London property prices finally bottoming out

A report by real estate firm Savills has given a renewed boost to investors amid suggestions that the London property market is finally bottoming out. Since early 2016 there have been concerns that the market was running out of steam and an array of taxation issues and subsequent political situations were leading to reduced demand. Even though the falls have been nowhere near those suggested by so-called “Remainers” London property prices now stand significantly off their 2014 highs.

Property price falls

The first three months of 2017 saw an average reduction in London property prices of just 0.3% which is significantly up on the 2.2% in the previous quarter. Many experts now see this as an early indicator that the market is bottoming out and the balance between buyers/sellers is returning. It will take more figures to confirm this but the initial suggestions do appear to be back to by cold hard statistics to date.

These figures also confirm that the London prime property market is down 6.1% from the 2014 high and while the Brexit situation has obviously not helped there are other issues to take into consideration.

Tax considerations

We are all well aware of the changes in stamp duty and the tweaking of the capital gains tax and inheritance regulations to bring more real estate investors under these umbrellas. It may surprise many people to learn that the additional taxation brought in by the UK government has had a greater impact upon overseas investors than the 20% fall in sterling. In some ways it is the fact that the UK government has made these changes and concerns about what may happen in the future. The issue with the currency is unlikely to change dramatically in the short to medium term and indeed many experts believe sterling will come under further pressure as Brexit negotiations become more heated.

As we have mentioned in previous articles, it is not necessarily the fact that regulations, taxes and other areas of the real estate market have changed but more the uncertainty going forward. How will London look after Brexit? Will the financial markets remain within London? How will the London property market be impacted in the longer term?

Future expectations

In light of the reduced fall in London property prices in the first three months of 2017 it is encouraging to see forecasts for 2017 onwards. Many experts believe 2017 and 2018 will be flat for London property prices before surging by 8% in 2019, 5% in 2020 and 6.5% in 2021. This equates to an accumulated rise of just over 20% by 2021 which would certainly be an impressive performance by any stretch of the imagination.

Looking at these forecasts from a more cautious angle, it is difficult to say with any real certainty what will happen in the short to medium term with regards to Brexit and the U.K.’s trading relationship with the European Union. The fact is that nothing of this magnitude has ever been attempted before and despite all the sabre rattling in the press nobody really knows in what direction the Brexit negotiations will go. There is every chance that a disappointing Brexit deal will impact the London property market to a greater extent than the rest of the UK.

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