Despite Prime Central London (PCL) enjoying six years of rising prices and it being a hub for international property buyers and investors, some of its sought-after districts are showing signs of a slowdown.
This follows price rises of nearly 75% between 2009 and 2016, helped by Central London’s status as a safe haven for investors as well as the popularity of places such as Kensington, Knightsbridge, Chelsea, Fulham, Mayfair and St John’s Wood among the world’s high-net-worth individuals (HNWIs).
But strong headwinds are beginning to blow. Tougher rules for non-residents purchasing property in the UK and less generous tax breaks for investors, as well as the looming vote on European membership due to take place this June have all helped soften demand.
Some agents are reporting significantly fewer international buyers, a trend first started in mid-2014 when many warned of easing demand for property in PCL. The areas that are most popular with HNWIs have experienced price drops of up to 7% in recent months, something these markets have not seen for many years. Mayfair, I am told, has not experienced any softening in demand yet.
But overall the number of homes being sold is down by up to ten percent in some areas. Also, many buyers are ignoring guide prices and making significantly lower offers, worried that the market may have reached its peak.
And it’s not just the resales market that is changing. Developers are also working harder to sell units and I know of one developer offering free car parking and price discounts of between five and ten percent and part or full payment of Stamp Duty. Such offers are not surprising when you consider that half of all new-build properties in PCL are sold to international buyers.
The economic slowdown in China coupled with international sanctions against Russia have slowed demand from those quarters. And a strong pound has been, until recently, making it more expensive for Euro purchasers to buy property in the UK.
So what about the future? There are two trends that may stir the PCL market again. One is that the recently weakening pound is making London more attractive to international buyers. For example, it is $131,000 cheaper to buy a £1m property than it was a year ago if you are from the US. The exchange rate is also favouring those paying in the currencies of Hong Kong, Singapore and Dubai, research by Investec shows.
The other interesting development is that because sanctions have been lifted against Iran, whose HNWIs used to be regulars in the London market, a return to days of substantial Iranian investment in London may soon return.