After warnings of a London housing bubble forming, an estate agent believes that the central market has already burst.
WA Ellis reports that transaction levels in the prime central London sector dropped by 14% in the third quarter (Q3) of this year, compared to the same period last year.
However, despite stating that the rate of change is an improvement on Q1, when transaction fell at an annual rate of 27%, the bubble may have already burst.
The agent says that more than one third of homes in prime central London have experienced price declines.
WA Ellis, which operates in upmarket Knightsbridge and is part of JLL, has addressed concerns raised by banks that a housing bubble may form in London and spread out to other parts of the country.
Director of the firm, Richard Barber, explains: “It would appear that the bubble may already have burst in prime central London, but the effect is not as decimating as reports from UBS and Deutsche Bank suggest.
“The Government’s intervention in December 2014 by raising SDLT [Stamp Duty Land Tax] has indeed cooled the very top of the prime central London [PCL] market and the continuous upward spiral has been halted – 36% of all properties currently on the market across PCL are now being marketed at a lower price than they were originally listed at, with the average reduction in price being 8.5% of the original asking price.
“Continuous capital growth in any market is an unrealistic expectation. However, we believe that the correction has already happened and the above statistics bear this out. This is supported by the minimal growth that JLL are predicting over the next two years, with much of this being accounted for by the new build sector.”1
Another London estate agent, Douglas & Gordon, says that stock levels have dropped annually, while demand is at its highest level for 12 months.
The company does not expect a surge in stock, despite growth in valuations activity, and its Director, Ed Mead, describes its pipeline as “bad but not disastrous”.
Mead believes that the fall in sales is not likely to pick up until next spring, and while the under offer pipeline is good, it is also very lengthy.
He comments: “The issue is the absurd length of time to get from agreed to exchange; well over 12 weeks, and this will extend into the New Year.
“Rentals are at their highest revenues ever, but the slack on sales will not be taken up until the spring.”
He says that its pipeline is “about where we’d expect in this market, still bad but not disastrous”, given a lack of supply and heightened demand.
Mead insists that the agency is “lucky”1 to have offices in the capital that are outside the prime central sector.
Douglas & Gordon’s Sales Director, George Franks, reports: “The sales market is treading water, as it has done for some time.
“Valuations are up 20%, although buyer sentiment indicates that a new tranche of stock is unlikely to be released until spring 2016.
“Sales agreed are soaring when we would expect them to be falling, further signalling an upbeat prognosis for the market returning to health in both value and volume towards the end of Q1 next year.
“As we approach the next Autumn Statement, Stamp Duty receipts are forecast to be half of what they were in the last figures, which will not only damage the Treasury’s coffers, but might well trigger a rethink of the swingeing SDLT reforms, implemented almost a year ago.”1
Winkworth, also a London estate agent, has expressed concerns.
Next year, it expects market conditions to be similar to this year’s, with central London continuing to be affected by high Stamp Duty costs and buyers deterred by this when considering what to buy.
However, it states: “We believe that this added burden will be progressively absorbed over the course of 2016 – albeit with fewer transactions – with the changes having little impact from 2017 onwards.”1
1 http://www.propertyindustryeye.com/a-better-year-lies-ahead-says-london-agent-as-valuations-soar-20/