For the best part of the last 18 months, it\u2019s been almost impossible to open a UK newspaper that hasn\u2019t had at least one article about the craziness of the London property market. According to the various journalists concerned, the market was overheating back in the spring and summer of 2013, so as prices are now somewhere around 19% higher than they were then, boiling point was reached and passed a while back.<\/p>\n
And it\u2019s not just the past 18 months. Back in July 2011 the BBC quoted economist Jonathan Davis talking about the overpricing of London property \u2013 he said at the time \u201cLondon and South East transaction numbers had collapsed and prices were set to follow\u201d.\u00a0 Marvellous punditry – according to the Land Registry the average price of a London property at that time was \u00a3335K \u2013 it\u2019s not been that low since, and by August 2014 had risen to \u00a3467K.<\/p>\n
On 23rd October, Foxtons shares tumbled on the back of a poor last quarter, with sales commission down 7.8% on the quarter ended 30 September 2013. In the previous week, RICS reported London prices were beginning to fall. \u00a0And subsequent to that the FT reported that volumes in the prime Central London market fell by a third in the July to September quarter. \u00a0So all these journos can pat themselves on the back \u2013 they called it right after all. Maybe a bit late, but hey! – they can sit back and bask in self-satisfaction.<\/p>\n
Or can they? Aren\u2019t there one or two special factors coming into play?<\/p>\n
First and foremost, there\u2019s an upcoming general election, with a strong likelihood of Labour being returned to power. And Labour\u2019s just announced its Mansion Tax, basically a postcode tax on Central London.\u00a0 In the short-term, the threat of this as-yet rather ill-defined tax hits sentiment at the top end of the market.\u00a0 In the longer term, should Labour get in, there\u2019s always the risk that having invented a new tax, they\u2019d expand its reach by lowering the value at which it kicks in.\u00a0 That impacts not only the top end, but also those properties that might be dragged into the net.<\/p>\n
Second, we\u2019re about to enter a further period of decline in the Eurozone. Optimism across the continent is on a downward curve.\u00a0 Allied to that, the Chinese economy is slowing, and there\u2019s the build-up of tensions between Russia and the West.\u00a0 Couple that with the strengthening of sterling against both the Euro and the Rouble, add in the Enveloped Dwellings regime, there\u2019ll be fewer non-resident investors in the London property market.<\/p>\n
So where\u2019s the market likely to be heading over the medium term?<\/p>\n
The London residential property market responds to two principal drivers \u2013 overseas investors who drive the top end of the market, pulling the rest in its wake; and UK residents working in the capital and wanting to live there. Currently, both special factors mentioned above are weighing down on the overseas investor market \u2013 but they don\u2019t affect the UK residents market.\u00a0 Hence the reduction in volumes at the top end isn\u2019t noticeably affecting either price or volume in the rest of the London market.<\/p>\n
For UK residents the core issue underlying property prices is affordability. The vast majority of property acquirers are buying a home to occupy, a few are buying to let to obtain a better return than they can on cash.\u00a0 Affordability is not the headline price.\u00a0 Affordability comprises the following principal ingredients, in descending order of importance:<\/p>\n
For occupiers<\/p>\n
For UK investors<\/p>\n
So yes, the froth may have come off the top end of the market. Fewer foreign buyers, leading to lower volumes and some degree of price adjustment by those who have no option but to sell.\u00a0 But below the top end, that froth doesn\u2019t exist and won\u2019t exist whilst there are more people wishing to live in London than there are properties to accommodate them.\u00a0 It\u2019s good ol\u2019 supply and demand.\u00a0 If people can\u2019t afford the deposit, they have to continue renting \u2026 thus sustaining the B2L market.<\/p>\n
The medium term outlook? Lower volumes at the top end, with some degree of price correction for those that sell, at least until the General Election in May 2015.\u00a0 Further down the scale, no noticeable change, and none likely until something major happens on the supply side<\/p>\n","protected":false},"excerpt":{"rendered":"
For the best part of the last 18 months, it\u2019s been almost impossible to open a UK newspaper that hasn\u2019t had at least one article about the craziness of the London property market. According to the various journalists concerned, the market was overheating back in the spring and summer of 2013, so as prices are[…] <\/p>\n