by Dominic Field
Politics; Politics; Politics has temporarily replaced Location; Location; Location as the mantra for the London residential market. Stamp Duty changes then Brexit and now a December General Election - when will it end?!
Despite all this uncertainty and reduced activity in the market there remain compelling opportunities for the savvy investor and those advised by specialist firms such as Temple Field. Price stagnation and falls in some London sub markets seem to have found a sustainable level and we are now seeing rents rising strongly. At the same time a reduced supply of available property against a backdrop of strong demand means more medium to long term investors are becoming confident that prices have reached the bottom and that deals can be done.
Looking in more detail…
Miles Shipside, Rightmove director and housing market analyst comments: “In a strange Brexit-induced paradox, thousands of potential sellers are holding back compared to this time a year ago, though the number of buyers agreeing purchases is virtually the same. Ironically, this means that those who are coming to market have a better chance of selling, so while some would-be sellers are being put off, it’s actually a good time to sell. Those who are ignoring the Brexit disruption have less competition from stay-away sellers, and their prospective buyers have less negotiating power, with a reduced choice of suitable alternatives.”
(from Rightmove House Price Index and Rental tracker Q3 2019) London sees prices recover from last month’s fall
- Price of newly listed property rises by 2.4% (+£14,577) this month, offsetting the 2.2% fall last month, giving an encouraging total rise of 0.2% (+£1,223) since August
- The main drivers for London’s tentative recovery are scarcity of properties coming to market, larger price rises closer to centre of London, and more properties selling:
- 29.2% fewer new sellers than same period a year ago, deterred from trying to sell by continuing year-on-year price falls and short-term Brexit uncertainty
- Price of property coming to market in the central TfL Zone 1 up 0.6% since October 2018, the only zone in positive territory for the year
- Number of sales agreed up 0.8% on this time last year
There appear to be three main drivers for this tentative recovery in the capital’s property market. First, the reduced number of properties coming to market. Secondly a stronger recovery in prices closer to the centre of London. And last but not least, a small but encouraging 0.8% year-on-year increase in the number of sales being agreed.
Miles Shipside, Rightmove director and housing market analyst comments: “London has spent a few years in the price doldrums, but the scarcity of properties coming to market is now helping to underpin prices, and the number of sales agreed is higher than in the same period a year ago. There has been a long period of price re-adjustment, and as each month passes the chances get better that the market will return to positive territory. This month’s figures coincide with what is normally a busier autumn period, though with continuing Brexit uncertainty there is still no certainty of a sustained price pick-up.”
The unknowns surrounding the political outlook, and possible negative employment effects in some of the capital’s core industries, are causing some would-be sellers to hesitate in coming to market. This has been a common theme in recent months, along with month-to-month price volatility, which has been exacerbated by smaller sample sizes, especially in the higher price brackets.
Shipside adds: “Compared to the same period a year ago, nearly 30% fewer properties have come to market. This is the worst year-on-year decline in any month since August 2009.” However, the sellers who are coming to market seem to be serious about selling, with the result that the number of sales being agreed has increased slightly on the same period last year.”￼
- A shortage of new stock to choose from, coupled with strong demand from tenants, has led to record asking rents in all areas across Great Britain except Scotland and the North East:
- In London, rents are at a record of £2,104 per calendar month (PCM), seeing the biggest quarterly jump at this time of year since Rightmove started recording this data
- These jumps have led to an annual rate of growth of 5.6% in London
- The number of available rental properties is 24% down in London, as tax changes deter new and existing landlords:
- New research from Rightmove shows almost a quarter of landlords (24%) are planning to sell at least one property from their current portfolio
To further re-inforce the above Zoopla rental report for Q3 2019 suggests annual rental growth over the last year of 8% to 10% driven by employment growth and in-migration, as well as a bounce from negative rental growth in London in 2016 and 2017.
Summarising the evidence and commentary above: Rental growth of 5% pa or higher looks sustainable. Capital growth is emerging with approximately 1/3rd of London Boroughs now moving into positive territory and capital growth anticipated to match earnings growth of 4% pa. Political uncertainty is finally reaching a climax with a General Election this December. With polls indicating the Conservative Party will form the next Government we anticipate 2020 will as the numerals suggests provide greater market clarity and create a more confident vision for the future of the residential investment market for London.
Temple Field is a specialist London investment property search agency – we work with experienced investors and novice landlords to build buy-to-let portfolios of all sizes.
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