices have risen across the country. But, recent figures show that other areas of the country are outpacing London’s house price growth – leading some to suggest prices are starting to level off.
Regions outside the capital, where there is greater capacity for price growth, may continue to outperform London over the next 5 years and, within London, up-and-coming sub-markets may outperform traditional prime locations.
The 2016 Budget also played its part with the additional stamp duty land tax on second homes and buy-to-let properties leading to a drop in lets. The first quarter was 39% below the 5 year average of 2,547 property lets, highlighting the impact the current economic conditions and additional stamp duty are having on the lettings market in PCL.
In total in PCL, 482 properties were sold during the first quarter of 2016, which was an overall decrease of 21% when compared to the same period in 2015. There were 1,552 property lets agreed during the first quarter of 2016, which was 43% down overall compared to the first quarter of 2015.
Who is buying what?
Flats remain the preferred housing type in PCL, with nearly 57% of buyers in the first quarter of 2016 wanting to buy one.
And there has been an increase in buyers from the technology and media sectors – there have been 67% more purchases from these than in the same quarter of 2015.
But the right property in the right area will always be desirable, says Nina McDowall, National Partner Lettings.
She adds: “Beautiful properties in prime areas and situated within good buildings are still popular and rental levels seem to be marginally less affected than other sectors of the market.”
What does the future hold?
Rising uncertainty surrounding the EU referendum and performance of the global economy has the potential to increase investor and consumer uncertainty. But demand for housing continues to outstrip supply and with interest rates set to remain at 0.5% throughout 2016, we expect activity and price growth to remain robust across the UK.
Going forward, Strutt & Parker expects market activity and price growth to continue to be low as uncertainty is likely to dampen market demand in the short-run.
But London in general, and PCL more specifically, remain a ‘safe-haven’ for foreign investors, and with the outlook for the UK economy still positive we anticipate price growth will return to a normalised level in the medium/long-term.
“One month doesn’t make a year but our March trading in PCL was one of the most positive we have ever experienced,” says Charlie Willis, Head of London Residential Agency. “This provides some much needed evidence that confidence and commitment is still there for people to live in the best areas of London even against the uncertain backdrop of economic concerns and the possible impact of Brexit. In the long term, London has proven itself to be a historically safe place to live and I believe that whatever the outcome of the EU Referendum, it will remain a great place to set down roots.