Property Market Update: London
The average price of property in the United Kingdom has fallen roughly £2000 to £224,353 in the last quarter of the year, according to Halifax released their findings on the current state of the Housing Market in the UK in March 2018. This report concentrated on residential properties and highlighted many interesting trends and figures to do with the growth of the property market for the first few months of this year. The fall in property price is most likely a cause of a decline in market growth from 2.2% to 1.8% from November to February.
For the 13th month in a row, sales of homes a month has risen beyond 100,000 and home sales were in fact 2% higher, compared to this time last year. However, despite these positive numbers, which have been matched alongside Nationwide’s recently released index there are still the common indicators of a weak housing supply and demand remain. Trends such as a fall in new instructions for the 23rd consecutive month and new buyers for the 10th month in a row continuing to affect market activity poorly, continue to represent the worse trend since 2007-2009.
Due to low mortgage rates and the levels of employment increasing, these figures from Halifax are cause for optimism. Because of these low mortgage rates there has been a fast increase in approvals for mortgages across the board – often cited as the leading indicator of completed house sales – since January. Each month since the beginning of this year there has been a 9.4% increase in approvals, reaching a peak of 67,478. This obviously is a positive, however, it is essential to remember that this is also representing a decrease of 2.4% on numbers from this time a year ago.
For First Time Buyers, the increase in mortgage approvals and levelling off of house prices, helping to avoid stagnation in the market, gives them hope allowing for more options arising because of the lower pricing.
Referencing CBRE’s Monthly Index Snapshot; since February there has been a 0.6% growth in total returns on commercial property. This is despite environmental factors playing a large role in deals being able to be completed around the nation. The industrial segment is where the largest increase was found – reaching returns of 1.2%, with retail property rising just 0.4% alongside London Office space holding its return in line with national averages.
This data is definitely positive, however, deeper analysis highlights a decrease in the amount of Commercial Property being leased in London. This is confirmed by a 9% decrease in leasing when compared with this time in 2017.
With professional service sectors continuing to grow, this has represented a revived potency in the office segment and this is displayed in the great performance of planned refurbishments when correlated to new builds. The industrial segment was the strongest force within the commercial sector with 1.2% returns.
Pessimistic numbers are slowly fading away when looking at the Investment Property Forum’s (IPF) UK Commercial real estate consensus report,. There has been a rise from 0.4 to 0.8 and -0.7 to -0.2 in the average rental and capital value growth rates since November 2017 and with industrial growth forecasts expecting a rise of 2.7% this next quarter we can expect figures of 4%, because the IPF report stating that “the outlook for 2018 has improved over the three months since the last survey was completed”.
Capital Economics has said the IPF has increased its forecast for all returns on the property for this year. This aids a less sceptical view on rental growth, with figures improving 0.1% from 4.8% to 4.9%.
When looking from an investment point of view, it is obvious that residential homes are still a worrying and uncertain proposition and this is probably going to remain the case until early April 2019 when article 55 will be triggered and businesses international companies based across the UK will have made up their minds to keeping their head offices in the UK or to relocate to mainland Europe. This judgement could end up significantly reducing the number of jobs across the nation and with that a decrease in the demand for housing.
UK Home builders are already starting to see significant effects, with the Financial Times mentioning Berkeley as the “Top FTSE Faller” in February 2018. “Berkeley led the FTSE 100 fallers after the housebuilder said that it will not be increasing production from current planned levels because of numerous headwinds to the London property market.”
London maintains its status as the most desired location for international investors despite the worries of Brexit and a fall in sterling. The Guardian states that there has been a record high in Global Real Estate Investments, quoting investments of $1.62 trillion last year. They state that Asian investors serve as half of this figure. Mayfair, which recently regained top spot as London’s most expensive neighbourhood from long-time rival Knightsbridge, as well as many other areas are continuing to evolve and develop.This is confirmed in a March report by a prime Mayfair Estate Agent highlighting the concrete impact that the development of Commercial Properties into Residential Properties is having. This data is backed up by investments, with one, in particular, being sited by one mystery Gulf Investor with a £100 million deal in one single transaction.
The UK’s investment stock has held steady at 3.9%, remaining ahead of Germany, but there is caution to be had with potential trade wars and falls in negotiations which could easily change the landscape of the property market in the UK.