Why London’s imminent property boom is not all that it seems

Typically, after the Christmas break, the housing market in London is “an absolute desert,” says Simon Barry of Harrods Estates. This year is a different story, he says. In the wake of the Tory election victory, estate agents seem instead to find themselves in an oasis.

Even the Russian buyers are coming back.

Sales of luxury homes have spiked in the capital, a market which has long been in the doldrums. In the month after the election, sales of £2 million-plus homes have jumped by 69 per cent year-on-year, according to analysis firm LonRes.

Everyone is waiting for the surge to translate into price rises. “It is happening, we can feel it happening on the ground,” says Caspar Harvard-Walls, a buying agent at Black Brick. “Straight away, sellers who would have maybe taken 5 or 10 per cent off their asking price now won’t budge.”

New listings are now being set a few percentage points higher than they would have been this time last year, he adds, so “we have to be a lot more aggressive in negotiation.” Soon, he says, “people will begin to think they have missed the bottom of the market.”

So is the London property market about to go bonkers?

The headline figures of the latest HMRC stamp duty receipt data are utterly boring. Overall, in the last three months of 2019, total sales volumes in the UK moved by less than half a per cent. 

But look closer: from October to December, the number of £1 million-plus sales jumped by 12.8 per cent on the same period in 2018 to a total of 5,300. “That is the highest number of £1 million-plus residential transactions for the last quarter of a year in at least the last decade,” says Lucian Cook, research director at Savills. 

The implications for the luxury sector of the London market are huge. The largest concentration of these properties is in London and the South East, says Cook, and the numbers likely reflect “the banked sales after the election”.

Rightmove reported that January was its busiest month ever, and said that agreed sales in London jumped by 26.4 per cent on last year’s total.

While the biggest jump is in the number of super-expensive prime London homes sold, the boost is not just in the glitzy heartlands. LonRes found that in January, sales of homes in “prime fringe” areas, such as Clapham and Southwark, were up by 28.4 per cent year-on-year.

But there is a major caveat: the number of homes sold might be up, but prices are still down. Prime London sales prices were 5.5 per cent lower in January than the year before, according to LonRes. This is a time to buy a bargain, and while some vendors may well be taking a punt at hiking their prices, but they are certainly not the ones who are currently making sales.

And if they do raise their asking prices, this will likely start to stall the market again. “A sustained pick-up in activity depends on sellers keeping price expectations in check,” says Cook.

Across London, “affordability will be a limit on price growth,” says Neal Hudson of research firm Residential Analysts. Demand might be up in the capital, but that does not change the purchasing power of buyers, particularly first-timers, who are limited by mortgage regulations and prices that are still sky-high compared to wages.

The election result was not necessarily the turning point that it has been hailed as. The HMRC figures suggest that the momentum currently taking over the market started over the summer, and continued through the rest of the year. Typically sales fall off after September.

Calling the recent rise in London sales a ‘bounce’ is a misnomer, says Barry. “The momentum has been building for months.” That shows that, certainly in the wider London market, the right pricing of a property matters more than political clarity.

Sellers should also note that the current pick-up in activity is nowhere near as big as it sounds. “Prime central London is recovering off a low base,” says Hudson. Both 2018 and 2017 had weak ends of the year. The numbers “in part simply reflect things being not as bad as they were,” he adds.

There are also some more hurdles on London’s horizon. Brexit trade negotiations will bring back the uncertainty the the election result temporarily pushed away, says Cook. 

There is also the government’s pledged introduction of a 3 per cent surcharge on overseas buyers. This is likely to “put buyers off at the lower end,” says Hudson. It will be the foreign investors buying one- and two-bedroom buy-to-let flats who will see their yields significantly hit by the extra tax. 

As for the multi-millionaires, they will simply refuse to pay the extra, says Barry. When stamp duty goes up, “it’s been vendors who pay most of it [by lowering prices],” says Barry. “We have seen the market fall from a great height since the 2014 stamp duty changes.” 

London is also part of a wider story of global prime real estate. “There are signs that prime markets across the world are struggling,” says Hudson. He notes the downturns in Vancouver and New York in particular. The rule of the old guard could simply have come to an end.

“We could see a stronger market for a number of months,” says Hudson. As there is a shortage of homes on the market and a low turnover of property, it doesn’t take much for transaction growth to filter into price rises. “But that trend for rampant growth that we saw from 2010 to 2014 is unlikely to return.”