london prime residential sales report summer 2015
TRANSCRIPT
1
London Prime Residential Sales Report Summer 2015
2
London Prime Residential Sales Report Summer 2015
Supply & demand
Key trends – General Election result caused ‘phantom bounce’ in London
– Prices flat in Prime Central, but good growth in outer areas
– Buyers still reluctant to meet asking prices; price reductions up by 70% year-on-year
– New home sales almost double (90%) the five-year quarterly average
– With 2016 set for more uncertainty, are sellers overlooking golden opportunity?
After a subdued first quarter of 2015, there were high hopes that once the General Election was out of the way London’s residential market would really take off. However, the post-election boom predicted by many commentators didn’t transpire, other than for a brief flurry of deals in the days immediately following the poll — a “phantom bounce”. Chestertons saw an increase in buyer enquiries, but this didn’t translate into a corresponding leap in completed sales or rebounding prices.
There was a notable increase in exchanges in April, which could just reflect delayed deals finally being signed, but might also be a sign that vendors were keen to sell before the election and avoid the risk of a dealing with a possible Mansion Tax. After the election buyers — especially owner-occupiers — still sought to secure value, but this was typically most easily found away from prime central locations.
It would appear that the reason for pre-election market lethargy wasn’t just the threat of Labour’s Mansion Tax and rent controls, but also involved a degree of concern that prices were already reaching a peak, and in some places were in fact overinflated. This was exacerbated by the impact of the revisions to Stamp Duty. Properties above
£1.325 million are now £10,000 more expensive, while those buying properties above £2m are paying more than £53,000 extra Stamp Duty than before the reforms.
After May’s poll, the gap between vendors’ hoped-for selling price and buyers’ best offers persisted, and if anything actually widened. Many sellers clearly believed the media hype that the market would rapidly resume its upwards trajectory once the Tories secured their surprise majority and swept Labour’s property proposals off the table. What actually transpired was that purchasers showed little or no urgency to rush into deals while sellers, for the most part, refused to give ground on asking prices. Those wanting a quick sale often needed to reduce their asking price significantly and indeed price reductions rose by more than 70% across the first half of the year compared to the corresponding period in 2014.
Though the number of exchanges in Q2 was 23% higher than in the previous three months, this fails to adequately describe the underlying sluggish nature of the market in London; compared to the corresponding period in 2014, exchanges were actually 14% down. Monthly exchange numbers in the year to date actually peaked in April, and then declined in the second two months of the
3
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
ExchangesViewingsAvailableProperties*
InstructionsAppraisalsRegisteredBuyers
9.0%
-11.
3%
-13.
0%
-13.
2%
-17.
0%
-31.
0%
Registered Buyers-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
ExchangesViewingsAvailableProperties*
InstructionsAppraisalsRegisteredBuyers
23.1
%
-12.
9%
2.4%
-1.3
%
-2.1
%
-6.7
%
Source: Chestertons Research
Source: Chestertons Research
Figure 2: Selected key market indicators: H1 2015 v H1 2014
Figure 1: Selected key market indicators: Q2 2015 v Q1 2015
period as the post-election “phantom bounce” failed to turn into anything tangible.
Other indicators also illustrated the market torpor: the number of people registering as buyers in the
second quarter was 13% down on the previous quarter; viewings were 7% down and the number of houses on the market rose by 2.5% as the buyers failed to flock.
*as at quarter end
4
There were some identifiable flurries of activity, namely in Islington, Canary Wharf and Fulham. These hotspots are consistent with the general
trend of buyers looking for better value away from prime central locations.
£2m and above
£1.5m - £1.99m
£1m - £1.499m
750,000 - £999,000
£500,000 - £749,000
Less than £500,000
17.2%
10.8%
11.5% 14%
18.5%
28%
Source: Chestertons Research
Figure 3: Exchanges by price band: H1 2014
The Conservatives’ first Budget since 1996 contained few surprises and was broadly supportive of the housing market.
5
The Conservatives’ first Budget since 1996 contained few surprises and was broadly supportive of the housing market. Confirmation that the threshold for inheritance tax would effectively be raised to £1m – phased in over a period of four years from April 2017 – was welcome news, though on estates where the net value is greater than £2 million it will be tapered at a rate of £1 for every £2 that the net value exceeds that amount.
However, the news for non-doms and buy-to-let landlords wasn’t so good. With effect from April 2017, non-doms will be treated as if they were UK domiciled once they have been UK resident in 15 or more of the previous 20 tax years, which means they will be subject to UK tax on their worldwide income and capital gains. Furthermore, UK inheritance tax will apply to residential property in the UK owned by an offshore company.
£2m and above
£1.5m - £1.99m
£1m - £1.499m
750,000 - £999,000
£500,000 - £749,000
Less than £500,000
26.1%16.3%
18.8%
6.1%9.6%
23.1%
Source: Chestertons Research
Figure 4: Exchanges by price band: H1 2015
Policy and tax changes
6
Can London’s building boom be sustained?Though activity in the London new homes sector didn’t maintain the frenzied pace of the first quarter, both sales and construction starts remained strong in Q2 2015. Molior reports 7,390 new homes were sold in the period — almost double (90%) the five-year quarterly average but 17% below the Q1 sales total, which was stellar. The number of unsold completed homes also rose during the quarter, although at 340 the number is still very low.
There were 8,230 construction starts during the quarter, which is double the quarterly average but 22% down on Q1. Almost a third (30%) of these starts were office-to-residential conversions, but it’s worth bearing in mind the fact that this route may soon be closed off to developers, as the Government has stated occupants must have moved in before 31 May 2016. Overall, completions were 44% higher than the five-year quarterly average.
With 55,640 new properties under construction at the end of Q2 – a quarter more than at the end of 2014 and 130% above the last market peak at the end of 2007 – it finally looks as if London is entering a relative new homes building boom. Perhaps inevitably, there were some suggestions of oversupply, but with a healthy 69% of units under construction at the end of Q2 already sold — well above the 2007 quarterly market peak of 48% — it would
certainly seem such predictions look premature to say the least.
The next big challenge for developers in the capital is the availability of sites, which will reduce still further once the office-to-residential opportunities are withdrawn late next spring. Add to this the twin hurdles of a growing shortage of skills and materials, which are pushing up costs for developers, and it remains to be seen whether the nascent boom in new homes construction can continue unabated. Government moves to free up more brownfield sites and public land for development across the capital will be vital to continue to deliver a sustainable housing supply.
Buyer demand was strongest at the lower end of the price scales, with around 40% of sales in the first half of the year transacting at between £400 and £599 per square foot. This does not necessarily reflect a lack of interest in the higher end of the market — demand for affordable housing continues to surge and the majority of new development is taking place in the outer lying boroughs where values are typically much lower than the prime central areas. The boroughs of Tower Hamlets, Newham, Croydon, Barnet and Greenwich together account for well over a third (37%) of all current private residential construction in the capital.
Nearly 7,500 new homes were sold in Q2 — almost double (90%) the five-year quarterly average but 17% below the Q1 sales total, which was stellar.
7
Starts Completions Sales
0
5000
10000
15000
20000
25000
2015
q2
2015
q1
2014
q4
2014
q3
2014
q2
2014
q1
2013
q4
2013
q3
2013
q2
2013
q1
2012
q4
2012
q3
2012
q2
2012
q1
2011
q4
2011
q3
2011
q2
2011
q1
2010
q4
2010
q3
2010
q2
2010
q1
2009
q4
2009
q3
2009
q2
2009
q1
Source: Molior
Figure 5: London new homes starts, completions and sales: Q1 2009 – Q2 2015
8
Marginal growth in prime capital valuesCapital values in prime central London barely moved during Q2. However, price growth was generally stronger further away from central areas, with Battersea (+5.7%), Fulham (+3.9%), Putney (+2.7%) and Docklands (+2.6%) leading the way. Mayfair recorded the sharpest decline in
quarterly values (-4.3%) and prime central locations (-0.3%) generally fared worse than the overall prime market. This compares to average price growth in the wider London market of 3.4% in Q2 and growth of 9.2% in the year to June, according to the Land Registry.
Figure 6: Prime London residential property capital value growth by region: Q2 2015 v Q1 2015
Prime London 0.9%
Prime central London -0.3%
Central -0.7%
East 1.3%
North West 1.3%
South West 1.4%Source: Chestertons Research
9
OutlookThe London market is unusually difficult to call at present. Though there are more homes for sale than at the start of the year, supply is still relatively limited and as buyer interest picks up across the second half of the year prices will continue to rise. Still, many sellers are in no hurry to move and few seem ready to slash their asking price to conclude a quick sale. At the same time buyers are cautious of interest rate rises and buying at the top of the market, and prepared to look away from prime central areas in order to secure best value. There appears to be no early end in sight to the prevailing market inertia. Even an increase in buy-to-let investment has had limited impact on the prime sector, as this too has been mostly directed towards non-prime locations further out from the centre, which typically offer lower entry costs, higher yields and stronger growth prospects.
What the market ideally needs is a period of stability to absorb the recent disruptive events such as tax increases and political/regulation
changes before it can begin to move again. In the meantime, values are unlikely to rise much if at all in the short term. Pent-up demand will eventually translate into more sales, but we expect price growth to be modest for some time to come.
Looking further ahead, the mortgaged end of prime markets will be strongly affected when interest rates do eventually rise. There is also the prospect of further tightening of the mortgage market with the imminent arrival of the EU Mortgage Credit Directive, plus the election of a new London Mayor in May next year and a referendum on EU membership sometime before the end of 2017. Should these events take even more steam out of the prime residential sales market, it may be that we will look back on this time as one in which many sellers were misled by the General Election and the “phantom bounce” that followed into missing a golden opportunity to realise full value at the top of the market.
Figure 7: London residential price growth forecasts
2015 2016 2017 2018 2019 2015-19*
London 7.5% 6.5% 6.0% 6.0% 5.0% 35.1%
Prime London 1.0% 4.0% 6.0% 5.0% 5.0% 22.8%
*Total (compounded) growth. Source: Chestertons Research.
10
925
0.6%
Tow
erBr
idge
Ham
pste
ad84
80.0
%Ke
ntis
h To
wn
812
1.2%
1,294
1.2%
Cove
nt G
arde
n
May
fair
Knig
htsb
ridge
& B
elgr
avia
Cam
den
Kens
ingt
onLitt
le V
enic
e
Fulh
am
Putn
ey
Chel
sea
&So
uth
Kens
ingt
onCh
isw
ick
863
0.3%
743
2.7%
801
0.8%
East
She
en
898
3.9%
1,395
0.0%
868
-0.8%
To C
anar
y W
harf
896
1.1%
Kew
976
1.6%
Barn
es
1,509
1.0%
St Jo
hn’s
Woo
d
Batt
erse
a92
15.7
%
Islin
gton
998
1.8%
Wes
tmin
ster
& P
imlic
o
Hyd
ePa
rk1,4
026.2
%2,3
60-4.
0%
2,502
0.2%
1,618
1.2%
1,347
0.9%
Not
ting
Hill
1,222
0.0%
1,664
-0.1%
Cana
ry W
harf
& D
ockl
ands
734
2.6%
Figu
re 8
: Che
ster
tons
’ Prim
e Lo
ndon
Res
iden
tial C
apita
l Val
ues a
s at e
nd-J
une
2015
, and
thre
e-m
onth
gro
wth
(end
-Mar
ch to
end
-Jun
e 20
15)
Sour
ce: C
hest
erto
ns R
esea
rch
The
Ches
tert
ons P
rime
Lond
on R
esid
entia
l Sal
es In
dex
trac
ks q
uart
erly
ch
ange
s in
resa
le c
apita
l val
ues i
n 23
loca
tions
acr
oss L
ondo
n. It
is a
fixe
d-ba
se
inde
x an
d is
base
d on
the
quar
terly
repe
at v
alua
tion
of a
stan
dard
bas
ket o
f pr
oper
ties (
sele
cted
so a
s to
be re
pres
enta
tive
of th
e ty
pica
l cro
ss-s
ectio
n of
pr
ime
stoc
k w
ithin
eac
h lo
catio
n) to
rem
ove
inco
nsist
enci
es w
hich
can
aris
e fro
m u
sing
a tr
ansa
ctio
n ba
sed
appr
oach
whe
re th
e nu
mbe
r and
type
of
prop
ertie
s may
var
y sig
nific
antly
bet
wee
n re
port
ing
perio
ds. A
s the
bas
ket d
oes
not c
hang
e ov
er ti
me,
we
have
not
app
lied
any
adju
stm
ent f
or se
ason
ality
or
prop
erty
mix
. The
geo
grap
hica
l cov
erag
e of
our
Inde
x is
as fo
llow
s: Ba
rnes
, Bat
ters
ea, C
amde
n, C
anar
y W
harf,
Che
lsea
& S
outh
Ken
singt
on,
Chisw
ick,
Cove
nt G
arde
n, E
ast S
heen
, Ful
ham
, Ham
pste
ad, H
yde
Park
, Isli
ngto
n,
Kens
ingt
on, K
entis
h To
wn,
Kew
, Kni
ghts
brid
ge &
Bel
grav
ia, L
ittle
Ven
ice,
M
ayfa
ir, N
ottin
g H
ill, P
imlic
o, P
utne
y, St
. Joh
n’s W
ood
and
Tow
er B
ridge
.
11
The contents of this report are intended for the purpose of general information and should not be relied upon as the basis for decision taking on the part of the reader. Although every effort has been made to ensure the accuracy of the information contained within this report at the time of writing, no liability is accepted by Chesterton Global for any loss or damage resulting from its use. Reproduction of this report in whole or in part is not permitted without the prior written approval of Chesterton Global. September 2015.
BARNES – T: 020 8748 8833 E: [email protected]
BATTERSEA – T: 020 7924 4400 E: [email protected]
BATTERSEA PARK– T: 020 3040 8700 E: [email protected]
CAMDEN – T: 020 7267 2053 E: [email protected]
CANARY WHARF – T: 020 7510 8310 E: [email protected]
CHELSEA – T: 020 7594 4740 E: [email protected]
CHISWICK – T: 020 8995 3443 E: [email protected]
COVENT GARDEN – T: 020 3040 8300 E: [email protected]
EAST SHEEN – T: 020 8104 0580 E: [email protected]
FULHAM, FULHAM ROAD – T: 020 7384 9898 E: [email protected]
FULHAM, MUNSTER ROAD – T: 020 7471 2020 E: [email protected]
HAMPSTEAD – T: 020 7794 3311 E: [email protected]
GREENWICH & BLACKHEATH – T: 020 8104 7500 [email protected]
HYDE PARK – T: 020 7298 5900 E: [email protected]
ISLINGTON – T: 020 7359 9777 E: [email protected]
KENSINGTON – T: 020 7937 7244 E: [email protected]
KENSINGTON CHURCH STREET – T: 020 7937 7244 E: [email protected]
KENTISH TOWN – T: 020 7267 1010 E: [email protected]
KEW – T: 020 8104 0340 E: [email protected]
KNIGHTSBRIDGE – T: 020 7235 8090 E: [email protected]
LITTLE VENICE – T: 020 7286 4632 E: [email protected]
MARYLEBONE – T: 020 8104 7550 E: [email protected]
MAYFAIR – T: 020 7629 4513 E: [email protected]
NOTTING HILL – T: 020 3040 8585 E: [email protected]
NORTH BARNES – T: 020 8748 8833 E: [email protected]
PARSONS GREEN – T: 020 7731 4448 E: [email protected]
PUTNEY – T: 020 8246 5959 E: [email protected]
ST JOHN’S WOOD – T: 020 3040 8611 E: [email protected]
TOWER BRIDGE – T: 020 7357 7999 E: [email protected]
WANDSWORTH COMMON – T: 020 8104 7530 E: [email protected]
WESTMINSTER & PIMLICO – T: 020 3040 8201 E: [email protected]
London Sales Offices:
Nicholas BarnesHead of ResearchT: 020 3040 8406E: [email protected]
Richard DaviesHead of ResidentialT: 020 3040 8244E: [email protected]
ContactChestertons is the London and international residential property specialist that knows its business and markets like no one else and every year helps thousands of people buy, sell, let, rent and manage their homes and investments. With nearly 30 offices across the capital, Chestertons has one of the largest networks in London, as well as a strong international presence around the globe.
Reproduction of this document in whole or in part is not permitted without the prior written approval of Chestertons. September 2015.
Notting Hill
Chiswick
Barnes
Mayfair
Knightsbridge & Belgravia
Westminster & PimlicoChelsea
Kensington
Hyde Park
Little Venice
St. John’s Wood
Kentish Town Hampstead
Covent Garden
IslingtonCamden & Primrose Hill
Battersea
Battersea Park
Putney Wandsworth CommonEast Sheen
Kew
Tower Bridge Canary Wharf
Fulham
Greenwich & Blackheath
Marylebone
Parsons Green
Richmond
International offices
Abu Dhabi AustraliaBarbadosCanada Cayman Islands Dubai
FranceGibraltarItaly MaltaMonaco
RussiaSaudi ArabiaSingaporeSouth AfricaSpain