‘Fragile’: The current London property market sentiment
‘Fragile’: The current London property market sentiment
It has been widely reported over recent months about the stifling of the UK Housing Market as a result of a post Brexit Britain, political uncertainty and tax changes; leading to a continual cycle that will see the property market as increasingly unappealing to buyers. The Royal Institution of Chartered Surveyors (Rics) has said: “Record low stock numbers, political uncertainty and the aftermath of tax changes are obstacles hindering the UK housing market, with price growth and sales activity subdued during the month of July.”
Brexit and continued Political uncertainty
In the aftermath of the Brexit referendum in June 2016, the prime London property market was seen as one of the big beneficiaries of the vote to leave. The assumption was that the fall in the value of the pound would make a des res in Mayfair, Belgravia or Chelsea more affordable for foreign buyers. However the reality has been quite the opposite with the London property market being increasingly fragile with prices falling, sales being weak and a chronic lack of supply. The previous jump in prices in the years leading up to the EU referendum had meant home ownership was simply too expensive for those working in the capital, so some form of market correction was inevitable. The uncertainty caused by Brexit has provided the catalyst.
The uncertainty of what a post Brexit Britain will look like has caused a weakening of London’s housing market with an under performance particularly among its most expensive properties. In fact, homes over £1m are having the most difficulty finding buyers, with many sellers having to accept price cuts. “At a national level, 68% of contributors identified homes valued over £1m as experiencing the greatest deviation when agreeing final prices…The market is desperately price-sensitive and too much stock is unrealistically overpriced.” This is a trend that is shown to be spreading to surrounding areas with measures of price inflation in southeast England and East Anglia declining.
The clear uncertainty within the market has also led to a chronic lack of supply. Sales activity remains flat through a lack of growth in new buyer enquiries and new instructions, buyers and sellers are evidently taking a cautious approach during times of economic uncertainty. In light of this many agents are being forced to throw in ‘sweeteners’ to sell prime property to international buyers; from exclusive artwork to furniture packages. Michael Ferris, JR Capital says it’s “a buyer’s market, so they have been able to ask for incentives.”
The threat of a Labour Government on growth
With the Labour conference in full swing, one can begin to look at the bigger picture should a Labour government become a reality, with many citing an impact on the sterling if Labour takes office. Although there is no certainty with currency markets there is a definite impact forecast on sterling in relation to overseas investment with a Labour government. In the first instance, Labour’s plans to increase the rate of tax on corporate profits will lead to a demand for lower prices to compensate for lower returns - this will either come in the form of a fall in the stock market or in the pound, or probably a bit of both. Secondly, its’ tax and spending plans are likely to lead to a deficit with its plans not raising as much money as they claim “even in the short run, let alone the long run” (The Institute for Fiscal Studies). Finally, Labour has a number of plans that may affect business investment; reducing labour market flexibility, raising the minimum wage, capping executive pay in companies that bid for public contracts, higher taxes on executives, creating extra public holidays etc. All these combined will result in Britain being seen as a less attractive option for overseas investors and with its current account deficit, means Britain needs to attract foreign capital every year; a lower pound (or higher yields) will be needed to entice the hot money that will replace the FDI. This would mean more bond issuance; again, overseas investors would demand a higher yield or lower pound to compensate. Overall a Labour government will create a further uncertainty for overseas investors much needed post Brexit.
Tax changes
An oldie but a goody. It comes up almost every time, but stamp duty is the gift that keeps on giving.
The recent changes to stamp duty meant the high-end sector has taken a real kicking where buyer demand is concerned. While the government is making more in stamp duty tax on each sale, the sharp decline in transaction volumes above £1.5m have resulted in the government actually making less money in this post Brexit market as the prime market demand is declining.
As we have seen from recent trends this current cycle, the market has been caught and does not appear to be relenting. As the uncertainty continues prospective buyers to stay out of the market, leading to fewer transactions going forward and with Brexit on the horizon, the uncertainty is set to continue for the foreseeable future.
On the ground
'The Organisers are still seeing companies coming in to the UK, relocating to set up in London and finding homes in the surrounding areas' states Katie Shapley, Managing Director of The Organisers, award winning Lifestyle Management service.' We have several children starting new schools this term and the UK continues to offer some of the most desirable education in the world. Our clients who are hoping to increase their assets in the Prime Property market have reduced their offers and are pushing back against agents who expect an inflated price. The situation now is completely different to how it was 5 months ago, let alone 15 months ago. Brexit is looming and whilst many of us feel this is just short term pain, long term gain, there is an uncertainty in the government's stance which is affecting the sense of stability in terms of investment in the UK. London is Open and London remains Open for business and pleasure - let's continue to make sure our message is heard, and that companies like The Organisers are standing by to make relocation to the UK a stress-free experience.'
Sources:
Patrick Collinson, The Guardian, https://www.theguardian.com/business/2017/aug/10/uk-property-market-slowdown-political-uncertainty-surveyors (accessed 10th August, 2017)
Katie Allen and Larry Elliot, The Guardian, https://www.theguardian.com/business/2017/aug/12/uk-house-prices-boom-bust-what-truth (accessed 12th August 2017)
Lucian Cook, Head of UK Residential Research, Savills
Katie Allen and Larry Elliot, The Guardian, https://www.theguardian.com/business/2017/aug/12/uk-house-prices-boom-bust-what-truth (accessed 12th August 2017)
Patrick Collinson, The Guardian, https://www.theguardian.com/business/2017/aug/10/uk-property-market-slowdown-political-uncertainty-surveyors (accessed 10th August, 2017)
Harriet Dennys, The Telegraph, http://www.telegraph.co.uk/property/luxury/want-free-rolls-royce-agents-throwing-six-figure-sweeteners/ (accessed 4th June, 2017)
‘Why a Labour government might mean a fall in sterling Buttonwood's notebook’, The Economist, (accessed 27th September, 2017)
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The Organisers are an established Lifestyle Management provider, offering award winning services in the Property, Relocation, Education, Recruitment and Concierge sector. If you wish to sell or buy your home, or for more information about The Organisers and our services, call the Managing Director, Katie Shapley, or The Organisers’ team today on +44 (0) 20 7078 7554 or email team@theorganisers.com
Notes to Editors:
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