London real estate is on the road to recovery, according to a new report from the British real estate agency Knight Frank.
Average home prices in prime central London remained flat in September, according to the Knight Frank Prime Central London Index, which was released Monday. Compared to last year, prices are down 4.6%, the lowest drop since October 2016.
“Annual price declines have shown signs of bottoming out since the start of this year, when a rate of -6.7% was recorded,” Tom Bill, Knight Frank’s head of London residential research, said in the report.
The uncertain post-Brexit political climate in Britain is one of the factors affecting home prices, according to Knight Frank. Another is the higher tax rate, which has forced some sellers to bring down prices to essentially cover the purchaser’s additional tax rate.
The high-end side of the market is outperforming more modestly priced homes, the index reported. Prices declined just 2.3% for homes between £5 million and £10 million (US$6.6 million and $13.1 million) in the year to September. But homes priced between £1 million and £2 million (US$1.3 million and $2.6 million) saw a decline of 5.3% in the same time period.
This indicates “how higher rates of stamp duty that initially affected demand at the top end of the market are becoming assimilated,” Mr. Bill said.
Still, there’s been a 4.9% uptick in the number of registered prospective buyers since January, compared to last year. Viewings are up 8.9% and transactions rose 9.8% between January and August.
“However, buyers remain cautious and transactions are taking longer to undertake,” Mr. Bill said. “There is also a degree of more restraint on the supply side, with levels of new stock coming to the market declining.”
According to the report, there was an 18.2% drop in new listings above £1 million between January and September compared to the same period in 2016.
This drop in supply on the sales side translates into a slightly higher number of rentals in central London, Knight Frank said.
“Higher supply was the result of slower activity and pricing uncertainty in the sales market following a succession of tax hikes, which meant more owners decided to let rather than sell,” according to Mr. Bill. “However, this trend has started to reverse as asking prices adjust and demand improves.”
The number of rentals that came on to the market between January and August was up 2.2% year-over-year, the report said, compared to a jump of 33% between 2015 and 2016.
“Average rents were down 3% year-on-year, the most modest decline since June 2016, underlining how a slowdown in new lettings stock coming onto the market is putting upwards pressure on rental values,” Mr. Bill said.
Additionally, there has been a 19.6% increase in prospective renters since January of this year, with a 25% increase in apartment viewings, according to the report. There’s also been a 19% increase in signed leases.
“The imbalance between new levels of supply and demand suggests the market balance is likely to tip back in the favor of landlords,” Mr. Bill said.
The Knight Frank Prime Central London Index is based on a repeat valuation methodology that tracks capital values of prime central London residential property.
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