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Expensive London property is getting more expensive, but people ain't buying

Post-bank holiday updates for anyone worried about London’s property market: we might be on the brink of crashing out of the EU without a deal, but that’s not the end of the world. Also, the average price of prime central London property rocketed to just under £2 million in July, according to new data from property advisers London Central Portfolio, up 12.5 per cent on last year. Note that excludes prime central London new-builds, whose average price rose to a rather nauseating £3,413,324.

So, all is good in the extortionately priced hood. Right?

Not exactly. This chart, from LCP, tells a rather different story:

Annual transactions of prime central London property — which comprises the glitzy London boroughs of Kensington and Chelsea, and of the City of Westminster — slumped to 3,831 in the year to July, the lowest level since the financial crisis and down 8.3 per cent compared with the year before.

New-build sales in the locations plummeted by more than a quarter. And that’s despite a 15 per cent fall in sterling’s trade-weighted value since the vote for Brexit, which might have been seen as a sweetener for the foreign buyers who make up more than a half of prime central London property buyers.

There are 4,661 properties currently listed in the £2-million-plus bracket in London on Rightmove, some of which appear to have been on sale since 2012, which… doesn’t seem positive.

Why such different trajectories for prices and transaction volumes? We thought supply and demand…? Naomi Heaton, LCP’s chief executive explains (with our emphasis):

Those selling now tend to be doing so because they have to, typically as a result of life changes like death, divorce or marriage. This is leading to price reductions as the vendors have to accept what buyers are prepared to offer. However, higher value properties were most impacted by the recent changes in tax legislation and prices here have fallen further, faster. As a result, the discounts at this end of the market are proving more compelling, driving a higher proportion of transactions to go through which are above the average property price. This creates a statistical increase in average value, despite real values of the underlying assets falling. 

So bigger discounts — which tend to be on the higher-priced properties — rather confusingly mean people buy more expensive properties, in other words.

Greater London might have a smaller concentration of Russian oligarchs and Gulf oil magnates (it comprises 33 boroughs and is home to 12.5 per cent of Britain’s population) but things don’t look a great deal healthier when the capital’s property market is taken as a whole: transactions are down 6.5 per cent, with new-build sales falling just over 12 per cent:

LCP tells us:

The level of transactions across the capital continues to cause concern for house builders. Later phases of developments are being scaled back and new build starts were down 25.4 per cent in 2017 according to LOREMA’s Inner London figures.

LCP also noted that the Bank of England’s recent interest rate hike would be likely to have a further dampening effect on house purchases because of the knock-on effect on mortgage rates, particularly outside of prime central London, with more domestic buyers (or borrowers).

But the story is not quite the same across the country. In England and Wales as a whole, transaction volumes were down just 2 per cent on the year, and up 9.9 per cent on a quarterly basis.

LCP’s data come just a day after reports that a record number of Londoners were leaving the capital for the North of England and the Midlands. House prices in Liverpool, Belfast and Aberdeen are still below what they were a decade ago.

Cities of the North, watch out: pop-up avocado cafes might be tempting (?) but don’t spend too much in them or you just might be priced out of the property market.

Related links:

Record proportion of Londoners selling up to move north – Guardian
Foxtons is in a better location than its estate agent neighbours – FT

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