While the luxury end of the UK property market, predominantly London, has been hit by the Brexit saga, prices are now beginning to look interesting. Across the length and breadth of the City property sale prices have fallen as investor concerns about the future of the UK and its relationship with the European Union come to the fore. So, is there further downside to the London property market or is it starting to look interesting again?
Delayed reaction for house prices
Looking back there was certainly a delayed reaction in the fall in London property prices in light of the Brexit vote. While there was an initial slowdown in the market this seems to have accelerated since September. In traditional markets you might expect further weakness in the short term, because of Brexit uncertainty, but in light of the fall in the value of sterling the London property market is back on the radar of many foreign investors. So, how have London property prices performed over the last 12 months and how does the immediate future look?
London property prices
According to Knight Frank the average London property sale price fell by 6.3% to the year ended December 2016. While this is a significant fall we need to appreciate the massive rise in the price of London property in the years prior. As you might expect, the likes of Chelsea (down 13.5%), Kensington (down 11.3%) and Knightsbridge (down 7.9%) have been hardest hit. It is also no surprise that these areas were the “hotspots” of years gone by – where house prices bear little resemblance to the rest of the UK.
Indeed a number of real estate agents have been discussing the plight of the London property market with property sale price reductions of up to 20% not uncommon. So, why would anybody even look at the London property market with current market sentiment suggesting further downward pressure?
Overseas investors pick up the baton
If we look at the EU referendum back in July prices have fallen by 7% across London in sterling terms. This in itself is obviously a significant fall but the situation is even more eye-catching when you look at this from a US dollar investor point of view. Taking into account the fall in property prices and the fall in sterling, US investors are now faced with London property prices which are on average 19% down on July 2016.
At this moment in time there is little likelihood of a significant recovery in the value of sterling – at least until we know the terms of the Brexit arrangement and the outlook for the future. Whether overseas investors have been picking up some of the slack created by domestic sellers is an interesting topic of conversation. If this is correct, then as domestic sellers start to dry up so overseas investors should take more control and potentially stabilise and push prices upwards?
To compare the general UK property market to the London property market is like comparing apples and pears. The London property market is a monster itself and bears little or no resemblance to the rest of the UK. Domestic investors are feeling the pinch with property prices falling but overseas investors have a whole different perception of the UK market when bearing in mind the fall in sterling. So, if you were a US dollar investor would a near 20% reduction in London property prices since July 2016 interest you?