market prospects 2009

The Sales Market 2009

We see no reason why confidence will return to the sales market in the first half of 2009, given the global downturn. Midtown, City and Docklands will be affected by the consequences of the mutation of the banking crisis into recession and the resultant impact on job security and employment numbers. City bonuses, which have stimulated the housing market over the past five years, are expected to be cut by an estimated 60% in 2009 to their lowest level in a decade, and it has been reported that bonuses are to be paid predominantly in shares rather than cash. The impact of the recession will continue to spread from financial services to other sectors of the central London economy, including the professions (although law and accountancy will flourish, lending support to the Midtown residential market), business support services, the hospitality sector etc.

After struggling in the first half of 2008 with both the economy and the Opposition, Gordon Brown emerged from the banking crisis inOctober 2008 as a hero on the international stage – the potential saviour of market capitalism. If the Labour government’s various rescue packages for the banking sector and the economy appear to be working in the first half of 2009, it is possible that a snap General Election could be called in May 2009, although May 2010 seems a more likely date in the current circumstances. The possibility
of a General Election as early as May 2009 could generate some further uncertainty in the housing market in the first half of 2009.

On the positive side, the Base Rate is likely to fall further from the 2% level reached in December 2008, with the prospect of low rates being maintained until there is clear evidence of economic recovery. Looking at individual measures, we would not be surprised if the Government changed the Stamp Duty rules in the next Budget, given that November’s pre-Budget announcement did not contain any particular stimulus for the housing market. The accession of Obama to the US presidency could boost confidence and lead to more radical steps to shore up the US financial system and economy than the Bush administration was willing to entertain.
As a result, we consider that the first half of the year will see average residential prices across Midtown, City and Docklands continue to decline by a similar rate to that in second half of 2008, a reduction of 5%. This would take the overall reduction in prices since October 2007 to around 23%. Prices may stabilise in the second half of 2009 in Midtown and in the first half of 2010 in Docklands, by which time prices will be tempting renters to become owner-occupiers.