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At the end of last year it was anticipated that 2013 would mark a turning point in the prime markets. On the one hand, price growth in the prime London markets was widely expected to slow in response to the changes in stamp duty and associated taxes. On the other, the gap between prices in London and the country, which has widened substantially since 2009, was expected to draw demand into, and consequently revive, the prime markets beyond the capital.

The experience of the first six months suggests that these expectations were premature. Despite political posturing regarding mansion taxes in February and March, prices for prime property in London have risen by an average of 4.8% in the first half of the year.

Over the same period £2.6 billion has been spent on £5 million+ properties in the capital, up by 23% on the same period last year.

By contrast, the prime regional markets have remained relatively subdued – overall prices have risen by just 0.3% on average in the past six months. Whilst transactions have been more buoyant than in the mainstream markets, there have been few signs of a discernible improvement.

London as an island

This is not to say that the tax changes for £2 million+ property have not had an impact. The total amount spent in the market on £2 million property fell by 15% between 2011 and 2012 to £16.7 billion. Indeed, we saw some evidence of small price falls in some of the most expensive properties in the central London markets in the three months to the end of June.

Overall, price growth has continued in prime central London but at half the levels in the prime South West London markets where prices have risen by 8.5% over the past year.

This has made some buyers, including non-UK buyers who nonetheless live and work full time in London, more cost conscious. Whilst prices in Knightsbridge are further above their pre-crunch levels than in any other area, the greatest annual price growth has been seen in Fulham (some 13%).

Here prices, at £980 per sq ft, are roughly half of the average for prime central London. Our analysis of prices at ward level suggest that the average price of all property sold in Knightsbridge and Belgravia in the past five years has been over £2.6 million, the highest of any of the 9,800 or so wards in Great Britain.

The equivalent figure in Parsons Green (Fulham), which at number 21 in the most expensive list, stands at £1.2 million. Such a flow of wealth has been similarly evident in similar markets such as Wandsworth, Richmond and Islington.

Stop-start in the country

However, evidence of a more widespread ripple effect has been sporadic, causing the gap between prime London prices and those for prime properties in and beyond the commuter zone to widen further.

The few exceptions are wealthy wards such as Oxshott & Stoke D’Abernon and Cobham Fairmile where prices are back to their pre crunch levels and over the £1 million mark.

Beyond London and the Home Counties, the highest value ward is St Margaret’s sitting in central north Oxford, where over the past five years, prices across 497 sales that have been recorded by the Land Registry have averaged just over £700,000.

This is representative of a number of prime urban markets, including the likes of Newnham in Cambridge, Lansdown in Bath and Murrayfield in Edinburgh, that have outperformed their prime rural counterparts.

However, there has not been great evidence of price increases in 2013 beyond London. Equally neither has there been much evidence of price falls (with the exception of country houses in Scotland and some coastal properties for which second home buyers have been scarce). In the important second quarter, price movements in the prime regions have averaged between +1% and -1%.

Delayed triggers

Could it be that the turning points in the prime markets have simply taken longer to materialise than expected? In London, there is certainly evidence that the anticipated slowdown has been less dramatic than envisaged. But equally the first six months have confirmed that the taxation of prime property has become a political bargaining chip, one that is likely to rear its head again as the election approaches.

This leads us to expect that price growth will slow significantly pre election. What happens to prices after that will be largely down to the outcome of the election.

Beyond London, a hitherto much more surpassed housing market is likely to feed off of an improvement in the mainstream market but without the same mortgage constraints.

This may well be the catalyst for London buyers to rediscover the joys of a world beyond the capital at a time when the differential in prices is compelling.

Taken from
Residential Property Focus Q3 2013

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