This is one of the questions we are asked most often which is a variation of the classic “is now a good time to buy?”.
The honest answer is that nobody knows. If a nuclear bomb went off in Knightsbridge next week then the answer would clearly be no. However, one does have to ask, what are the chances of that happening? So today I want to look at the bulls’ arguments for the London property market:
- Lack of supply. In 2012 934 properties sold for over £1m in the Royal Borough of Kensington & Chelsea. In Westminster the figure was 856. The population of RBKC is c. 175,000, so when you factor in international demand in addition to UK demand it shows how few properties sell in this price range.
- The potential for large new developments is limited due to planning restrictions and lack of land. Hence the absence of skyscrapers in these areas.
- Areas on the fringes of prime areas, e.g. Fulham, Brook Green and Battersea are benefitting from the increased prices in prime central London and have recently outperformed.
- Huge demand from overseas – just see the sales of Embassy Gardens and Battersea Power Station recently. Also One Hyde Park, The Lancasters and Holland Green. 72 different nationalities bought property in PCL last year. There is also huge investment into the commercial as well as residential sector by sovereign wealth funds and pension funds.
- Low interest rates – borrowing is as cheap as it has ever been. Meanwhile the perceived risk/reward of investing in shares has become less appealing for many investors who are still scarred by 2008. PCL has outperformed during this period.
- Sterling is weak – probably the single biggest reason for the increase in international demand since 2009
- Meanwhile, the “recovery” seems to be taking hold so there is new found confidence.
- Safe Haven Status – the U.K. is politically stable and buyers can be confident of clear legal title to their property. Unfortunately the troubles in the Middle East and North Africa seem likely to continue. Meanwhile many Russians are concerned about Putin’s plans for the country.
- Education – The U.K.’s schools and universities have an excellent reputation abroad. London is therefore a perfect base for many international families
- London is one of the major global financial and cultural hubs
So, taking all this in to consideration it would seem that the prime London property market is likely to power onwards IF nothing changes. But how likely is that? What are the “known unknowns” and “unknown unknowns”?