London’s prime residential markets, which have been the strongest performing residential markets over the past five years, recorded a second successive quarter of muted price growth in the three months to the end of September.
Price rises averaged just 0.5% over this period. This follows a 0.9% uplift in Q2, and sees annual growth slow to 5.1% down from 9.1% a year ago.
There have been some high profile sales but caution and uncertainty prevail in the face of budget changes and eurozone issues. Changes in the tax regime for high value property have taken the heat out of the market, though haven’t resulted in price falls.
Detailed analysis of the index suggests that it is increasingly the 'best in class' of prime London homes that are underpinning the average price growth. In prime Central London, where prices rose by 0.8% in the quarter, only a third of properties showed any price growth in the past three months. Just over half remained flat and around a tenth showed marginal price falls. By contrast, the best performing 10% of properties saw prices rise by 3% or more.
Only three areas – Chelsea (10.5%), Knightsbridge (9.6%), and Belgravia (8.3%) – are still seeing annual price growth approaching double digits. This reflects the fact they are the most established core prime Central London locations, which are firmly on the radar of the international super wealthy.
In the third quarter of 2012, sales volumes in the £5 million plus market were up 18% on the same period last year, although lower than Q2 levels. Nearly £900 million sold in Q3 with 20% of this being new build sales.
Chelsea had an outstanding quarter, recording the highest price growth of any location at 2.2%. Together with South Kensington, it benefitted from interest from French buyers fleeing eurozone woes and the threat of punitive taxes at home. This gave a real boost to the best addresses.
Areas dominated by domestic buyers, such as prime South West London, Hampstead and Islington, saw only marginal quarterly price growth.
While annual price growth has been more or less in line with prime Central London in these areas, prices exceed the peak of 2007 to a much lesser degree. This is a reflection of far lower levels of new equity entering these markets, predominantly due to a lack of city bonus money.
Owners located in this market are still reluctant to relocate to the commuter zone, so existing housing wealth continues to be recycled in these markets. New housing wealth that is imported into these areas is from those relocating from Central London.
Prime property in Fulham benefits most from imported housing wealth so it has shown higher growth over the past five years (17.9%) than the rest of the South West London market. By contrast, areas within the South West London wealth corridor but furthest from Central London, such as Chiswick and Richmond, have seen five-year price growth marginally less than 10%.
Within the prime East of City markets there continues to be a divergence in the performance of Wapping, where prices rose marginally in the quarter, and Canary Wharf, where they remained static. This means that average prices are 15.3% above their 2007 peak in the former, but 3.2% below in the latter.