London landscape changes
Non-core areas see higher price growth and more activity
An election year and an unwelcome tax: that's the double whammy facing the London property market in 2015.
With the exception of a few pockets, a gradual slowing of London apartment prices has been evident this year, taking the average year-to-date (third quarter of 2014) gains to 3 per cent, compared to 8.3 per cent growth last year, according to Savills research.
Statistics can be fluid. Naomi Heaton, CEO of London Central Portfolio (LCP), quotes Land Registry data to point out that central London - comprising two prime boroughs of Chelsea and Kensington and the City of Westminster - bucks the greater London trend, gaining 12.8 per cent to bring average prices to over £1.7 million. The Office for National Statistics, which bases its research on mortgage-financed purchases, maintains that London house-price growth picked up to 12.1 per cent in the year to the end of September, taking the annual price rise to 18.8 per cent.
Nevertheless, two trends are evident: one is that there is likely to be a property slowdown in an election year, which 2015 will be for Britain; the other that developers are moving beyond the city's heart to build apartments for the masses.
In a September 2014 report, Moving Out, real estate firm JLL noted a "dramatic change" in the residential landscape this year, during which "price bubbles" and "overheated markets" across central London gave way to a far more realistic and sustainable marketplace.
JLL's data shows that unit sales have continued to increase this year, but the "real change" has been developers looking outside of prime when buying land - a pattern which "has become far more pronounced during the course of this year", JLL says. "Many perceive margins to be greater, and increasingly safer, outside of the traditional centre. Even international developers are swaying this way."
Neil Chegwidden, JLL's director of research in London, says marginally increased sales activity and continued ascent in developer activity is a sign of confidence in the central London apartment market.
"Price growth eased during [the third quarter] with the annual rate of growth slowing from 13.7 per cent to 8.7 per cent. We view this calming down as positive for the market because the rate of growth earlier in the year was unsustainable. The more stable market conditions will prove to be a more secure springboard for stronger market conditions over the next few years."
The recent trend of higher price growth and greater activity in outer core locations has continued during the third quarter, Chegwidden says. By JLL's reckoning, price growth was 9.3 per cent in the year to the third quarter of this year in outer core locations, and 8.1 per cent in core areas.
While developers may well be focusing on non-core areas, Heaton argues that central London, where land is scarce, "continues to offer the most sought-after, profitable real estate investments in the UK".
"Over the last 10 years there have only been 3,900 new units under construction in the exclusive Royal Borough of Kensington and Chelsea. This compares with 46,884 units in Tower Hamlets, home of Canary Wharf. The resulting glut of commodity-style flats and an insufficient private rented sector there will undoubtedly lead to a softening of price growth," she says.
Heaton says that central London is a constricted, high-pressure market, where the influx of buyers from Britain and abroad significantly outweighs the number of units for sale. "Only 6,000 properties changed hands in the last year," she says. "Properties in prime central London are not only scarce but highly desirable and the imbalance of supply and demand drives up prices."
Research from LCP shows that 54 per cent of its private investors in central London have been from China and other Asian nations over the past six months, and demand is increasing. LCP's property fund, London Central Apartments II, which will only acquire rental property in central London, has already seen, to date, a 36 per cent take-up from north and Southeast Asia, Heaton says.
New builds in convenient locations, such as Lillie Square, a landmark west London scheme at Earls Court, where Kensington, Chelsea and Fulham meet, and One Tower Bridge, Berkeley's landmark luxury scheme on the South Bank opposite the Tower of London, remain popular.
Most analysts agree that the London market should remain strong despite uncertainty in the run up to May's general election.
Of more concern, Savills says, is the proposed mansion tax, which would be applicable to properties over £2 million, and is supported by the government and opposition. If implemented, the tax could negatively impact five-year growth of Britain's prime housing market by an average of five percentage points, the real estate firm says.
"The high-value prime markets - the top 5 to 10 per cent of homes by value - have already been impacted by increased stamp duty, the introduction of an annual tax on enveloped dwellings and the closure of certain tax loopholes," says Sophie Chick, senior research analyst at Savills.
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An entry-level apartment at Lillie Square, Earls Court. Features views across London, expansive gardens, 24-hour concierge service and a clubhouse with private health spa, gym and 20-metre pool.
What you can buy for £389,995
A one-bedroom apartment in the new Vertex Apartments on Palmerston Road, Wimbledon, due for completion early next year. Comes with bespoke kitchen and bathroom and secure parking.