Massive Developer Discounts – An Opportunity or a Trap for Property Buyers?

In prime central London 482 properties were sold during the first quarter of 2016 according to Strutt & Parker.

This was an overall decrease of 21% when compared to the same period in 2015.

The 2015 figure was also low due to the uncertainty caused by the General Election and fears of a Labour victory/mansion tax.

The more histrionic commentators see the fall in transaction numbers as conclusive proof that the prime London property market is in the early stages of a massive crash. Prices have dropped in the higher price ranges as a result of lower demand caused by:

1. Increased SDLT costs
2. Increased uncertainty caused by the EU referendum

Of course, the statistics used are extremely general and fail to give an accurate picture. And understandably (from a journalists point of view anyway), the more eye-catching the stat the more it will be used. Hence reports of quiet showrooms and massive price falls in the new build developments are easy fodder.

Now I have said this before but I am going to repeat this point as it is so important:

The high density new developments are not a good proxy for prime London property.

1. They only represent 10% of sales in the London market.
2. Many were built and targeted at Asian buyers in particular – consequently they are a better indication of sentiment in Asia at the moment

Unfortunately such distinctions are overlooked by people trying to sell newspapers (or more accurately advertising space in newspapers).

So is now a buying opportunity or a trap?

Well as ever it depends on what you are planning to buy. I think that many new build developments are still vastly overpriced despite some discounting happening at the moment. To give you an example, last week I was offered a penthouse for £13.5m and was told they would accept offers. It was originally on the market for over £18m.

The problem with the original asking prices in many of these developments is that they were artificially high. I am not saying £13.5m is still too high, but in many cases a developer’s reduction in price of 8% and the fact that the furniture pack is now free doesn’t necessarily equate to good value.

There will be opportunities to cherry pick some apartments in these developments at favourable prices but I am not convinced we are there yet. Conversely, I do think that there are opportunities in the traditional London market. The main reason for this is that most people are holding off buying because they think there is a systemic problem. I disagree completely:

1. The falls in prices are the market reacting to increased transaction costs. This is natural
2. Interest rates are very low and financing is very affordable
3. Employment is at historic highs
4. The new build market is not a reflection of the traditional market (I will keep repeating this!)
5. Markets hate uncertainty – the EU referendum

The market is actually on pretty strong foundations. It simply is not set up for a crash like it was in 2008. The banks have been very careful with their lending, the London economy is actually very strong (you only need to see how hard it is to rent or buy office space) and London is still one of the top two cities in the world.

The best opportunities in the traditional market are likely to be bought before the EU referendum because certain sellers have bought into the media hype and are worried about a crash (although you should note that the majority are not and are simply withdrawing their properties from the markets – another sign that we are not in a distressed/crash scenario).

Nevertheless, if you want to wait until after the EU referendum that is totally understandable. I don’t expect a massive jump in prices afterwards although there will be more competition for the best properties.

But what I can guarantee is that the pundits in the press will continue to call for a crash in prime London property prices. They are likely to quote the strengthening pound and the continued issues in the new build developments as proof that prices will fall dramatically.

You cannot allow yourself to be influenced by the press. For more proof of how the press, city analysts and economists continually misjudge London property prices simply click here to read Boom or Bust – What next for London Property Prices?

To have a chat and discuss your plans get in contact with us at London Property Finders