The Forecast Issue
Prime Central’s Lounging – But Don’t Set the Alarm
Overall house prices in London are still rising more strongly than most parts of the country, but it is made up of several markets with different dynamics.
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London’s prime market has long been considered separate because prices are beyond the reach of most buyers - and that has only become truer since the market downturn. Prices in the Prime Central boroughs of Kensington & Chelsea and Westminster are 63 per cent above their precrisis peak, compared with a London average of 45 per cent and the England and Wales average of just seven per cent. Average property prices in Westminster and Kensington & Chelsea are currently two and a half to three times higher than the average London price of £450,000 and this masks even higher sales values at the very top end.
In terms of activity, prime areas were more resilient over the downturn too. Activity fell less quickly and also picked up more quickly than the London or national averages.
But the prime areas of London are now taking a bit of a rest. That shouldn’t be surprising or indeed alarming for a number of reasons. First, years of rapid growth affects expectations about the scale of achievable price growth in future. Even the wealthiest of buyers will have an eye on the return on their investments. In addition more recent uncertainties about the mansion tax and the outcome of the last general election may have played a role as will changes in taxation for foreign owned property. The recent appreciation of Sterling relative to other currencies will also be a factor. Changes in taxation will make little difference at the very highest end of the prime markets but do raise a barrier, even for wealthy buyers in prestige areas. Indeed the better performance of Central London boroughs close to the prime areas can be put down to a shift of demand to property with more capital growth potential.
Higher prices means the pool of potential buyers is constrained and that’s likely to mean fewer transactions in the short term and slower house price growth too. But a pause in the pace of growth in this sector of the market isn’t a bad thing, allowing the market to adjust to pressures now puts it in better shape for the future.
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