hyenergix
19-05-14, 06:39
Signs show London residential property market has peaked
Prime properties see price resistance as Asian buyers grow wary
BY NEIL BEHRMANNIN LONDON
PUBLISHED MAY 19, 2014
AIR is beginning to leak from the London residential property balloon.
Moreover, anecdotal reports indicate that Asian and other foreign buyers are no longer rushing to buy prime London properties following the surge in prices, the jump in sterling in the past year, threats of taxation and the Bank of England's potential anti-bubble moves.
"The UK prime residential market has continued to perform well with year- on-year increases in both volume and value," said Jeremy Helsby, group chief executive of Savills in the estate agent's trading statement last Monday. "(But) we have lately seen some cooling in the prime and super prime central London market."
Indeed, a count of some 600 properties on sale above £2 million (S$4.2 million) on the websites of upmarket agents Savills and Knight Frank shows that only 9 per cent have been sold and only a further 14 per cent of potential buyers have agreed on an "on offer" price, but so far have not exchanged contracts with sellers.
Of some 162 properties over £10 million with the highest price in Knightsbridge of £68 million and several of £20 million to £30 million, the sites show that a mere 3 per cent have been sold. Officials of the firms contend that some sales have not been reported on the firms' sites, but despite those claims, the figures are an indication that price resistance is becoming evident.
The big question is if and when and by how much sellers may decide to cut prices. The London and UK markets over the years have experienced several booms and downturns. Examples of a damaging bust occurred in the mid-1970s and slides took place in the early 1980s, the first few years of the 1990s and the Great Recession of 2008 to 2009. Prices then stabilised because of the Bank of England's quantitative easing (QE) and ultra low interest rates. Foreign buyers, especially European, started the current boom during the euro crisis of 2010 to 2012.
The overall market took off last year after UK Chancellor of the Exchequer, George Osborne, precipitated a buying panic with government-subsidised loan schemes. After being gloomy or cautious from 2009 to 2012, property industry participants and experts at events such as the early April annual Wriglesworth property conference became overwhelmingly bullish from the second half of last year onwards.
In recent weeks, however, more caution has prevailed. For a start, the Bank of England has warned that it could act to prevent a bubble and interest rate hikes may come sooner than expected. Via much tighter mortgage standards, banks and other lenders are asking potential borrowers much more detailed questions on their ability to finance mortgages in the event of rising interest rates.
Long-overdue legislation for capital gains taxation (currently 28 per cent) on foreign purchased properties is expected to take place for appreciation after 2015. Ed Milliband, leader of the opposition Labour Party, has also hinted that if he wins the election, he would tighten regulation of landlords and consider forms of rent and tenure controls similar to Germany's successful rental regime.
Both Doris Tan, Singapore-based director of real estate services firm Jones Lang LaSalle, and Marc von Grundherr, London-based lettings director of estate agents Benham and Reeves, agree that Singaporeans and other Asian investors have become wary of pricey London property.
Ms Tan, however, contends that apartments in the range of £250,000 to £500,000 remain popular with investors. Mr von Grundherr estimates that foreign investor buying of properties above £2 million has fallen considerably but that interest in real estate below £1 million remains as high as last year.
Mr Helsby of Savills also maintains that "there remains strong demand for property in the £1 million-£2 million price segments of the North, East and South West London regions. The regional UK residential market is continuing to recover with growing volumes and a significant increase in buyers registering with Savills".
"The strong price growth in London and the South East and other parts of the UK is underpinned by a lack of supply, both new delivery of homes and a lack of second hand stock," says Grainne Gilmore, head of UK residential research at Knight Frank.
The question, however, is for how long? Especially since the vast majority of locals have been priced out of the market and foreigners have become wary. Indeed, independent economists query whether Singapore, Hong Kong and China buyers will step back given price corrections in their own markets. Why take a risk on a distant foreign market which is both expensive in price and currency following sterling's appreciation of more than 10 per cent in the past year.
John D Wood & Co's residential property price indices - based on sales data from all leading agents and compiled independently by Nuffield College (Oxford) and the London School of Economics - indicate that on average, house prices in prime London areas have risen by 34 per cent above the 2007 bubble peak and apartments by 57 per cent. Landlords, both local and foreign, are relying on further capital appreciation as gross rental yields on houses and apartments have fallen to 2.2 to 2.7 per cent. After maintenance, management fees, other expenses and voids, net yields are minuscule at 1.2 to 1.7 per cent.
"Property developers and agents talk about foreign buying, but how many are taking profits and selling?" asks Ed Stansfield, head of property research at Capital Economics. "Net sales to foreigners should be the gauge."
Tom Bill, associate researcher at Knight Frank, says that ahead of a rise in political campaigning for the May 2015 UK general election, "more owners have started to explore a sale". A likely increase in supplies in the next few months could dampen price growth in prime central London, he believes.
http://www.businesstimes.com.sg/premium/top-stories/signs-show-london-residential-property-market-has-peaked-20140519
Prime properties see price resistance as Asian buyers grow wary
BY NEIL BEHRMANNIN LONDON
PUBLISHED MAY 19, 2014
AIR is beginning to leak from the London residential property balloon.
Moreover, anecdotal reports indicate that Asian and other foreign buyers are no longer rushing to buy prime London properties following the surge in prices, the jump in sterling in the past year, threats of taxation and the Bank of England's potential anti-bubble moves.
"The UK prime residential market has continued to perform well with year- on-year increases in both volume and value," said Jeremy Helsby, group chief executive of Savills in the estate agent's trading statement last Monday. "(But) we have lately seen some cooling in the prime and super prime central London market."
Indeed, a count of some 600 properties on sale above £2 million (S$4.2 million) on the websites of upmarket agents Savills and Knight Frank shows that only 9 per cent have been sold and only a further 14 per cent of potential buyers have agreed on an "on offer" price, but so far have not exchanged contracts with sellers.
Of some 162 properties over £10 million with the highest price in Knightsbridge of £68 million and several of £20 million to £30 million, the sites show that a mere 3 per cent have been sold. Officials of the firms contend that some sales have not been reported on the firms' sites, but despite those claims, the figures are an indication that price resistance is becoming evident.
The big question is if and when and by how much sellers may decide to cut prices. The London and UK markets over the years have experienced several booms and downturns. Examples of a damaging bust occurred in the mid-1970s and slides took place in the early 1980s, the first few years of the 1990s and the Great Recession of 2008 to 2009. Prices then stabilised because of the Bank of England's quantitative easing (QE) and ultra low interest rates. Foreign buyers, especially European, started the current boom during the euro crisis of 2010 to 2012.
The overall market took off last year after UK Chancellor of the Exchequer, George Osborne, precipitated a buying panic with government-subsidised loan schemes. After being gloomy or cautious from 2009 to 2012, property industry participants and experts at events such as the early April annual Wriglesworth property conference became overwhelmingly bullish from the second half of last year onwards.
In recent weeks, however, more caution has prevailed. For a start, the Bank of England has warned that it could act to prevent a bubble and interest rate hikes may come sooner than expected. Via much tighter mortgage standards, banks and other lenders are asking potential borrowers much more detailed questions on their ability to finance mortgages in the event of rising interest rates.
Long-overdue legislation for capital gains taxation (currently 28 per cent) on foreign purchased properties is expected to take place for appreciation after 2015. Ed Milliband, leader of the opposition Labour Party, has also hinted that if he wins the election, he would tighten regulation of landlords and consider forms of rent and tenure controls similar to Germany's successful rental regime.
Both Doris Tan, Singapore-based director of real estate services firm Jones Lang LaSalle, and Marc von Grundherr, London-based lettings director of estate agents Benham and Reeves, agree that Singaporeans and other Asian investors have become wary of pricey London property.
Ms Tan, however, contends that apartments in the range of £250,000 to £500,000 remain popular with investors. Mr von Grundherr estimates that foreign investor buying of properties above £2 million has fallen considerably but that interest in real estate below £1 million remains as high as last year.
Mr Helsby of Savills also maintains that "there remains strong demand for property in the £1 million-£2 million price segments of the North, East and South West London regions. The regional UK residential market is continuing to recover with growing volumes and a significant increase in buyers registering with Savills".
"The strong price growth in London and the South East and other parts of the UK is underpinned by a lack of supply, both new delivery of homes and a lack of second hand stock," says Grainne Gilmore, head of UK residential research at Knight Frank.
The question, however, is for how long? Especially since the vast majority of locals have been priced out of the market and foreigners have become wary. Indeed, independent economists query whether Singapore, Hong Kong and China buyers will step back given price corrections in their own markets. Why take a risk on a distant foreign market which is both expensive in price and currency following sterling's appreciation of more than 10 per cent in the past year.
John D Wood & Co's residential property price indices - based on sales data from all leading agents and compiled independently by Nuffield College (Oxford) and the London School of Economics - indicate that on average, house prices in prime London areas have risen by 34 per cent above the 2007 bubble peak and apartments by 57 per cent. Landlords, both local and foreign, are relying on further capital appreciation as gross rental yields on houses and apartments have fallen to 2.2 to 2.7 per cent. After maintenance, management fees, other expenses and voids, net yields are minuscule at 1.2 to 1.7 per cent.
"Property developers and agents talk about foreign buying, but how many are taking profits and selling?" asks Ed Stansfield, head of property research at Capital Economics. "Net sales to foreigners should be the gauge."
Tom Bill, associate researcher at Knight Frank, says that ahead of a rise in political campaigning for the May 2015 UK general election, "more owners have started to explore a sale". A likely increase in supplies in the next few months could dampen price growth in prime central London, he believes.
http://www.businesstimes.com.sg/premium/top-stories/signs-show-london-residential-property-market-has-peaked-20140519