Although London’s housing market still appears to be red hot (see below for the latest example of London property madness), there’s one specific area that may be flashing a warning sign for the rest of the market – new-builds. “As more shiny residential towers rise on the banks of the River Thames, buyer appetite has paled,” say Judith Evans, Jennifer Thompson and Chris Brewer in the Financial Times.
There are more than 50,000 high-end flats being developed in the area, according to one estimate – yet only 3,900 properties worth more than £1m (the target price bracket) were sold in 2014. This is having a knock-on effect on developers, with shares in London property group Capco falling after it revealed that “sales of apartments in its Lillie Square development in west London – which cost between £600,000 and £6m – had not risen since November”.
“Vendors have cut the asking prices on 39% of homes in central London’s best districts since they were first offered for sale, according to data compiled by researcher LonRes in January,” confirm Bloomberg’s Neil Callanan and Jack Sidders. This is “ the largest proportion of properties in at least three years”. Prices are falling for the simple reason that sales are slowing.
According to up-market estate agency Knight Frank, “the number of properties sold in the boroughs of Westminster and Kensington and Chelsea fell more than 25%from January through October 2015 compared with a year earlier”.
What’s to blame? Rising supply clearly hasn’t helped, but there are obstacles on the demand side too. Chancellor George Osborne’s decision to reform stamp duty, so that those buying more expensive houses – and those buying more than one house – have to pay proportionately more, is clearly having a big impact on demand for prime property.
Meanwhile, the commodities slump has slashed the amount of money flowing in from investors in the Gulf and Russia and the downturn in China has had some impact on demand from wealthy Asians. As for buyers elsewhere in London – the boom began in the super-prime areas and radiated out to the rest of the capital. The same may now happen in reverse.
Aberdeen: from boom to slump
One UK housing market is feeling the pain of the commodity collapse even more keenly than super-prime London –Aberdeen. “Once it was a boom town, but fortunes have turned in Aberdeen since the slump in oil prices and house prices have been dragged down with it,” says Tom Knowles in The Times.
Indeed, “the average price of a home in the Scottish city still known as ‘the energy capital of Europe’ has fallen 4.1% over the past year to £186,200”. This slump comes “after seven years of phenomenal growth when it outpaced the UK”.
The commercial property market is hurting even more than the residential one, says The Scotsman’s Gareth Mackie. Investment in the city has plunged by 80%, dragging down the Scottish total. Even as Edinburgh and Glasgow bucked the trend, with a “record year” for office deals, according to CoStar Group, “a total of £2.2bn was invested in Scotland’s commercial property sector in 2015 – a slide of 41% on the record £3.5bn invested the previous year”.
It’s unsurprising that Edinburgh, with its large financial-services sector and proximity to the seat of the Scottish government, has been doing much better. Clearly, as the centre of the Scottish oil industry, Aberdeen was bound to be hit hard by the dramatic collapse in oil prices, which has driven many energy companies either to cut back on production, or suspend activity altogether. But with oil being such a key part of Scotland’s economy, the ripple effects are likely to be felt across the nation, particularly if oil prices stay low.
London house-price lunacy
South London estate agents Beresford Residential are selling flats in London’s Brixton area for a “bargain” £465,000. The flats are “warm, welcoming… perfect places to unwind” and have “no equivalent in SW2”.
However, prospective buyers may not be thrilled to realise that the unique feature in question is that some of the flats have no windows. While some of the flats have skylights, others will have to make do with “light wells”, channelling light from windows in the flats above.
But whether you view such a flat as “a sanctuary of calm” or a recipe for claustrophobia, the sad thing is that the agents may be correct in calling them a “bargain”. As of January, Land Registry shows that the average price of a flat in the area is £545,157.