2018 expected to be final year of price falls
While the end of 2017 delivered a ray of hope in the form of a breakthrough in the Brexit negotiations, the protracted and messy EU divorce proceedings have had a profound impact on residential values in prime Central London, with values ending 2017 3.4% down on 2016, leaving average home prices in the boroughs of Westminster and Kensington & Chelsea at £2.94 million; a level not recorded since 2013.
Faisal Durrani, Cluttons head of research explained, “The seemingly tumultuous political environment, combined with the threat of economic malaise for the UK at every step during the Brexit talks has stalled the market, with nervousness amongst buyers a common theme as they continue to shy away from committing to a purchase in a softening market”.
Cluttons also links the subdued market conditions to affordability issues in the capital and despite a slowdown in construction starts, the net absorption rate of new build homes, especially those at the top of the price spectrum, continues to recede. The Brexit induced anxiety has curtailed new housing starts, which has meant that 180,000 units were yet to break ground last year across London, despite receiving planning permission; a 9% rise on 2016, Cluttons said.
James Hyman, head of residential agency at Cluttons highlighted, “One of the upsides in the market has been the insatiable appetite amongst buyers from the Middle East and Asia, who continue to home in on Central London, capitalising on currency linked discounts to acquire second homes and investment properties. However here too, while lot sizes have remained fairly stable, there is an increased interest in acquiring multiple assets, instead of a single super prime property.”
Cluttons latest forecast models, run with Experian, suggest that growth will return to the capital’s residential market following from next year onwards; however, this year is likely to see average declines of 1.5%.
Durrani concluded, “Between now and the end of 2022, cumulative growth should touch 8.2%, most of which is predicated on an orderly Brexit. 2018 is likely to be the last year of price corrections in both prime Central London and markets that surround the city’s golden postcodes.
The single biggest factor that has helped values remain relatively stable since the Brexit referendum has been the absence of motivated sellers. For would be buyers, the tail end of 2018 is likely to be the best time to take advantage of softer market conditions and to snap up homes at values that have not been recorded in five years as from 2019 onwards, an accelerated rate price increases is expected across the board.”