Don't blame Brexit – we're long overdue a fall in London property prices

There's more to a fall in London property prices than Brexit

We've been warning about the risks in the London housing market for a while now. It looks like other people have started to notice those risks too: sales of new homes in London fell by 43% in the six months to the end of June relative to the same period last year. Square footage prices for new builds have now also fallen significantly, says Naomi Heaton of LCP: down 8% from the 2014 high for Battersea's Nine Elms area, for example.

Finally all the usual signs of developer panic are there: according to The Times, developers are now offering to "pay the stamp duty" on luxury homes (ie, to cut the price by the same amount as the buyer will have to stump up in duty), while "other perks have included tickets to motor races, rental guarantees and the chance to win a parking space."

It will be tempting for many to blame this on Brexit uncertainty (and there my be some of that in the mix). But the main factors behind it clearly predate any sense that the referendum vote might go the Leavers' way. The rise in stamp duty in 2014 and again in April has made a difference with the 3% surcharge on second homes and buy-to-lets putting off foreign buyers.

There has also been a huge amount of new supply coming on to the market. As Heaton points out, the planning pipeline is up 20% since 2013 with over 106,000 new-build units approved. And there is more to come: there are, says Estates Gazette, applications in for another 111 high-rise towers many focused around the "mega cluster" around Tower Hamlets and the "now infamous Battersea Nine Elms stretch". So what next?

Heaton (who runs central London investment funds) isn't worried. Things might look nasty for the outer areas about to be swamped by the slums of the future. But she focuses on prime central London (PCL) where there is very little scope for new-builds to bump up supply, and she reckons that the post-Brexit environment for PCL will be much like that post-global financial crisis (GFC). Here's what she says.

"Whilst no concrete evidence of post-Brexit market dynamics has yet been published, we expect PCL real estate to respond in a broadly similar way as it did during the global financial crisis when the market out-performed almost all other asset classes. A flight to quality and the security of blue-chip tangible assets will be underpinned by the continuing weakness of sterling. Alongside this, the attractions of PCL as a centre of culture, excellence and education with absolute rule of law and unequivocal title to property remain undimmed. We firmly believe that these robust market fundamentals will support continued asset appreciation particularly in the mainstream private rented sector. LCP has already seen a five-fold increase in investment enquiries since the vote."

Is she right? I've bet against Heaton before (after the GFC she was convinced prices would rise, I that they would keep falling). So I'm loath to do it again, particularly given that the weak pound does make PCL rather cheaper for the foreign buyers the market has long relied on, and that the new cut in interest rates will make mortgage interest costs even lower than they are already for UK buyers.

But, but, but prices are an awful lot higher than they were in 2009 and the commodity boom fuelled Russian and Middle Eastern buyers, who are an awful lot thinner on the ground. And whatever the benefits of PCL, if new-build prices fall far enough, PCL buyers will surely shift into Nine Elms (which really isn't that far from Knightsbridge). The latter can't really crash without bringing the former along for at least part of the ride.