Last year was interesting in London’s property market, to say the least. It was challenging, with flat or falling prices in many market segments, limited stock, and high transaction costs, dampening activity and making it a true buyer’s market. For committed, well-advised purchasers it was, and remains, a great time to be buying, particularly for overseas buyers who can take advantage of the weak pound. However, with limited stock on the market, it has taken hard work, perseverance, and excellent connections to unearth opportunities.
Over 2017 to the end of November, we helped acquire a total of £89,333,300 of properties for our clients across London. Interestingly, 27% were sourced entirely off market. This compares with 33% in 2016, illustrating the trend towards discretion and placing greater emphasis on market intelligence and connections for serious buyers. Last year we were also able to save money for our clients – an average of £257,258 off asking prices, representing 5.9% of the total transaction value.
Looking to the year ahead, January is a time for fresh starts, with a sense of optimism for what the New Year will bring. Indeed, we can be optimistic. Activity in the London property market will pick up in 2018. We saw a marked upturn in business towards the end of 2017, and that pent-up demand will continue this year edging us back towards business as usual.
We see the market in 2018 as being more confident, with more competition, but certainly no bonanza. For those hoping for price rises of the past, however, unfortunately expert forecasts won’t bring much cheer. Most predict flat prices, with Chesterton Humberts, JLL, Savills and Strutt & Parker suggesting 0% growth. Only Knight Frank and Cluttons are in positive territory at 0.5% and 0.7%. Certainly, we would agree that there is little cause for significant price growth over the next 12 months, given the continued economic and political uncertainty.
Looking further ahead the picture is certainly brighter with some experts expecting double-digit growth over the next few years – Chesterton Humberts is forecasting 8%, Cluttons 7.3%, JLL 9.8%, Knight Frank 13.1%, while Savills is predicting 20.3% and Strutt & Parker 23%.
These are based on London’s attraction to international buyers, especially as the uncertainty around Brexit eases. JLL highlights in its forecast that many of the question marks over London’s stature in the world are overblown, and demand from international high net worth individuals will continue, while Cluttons commented: “As we approach the end of the Brexit negotiations in Q1 2019, we expect clarity on Britain’s post-Brexit EU relationship to help boost and solidify overall buyer and investment activity.”
The stamp duty increases which shocked the market continue to work through the system. Knight Frank comments: “The sales market in prime central London continues to move towards recovery mode as pricing adjusts to higher transaction costs and political uncertainty.” They also note that the £5-10 million band – which was most affected by the stamp duty hike – has seen a quicker response, and more rapid recovery. It finds that prices in this band rose 1.9% in the year to December, compared with a fall of 1.2% for properties priced between £1 million and £2 million. But the estate agency also notes that supply is still limited, finding that there were 8.2% fewer homes worth over £1 million advertised for sale across England and Wales at the end of August compared with the same period in 2016. Above £2 million, the figure was 9.5% down.
The limited supply of stock, which we expect to continue this year, is likely to see high levels of interest in sensibly priced, high quality properties, therefore boosting demand. While we don’t expect to see prices rise on the whole in 2018, we are not expecting them to fall either. We are seeing a return of confidence – although it does remain fragile, there is clearly still pent-up demand.
The lack of stock coming onto the market means that there will be tough competition for the best properties, and in some cases we are already seeing the return of gazumping. This is where a buying agent really adds value – getting that all-important early access to properties before or as they go on the market, or securing off market deals. There are opportunities out there, but buyers need market knowledge and to move fast.
Overall the outlook for this year is positive and the market will stabilise. We are still very much in a buyers’ market and there are some great deals to be done. When choosing a property, buyers should always be mindful that properties should be considered as long-term, buy-and-hold investments.
For the rental market we are predicting a recovery. Last year was tough for landlords. Rental yields dropped as supply outstripped demand – partly as a result of potential sellers letting out property rather than accepting offers below their expectations. Forecasters are predicting a return to modest growth for 2018 and beyond. Cluttons is forecasting that rents will be 0.8% higher by the end of this year, and 7.8% higher by the end of 2021. Knight Frank figures are higher – 11% growth by 2022. However, some experts are more pessimistic. JLL is predicting a 2% drop in 2018, and a further 0.5% fall in 2019, before rents start rising again in 2020, leading to miserly 3% growth over 2018-22.
Despite it being a tough year for landlords we saw a marked increase in those seeking luxury properties to rent in London. Our rental searches rose to 20% in 2017, a 14% rise compared to 2016, with most of our clients paying an average cost of £1,500 per week. Newly refurbished properties set within period facades remain a popular choice, particularly apartments in London’s golden postcodes and stylish garden squares. We therefore feel despite the small growth in rents predicted by experts over coming years that buy-to-let investments remain attractive in the current interest rate environment.
