The Brexit Effect: PCL Demand Slumps Despite Tumbling Asking Prices

Annual property price growth in prime central London has slowed to its lowest rate since October 2009, trundling up just 0.1% in May as the “Brexit Effect” helps to quash demand despite asking prices being slashed.

There are now half as many active buyers in the PCL space as at the same time last year Asking prices have fallen by more than 10%, yet there are now half as many active buyers in the PCL space as at the same time last year, reports the agency – although the number of viewings did increase by a significant 31% between January and April rose 31% compared to 2015.

Demand cools over the last year

It seems that the root of buyer lethargy has moved on a bit from an acclimatisation to new SDLT rates, as the imminent EU Referendum provides an even more compelling cause for caution/inactivity; this has created a cumulative effect which means that prime central London is continuing to become ever-more price-sensitive for everything but truly best-in- class opportunities. 

While buyers were already a shallow pool as a result of the two stamp duty reforms (increases for high-value purchases) within 18 months, the more (hopefully) short-term “Brexit Effect” of buyers adopting a wait-and- see attitude to the Referendum has seen demand evaporate even more drastically: the ratio of active buyers per available property in prime central London has fallen to 4.8 from ten over the last year.

It’s not all gloom, though; “there are signs underlying demand is strengthening as buyers drop asking prices to reflect higher transaction costs,” notes Knight Frank’s Tom Bill, and deal numbers have not fallen with demand. The number of transactions between January and mid-May was instead flat this year compared to 2015.

Overall, PCL prices have increased by 2.4% over the last two years; quite the subdued picture compared to the heady 10%-days of October 2012…

 

 

Annual growth in prime central London over the last five years Price growth in prime central London by area in the year to May 2016 Rental values are also having a tough time of it, with increased stock and a jittery global economy driving annual growth down to -2.3%; its lowest level since February 2014.

The number of new rental properties coming onto the prime central London market between January and April rose 18.1% compared to 2015, says Knight Frank, while the number of new prospective tenants fell -2.3% and the number of new tenancy starts dropped by 5.4% between January and April versus 2015. That means “the balance of power has shifted towards tenants and rental values have fallen.”

A similar trend to the sales market has emerged, with the number of viewings rising by 5.9%, “highlighting how tenants have become increasingly selective and take longer before agreeing letting deals.” Behaviour at the market’s extremes, however, is playing by different rules: demand remains stronger below £1,500 per week and at the super-prime £5,000-plus per week levels, where higher transaction costs have caused some buyers to explore to rental option.

 

Annual rental value growth in prime central LondonRental value growth in prime central London by area in the year to May 2016Annual rental value growth in prime central London over the last three years.

 

Source: Primeresi Research and Statistics: Knight Frank