Trend: London house prices

Is a price correction taking place?


  • Prices are noticeably shifting downwards across the capital as swathes of sellers commit to price reductions in an attempt to attract purchasers in a transparent shift to a buyers’ market. Note, in many cases sellers are open to bigger discounts than those most ostensible in the online portals. However, are these reductions bridging the expectations gap with the buyer market?
  • The recent stamp duty and mortgage interest relief tax changes have cooled the market, particularly in the buy to let and investor segment. The recent general election and failure of the Tories to maintain a majority seating status quo has also created political uncertainty.
  • We cannot also forget the rupturing Brexit referendum decision last year that continues to fuel uncertainty going forward until Britain finally leaves in 2019. Such uncertainty caused by the Brexit divorce decision and ongoing negotiation will be prolonged. A large faction of prospective sellers may decide to see how the political situation unfolds.
  • The main house price data indicators are slow to report the latest changing atmosphere. The latest news talks of slower growth (London growing by 1.2% in the last quarter vs 5% in the previous quarter). However, these delayed and poor stats mask in our view declining prices and the ability to negotiate lower prices, both on and off market.
  • Recently, there have been material corporate profit declines from Foxtons (FOXT) and Countrywide (CWD) blaming an uncertain market (-64% and -98% on 1H pre-tax profits respectively). The big falls in profits are being blamed on a sluggish property market. These real estate agents like many others will now try to befriend prospective buyers in order to entice them after a period of pitting them against each other in crude open house scenarios. (We don’t think the next half is going to fare any better for these companies and also note the introduction of more online prop tech disruptors that will impact the more traditional agents going forward).
  • Though there have been more price declines, they are not declining at a pace that bridge the gap to meet buyers expectations in many cases. Many prospective sellers are holding back from listing their properties due to the subdued environment resulting in more limited stock. In addition, the investor market has been hit but residential owner occupiers are still on the hunt taking advantage of the relatively cheap levels of credit available to them.
  • Nevertheless, the higher transaction costs have somewhat stunted the buy to let or investor market and this increased cost must be accounted for in the overall cost to buy or not to buy. This group of property buyers are key to property prices. In addition, demand is weakening due to a falling number of migrants and proposed exit of financial services personnel post-Brexit. The supply glut of luxury apartments adds to the downward pressure. Therefore, unless there is a monumental shift in government policy to provide further stimulus, we assert that the current price reductions will continue.
  • The overall effect of a prospective price correction poses dangers for many property owners who may consider reducing exposure or switching their capital allocations to different types of property with greater equity buffer levels. Now is not the right time to place too much value in house price inflation in the short term. A smarter strategy is required.
  • On the other hand, we do note that a mix of cheap longer term credit and recent legislative policy changes promoting a ‘generation rent’ provides compelling longer term view on property investment; the latter particularly from a PRS perspective. However, it must be noted that with forecast interest rate increases over the coming year, credit will start to get more expensive. It is certainly worthwhile booking that refinancing in sooner rather than later. In addition, the low interest rate environment has kept the number of distressed sellers low- this may change going forward.

 

  • In the UK’s current economic, political and social climate, buying a property that safeguards and grows your capital is challenging.  A smart property acquisition strategy is required.
  • Contact us at manager@londonpropertyanalyst.co.uk to learn more about how we can assist you in buying London property.

 

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