House prices in central London’s poshest postcodes finished last year off almost 7% lower than they started, as the double dose of stamp duty hikes and Brexit uncertainty forced sellers to become more realistic on pricing.
This meant that prices were 12.5% lower at the end of 2016 than their peak just over two years ago, when the U.K. government introduced the first of two stamp duty increases, which heavily impacted demand in the luxury sector, according to real estate brokerage Savills in a report released Thursday.
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Jitters over what the Brexit "yes" vote would mean also weighed heavily on buyer sentiment, which left many sellers in areas including Chelsea and Knightsbridge with little choice last year but to chop their asking prices in a desperate attempt to entice buyers to open their wallets.
"Committed sellers increasingly understand the need to factor in both the additional stamp duty and economic uncertainty to their price expectations in order to attract still very cautious buyers, " said Lucian Cook, head of residential research at Savills U.K. in the report.
It seems that lower prices combined with currency savings thanks to a weak pound are having some luck in reviving London’s upmarket housing market, which had virtually grounded to a halt during late spring and summer after buyers rushed to beat an additional 3% stamp duty surcharge introduced on second homes and rental properties in April.
New figures from Lonres, a data firm, showed that a collapse in transactions is starting to ease. Sales of £1 million-plus homes in the three months to the end of July were running at about half the level recorded in the same period in 2015, but in the last quarter of the year had recovered to within 16% of 2015’s full-year numbers.
Savills’ own market intelligence suggests that from January to the end of November, there were around 320 sales worth over £5 million in London. This was 17% below those in that price bracket in the same 11-month period of 2015.
What’s more, contrary to some reports, the very top end of the market has been more active in 2016 than in 2015. In the 11 months to the end of November, £1.43 billion was spent on properties worth over £20 million, compared to £1.07billion in 2015, according to Savills.
"Price adjustments, coupled with the currency play for international buyers, appear to have triggered greater buyer commitment and prime London sales volumes picked up significantly in September, October and November before easing back in December," Mr. Cook said.
However, he cautioned that while recent market activity demonstrates the continued appeal of prime London property that’s priced right, buyer sentiment remains fragile.
"Improved transaction levels are the result of adjusted pricing and should not be seen as a precursor to price rises in the foreseeable future," he said. "High stamp duty rates and the uncertainty created by negotiations to leave Europe will still need to be factored into expectations on value".
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As a result, Savills is forecasting zero price growth in prime central London over the next two years, with a recovery-to-trend growth not coming until 2019.