Something hitherto unheard of this decade seems to be happening in the market for pricey homes in prime central London. Buyers are buying. Or, more pertinently, sellers are selling.
‘PCL’, as the posher agents tag it, has been hit by a swathe of tax changes, particularly ex-chancellor George Osborne’s 2014 increase in the highest band of stamp duty to 12% on the proportion of any home’s sale price above £1.5m (plus another 3% on second homes).
However, January’s trading statements from Savills and M Winkworth alluded to a thawing in the hitherto glacial market for homes over £2m – not without hints of surprise from the issuers themselves.
Conversely, out in the regions, markets that had been plodding along on a gentle upward incline seem to have succumbed to a bout of sogginess.
Savills raised its guidance on likely profits for 2017 thanks to strong performance across the board, exclaiming: “The relative resilience of the UK residential transaction business, which achieved year-on-year revenue growth in challenging markets, was of particular note.”
Winkworth also nudged up expectations (here I must declare an interest: my company is broker to the firm). According to chief executive Dominic Agace, “over the course of the year, we experienced an improvement in activity in prime central London”.
Countrywide’s shares plunged 19% as it warned that profits are likely to be dented by “a disappointing fourth-quarter performance” in the sales and lettings division and still uncomfortably high debt. Nevertheless, even though the 10% year-on-year drop in revenues from London was disappointing, it was not as bad as the -17% for the UK as a whole.
A similar pattern emerges empirically in the RICS Residential Market Survey, which, for my money, is the best indicator of the direction of the housing market. London still looks sticky overall, but across other regions there appears to be clear evidence of buyers getting more nervous.
The ‘index’ (percentage of agents saying things are getting better minus those saying it’s worse) for buyer enquiries was still negative for December – about -20% – but broadly unchanged on where it was for November. But all other regions of England have turned negative except East Anglia and Yorkshire & Humberside. (As a Scot, it would be remiss of me to point to a far healthier picture north of the border.)
But to me, the key feature that suggests a change in the dynamics of the London market is that the RICS has registered a rise in the number of sellers coming on to the market, with a positive balance of about 20% – one of only two regions in England to report one. Agents in London, I regularly hear, have struggled not so much to find buyers as to find any sellers at all and then to persuade them to lower their aspirations in order to shift their homes.
In PCL, it seems to be not so much a rush of new buyers, but a dawning sense of realism on the part of would-be sellers who have previously baulked at the offers they were getting and refused to accept the advice from their agents that this was ‘the new normal’.
This tentative – and it looks to be no more than that – rekindling of the central London market doesn’t yet seem to have spread to inner London, roughly demarcated by Zones 2 and 3 on the tube map. Again, there are buyers. But, although there are some pragmatic sellers, the problem in the inner suburbs appears to be a combination of too little stock (hence the almost daily letter from local agents fluttering on to my doormat imploring us to sell) or long chains disrupted by some seller holding out for an improbable offer.
However, there is the very hefty elephant in the room in the shape of London’s very different high-rise newbuild market. According to Molior London, the number of units under construction in the capital, mainly apartments, has hit a new high of 65,000. There are 1,500 completed but unsold units, which is 35% up on 2016.
Barratt London is (probably wisely) reported to have shelved plans for a second, 27-storey building next to its existing tower in the edgy Aldgate location. Up river, Battersea Power Station has undergone a complex financial restructuring with its Malaysian backers that looks pretty much like a bail-out after huge cost overruns and lower-than-expected sales prices.
Even president Trump has derided the Nine Elms site, which encloses the US Embassy and Battersea Power Station, as “an off location”. Well, he knows a thing or two about property, if very little else.
Alastair Stewart is an equities analyst and commentator