Since the start of the year experts have noticed a reduction in some of London’s high-end property developments with the Battersea Power Station project the latest to hit the headlines. It seems that demand could be waning for high-end luxury property in London with price reductions across a broad range of properties available in the Battersea Power Station development. Does this mean that the London property market is finally succumbing to worldwide economic woes or is this just a short-term blip?
High-end is always hit first
History shows us that when property markets start to weaken it is the high-end properties which are hit first as discretionary spending comes under pressure. These are properties which are the domain of the rich and famous and many high profile investors looking to make a turn. While it is too soon to call the top of the London luxury property market there is no doubt that worldwide economic concerns are impacting investor confidence.
Will the flippers be caught out?
Flipping property is a pastime which many investors have perfected creating significant short-term appreciation with minimal investment. Those in charge of the Battersea Power Station development have responded to concerns about price weakness by confirming that some investors have indeed flipped properties they acquired at an early stage. This would seem to indicate there was demand but whether this demand is weakening is another question.
This is a development which has been on the radar for many years now and will no doubt have attracted more than its fair share of those looking to flip property for short-term gain. We can only guess how many short-term investors may be stung by the recent price weakness highlighting the fact that one unsuccessful investment can wipe out the profits of many successful ones.
Is there underlying demand?
While the headlines seem to suggest that some overseas investors are now holding back on further UK investments ahead of the EU referendum, is this really the case? In some ways you could argue that some of the more high-profile luxury property development such as Battersea Power Station saw prices pushed to levels which were unsustainable in the short term against the economic backdrop. If some of the more short-term investors have indeed withdrawn from the luxury property market in London then this will reduce demand and “take some of the froth off the market”.
Recent trends seem to suggest that once the market levels out overseas investors will look again because demand for London luxury properties has been consistently high for many years now. At what level the market will flatten out remains to be seen because any economic uncertainty, EU uncertainty and negative headlines about luxury property prices will not help short-term sentiment.
Even the withdrawal of short-term investors looking to flip properties in areas such as the Battersea Power Station development will impact short-term price movements. In some ways this “blowing the froth off the top of the market” is helpful in the longer term because it takes some of the heat out of the sector. The only danger is that others may follow as the trend turns down and what started as a gentle walk to the exit door for a small number of people could become a stampede.
However, do not underestimate demand for the London luxury property market as many have done so in the past!