The number of properties sold plummeted in 2016 across prime Central London and our market areas of City, Midtown and East London, reflected that trend – transactions fell by 60% compared to 2015. There is no doubt that the main culprit was Stamp Duty although Brexit added to the torpor. The marked difference between rates of activity above and below £937,500 proves that the December 2014 Stamp Duty increases are the main drag on the market – and the higher the price, the greater the loss of sales. It is no surprise that there is now a growing voice lobbying the Chancellor to consider some concessions on stamp duty rates to support the market and stimulate the economy.
During 2016 a growing number of properties remained on the market for 12 months or more. Most owners in our markets are in a position to hold out for close to their target prices and, in any event, price reductions are relatively ineffective in boosting demand when buyer confidence and buyer numbers are low. In these circumstances, sellers look for alternative strategies. One alternative is to remove properties from the open market but continue with discreet marketing to a selective audience of serious buyers who are ready to commit. In any event, online visibility can be perceived as counter-productive by vendors in the current market – which is a somewhat surprising development.
Prices were remarkably resilient, given the fall in transactions, at least for the smaller properties. The price of a one-bed apartment ended 2016 where it began in Midtown and East London although in
both markets, prices had edged upwards and settled back during the course of the year. The City actually experienced a 3% price increase in 2016, all of which occurred in the first half. (Fig 2) .
Buy to let investors and buyers of pied-a-terres purchasing one bed apartments seemed to be willing and able to absorb the 3% additional stamp duty imposed in April 2016 but higher value properties, where stamp duty was already punitive, felt the pressure.
By the final months of the year there were more serious buyers back in the market, viewing more properties and willing to make offers – especially in the market under £1 million. The press is no longer reporting steep rises and some buyers might even secure a price discount.
We have monitored prices for almost 20 years in Midtown City and East London and maintained a watch on prices of resale properties averaged over all three areas. At the end of December the average price of a resale apartment was £555,000, which would give the owner a capital value gain of £5,000 over the year. (Table 1).
Prices for larger properties fell in 2016, as we reported in our half year report, for the first time since the aftermath of the global financial crisis in 2008. It was most acutely felt in the 3 bed market where prices exceed £1 million in all three of our areas but also felt for 2 bed properties. We have noted this downward pressure over the past year as potential buyers compromise on size or location to keep a lid on the cost of property. In other words, buyers who might otherwise have wanted a spare bedroom or study in Central London are more likely to settle for a 1 bed flat assuming that they are committed to a Central location.
The price of a 3 bed apartment (penthouse) in Midtown dropped by 15% this year – underlining the weakness of demand is this segment of the market. There is oversupply of 3 bed apartments and they are more likely to appeal to sharers than to families for whom the planning system intended them.
The price of London residential property has been on a fairly strong upward trajectory for more than two decades with little reprieve. Our long run time series, (Table 3), shows that very clearly with capital value growth of around 600% in all three of our markets. The growth has been driven by a number of factors including: the re-population of Central London; the colonising of new areas and the injection of overseas investment capital.
The role of overseas buyers in London has been controversial, as a recent article in The Guardian pointed out: “Many Londoners take it as read that the high cost of housing in the capital is the fault of wealthy foreigners”. But the article, by Dave Hill, goes on to flag up the fact that much of the recent development in Central London has relied heavily on overseas buyers and they have thereby played an essential part in helping to deliver affordable housing.
The Mayor has commissioned research to gather a robust evidence base and to provide a clear understanding of the role overseas investment plays in development viability. The opening sentence of the brief makes it clear that, far from being intended to vilify overseas investors, it is acutely aware of their importance: “London is open to people and investment from around the world. We welcome people from all countries who want to make London their home, and we welcome investment from around the world in building new homes”.