London's property market may finally be cooling. Up to 40% of houses for sale in some areas of the capital have cut their asking prices since coming to market, according to property analysis firm Propcision. Earl's Court has suffered the highest proportion of cuts, with 40% of properties on the market dropping their prices.
Other areas, including Fulham, Kensington and Chelsea, Westminster and Hammersmith have also been hit hard. The research doesn't include flats sold by developers to institutional investors. However, they are reportedly seeing a similar trend, being offered discounts of up to 20% to snap up central London luxury apartments in bulk.
The pressure on asking prices is largely a result of supply outstripping demand. There are plans to build up to 35,000 high-end properties worth almost £77bn in the next decade 40% more than in 2014, says Bloomberg. The homes would span some 40 million square feet in total (more than double the size of Hyde Park).
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Meanwhile, demand for these types of new-build properties has slumped. Sales of properties under construction in London dropped by 19% in the last quarter of 2015, according to researcher Molior. This is largely due to international buyers opting to invest elsewhere due to higher taxes and low commodity prices. The percentage of overseas buyers fell from about 33% to 20% last year, says broker Hamptons International.
If foreign buyers back out of the London market, not everybody will be sorry to see them go especially since some of them are suspected of being less than desirable. "The London property market has been skewed by laundered money," Donald Toon, the head of the National Crime Agency, told the Financial Times last week. "Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK."
The Panama Papers leak has focused attention on this issue, by revealing individuals who have connections to questionable regimes overseas, or are suspected of links to corruption, who have been buying up London property via offshore companies.
For example, an associate of Syria's Bashar al-Assad holds luxury flats in London worth almost £6m through companies registered in the British Virgin Islands, while the family of another former Syrian intelligence official owns a £1.2m property, according to reports. One in ten properties in Kensington and Chelsea is now owned through a company based in a "secrecy jurisdiction", such as the British Virgin Islands or the Isle of Man, says the FT.
Estate agents and lawyers who are involved in transactions they believe may involve corrupt individuals or money laundering can file "suspicious activity reports" with the National Crime Agency. In the year to September 2015, the number of reports filed doubled in volume. There is a risk of the property market moving "back to the wild west", buying agent Henry Pryor told the FT. "When this kind of thing happens, we look the other way at our peril."
House prices across the UK have risen by more than 10% over the past year, according to the latest Halifax house-price index. The price of an average UK house rose by 2.6% in March alone, soaring to £214,811. Overall, residential property prices have risen by 37% since 2008, with flats rising more sharply than other types of property (up 57%). The exceptionally strong performance of flats is largely due to the 62% rise in the price of flats in London.
The recent price rises may have been caused by buy-to-let landlords and second-home buyers rushing to beat April's rise in stamp duty. If so, the pace of increases is now likely to slow. Worsening sentiment over the UK economy and uncertainty ahead of the European referendum in June may also put pressure on the market.
