Predominantly London-based estate agent Foxtons has today issued full-year results which showed turnover is down by 12% but perhaps more importantly, sales commissions from the London markets were down by 25% in the final quarter. Even though the company still received in excess of £70 million in sales commission during 2014 this is perhaps the starkest reality check to date that the London property market is running out of steam, at least in the short-term.
The company confirmed that turnover overall fell by 12.1% in the final quarter, compared to the same period last year, with a recovery in the company’s lettings division offsetting the fall in sales commission. What can we glean from this information?
London running out of steam
If you look at the property price graph for average London properties this will show very little or no resemblance to the rest of the UK. London has been a niche market in itself for many years now and is often seen as the short to medium term barometer for the economy. Looking back over the last couple of years, 2013 was a very buoyant year and 2014 seemed to begin likewise. However, towards the end of the year there was definitely some deflating of optimism and enthusiasm for relatively high London property prices.
It was also interesting to learn that Foxtons believes the forthcoming general election the UK, just 100 days away, has led to something of a slowdown in interest. Indeed the company believes the London property market will begin to rally as soon as the election is over with history telling us that whichever party moves into 10 Downing Street, this will have relatively little impact upon the long-term demand for London property.
Is this a short-term reality check?
Time and time again we have seen many experts suggesting London property prices were too high, demand would eventually fall and prices could not continue their upward spiral indefinitely. Historically the London property market has attracted more than its fair share of foreign investors and it would be true to suggest this is still ongoing today. However, sometimes people tend underplay the impact of domestic UK investors with many also showing a long-term passion for London real estate.
In some ways we could compare the relative slowdown in London property prices to that experienced in Edinburgh ahead of the Scottish referendum. As we have mentioned on numerous occasions, investment markets have no issues with risk/reward ratios as long as they know the possible risks they can work out the possible rewards. There was some risk ahead of the Scottish referendum, with the vote on a knife edge, although the UK general election seems to be heading for something of a stalemate and yet another coalition government.
Today’s statement by Foxtons will perhaps register with investors who have until recently been ignoring concerns that the London property market was pushing too far too quickly. However, the fact that the company believes the London property market will recover again after the general election only gives a potential 100 day hiatus. Will we see investors jockeying for position prior to the election or will, as many are suggesting, investors hold off until the election is over?