Bonus talk raises hopes of a buying spree in London

PUBLISHED : Wednesday, 22 February, 2006, 12:00am
UPDATED : Wednesday, 22 February, 2006, 12:00am

Estate agents are upbeat that City money will once again be ploughed into property, but commentators are not so sure

Estate agents in southern England are rubbing their hands in glee at the prospect of a GBP3billion ($40.55 billion) property spending spree by City bankers and traders this spring. But analysts are divided over whether this will have much impact on property prices.

City of London financial services staff will receive a record GBP7.5billion in bonuses at the end of this year, up 16 per cent on last year, according to the Centre for Economics and Business Research (CEBR).

The average bonus will be GBP23,000, but some reports indicate that about 3,000 people will receive a bonus of GBP1million or more.

Estate agents are upbeat because CEBR research shows that roughly half of bonuses end up in property. If GBP3billion was spent this way, that would be equivalent to the value of 200,000 average-priced British homes.

Property consultancy Knight Frank said this injection of cash would boost the property market.

'We have no doubt this money will go into property. We believe prime central London prices this year will grow by 7 per cent, well above our 2.5 per cent forecast for the whole of Britain,' Knight Frank head of residential research Liam Bailey said.

It would take four years for an uplift to ripple out from southern England to the rest of the country, he said.

Estate agencies Savills and Hamptons International said a buying spree would assist a revival of the London property market and this would spread to the rest of the country.

But other commentators were more cautious. Richard Donnell, director of research at market monitor Hometrack, said: 'The bonus effect has dwindled over the years because house prices have moved much higher in the prime areas and the people getting the big one are fully housed. If bonuses do rise then this will support the present growth in prices that we are seeing in central parts of the capital on the back of stronger demand and a lack of available supply.

'I don't think this will ripple out. London has underperformed the rest of the market for the past few years, and as long as a year ago was looking undervalued. Other regions still have some re-correcting of prices to go through, or at least little growth before prices are in a position to start rising again.'

Robert Hadfield, managing director of London investment property management company Pineflat, said the capital's homes were overpriced.

'I'm not sure about the bonuses. I expect there will be some top-end flat and house buying in the prime areas but, with average bonuses at GBP23,000, I can't see much happening in the mass market or out of London.

'I still think the market is overvalued and I positively cannot see anything driving residential prices higher at the moment except irrational exuberance,' he said.