London Prime Residential Sales Report Summer 2015

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


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%


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%


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

Documents

London Prime Residential Sales Report Summer 2015