When looking at the UK property market in early 2023, some see a glass half full while to others it’s half empty. Indeed, at the weekend, Alexandra Gross wrote in the Financial Times about a market stalemate in ‘London stalling.’ Meanwhile, the latest quarterly reports from the big estate agents reveal no surprises. To get a clear picture you should examine more than one side of the story.
When it comes to the situation on the ground, the latest statistics point to opportunities for buyers. Average prices in Prime Central London are 18 percent below the peak of 2014. In dollar terms, prices are still down 40 percent.
According to Coutts, 35 percent of prime listings have had a price cut. The average reduction is 8 percent compared to only 5 percent back in July 2022, according to LonRes.
For those looking to rent, for a while now the market in Prime Central London has been tight. In February, according to LonRes, new rental instructions in PCL were down 49 percent below the pre-pandemic average. Rental prices have increased 8 percent in the past year to a level that’s now 19 percent higher than before the pandemic. Almost all attractive properties are subject to bidding situations and some are snapped up before getting to the open market.
Most overseas investors are cash-only buyers. They don’t compete directly with domestic buyers faced with arranging a mortgage (which is more complicated these days) and who have had to lower their budgets substantially because of increased interest rates. Usually, international UHNWIs have two advantages: liquidity and speed. Sellers prefer to deal with decisive and qualified purchasers. That may be why they still constitute a large portion of purchases in Prime Central London. According to Hamptons, they made 48 percent of purchases from 2015-19, but the figure was down to 39 percent last year.
Then there are the prognosticators predicting a 10- to 15-percent property price fall this year and into 2024.
And on the political scene, a general election looms (in January 2025 or sooner), in which the opposition is expected to see large gains if not a takeover. That could mean changes to UK property regulation in terms of taxation and planning reforms.
Thus, the available data combined with projections from market experts make a less than positive outlook.
Local, microeconomic indicators are important. But the other critical, yet intangible, factor is always what’s on people’s minds. Sentiment—the other side of the coin in the decision process—is the right-brain, emotional element of how we make sense of the world.
Noise from social media and chat-group gossip about falling prices, creeping interest rates, and looming recession are like a goblin whispering in the ear. Even the most confident among us may feel fear, uncertainty, and doubt.
Potential buyers interpret these signals as reasons to hesitate. They may expect better terms if they just wait. Some then become renters, driving up prices and competition for already limited stock.
On the other hand, owners of prime property are not powerless. If prices do drop, they, too, may choose to hold on. They are not necessarily compelled to lower asking prices. High-end properties may not even come to the ‘off-market’ market. Instead, in the medium term they can get a good return from stable tenancy as the lack of supply in prime locations means rents are high.
Buyers don’t commit and sellers won’t budge. Gridlock.
We hear from some clients that they would like to wait and see if prices come down. But in our experience that is more likely in the mass/general market. The best-in-class properties that we recommend for clients tend to be resilient in the face of fluctuations and uncertainty.
For our clients, there are opportunities in the prime market—more activity and slightly more stock. It is possible to find a property that works for them. When they do, they are prepared to negotiate rather than hold out for an illusory price reduction. Conversely, those who don’t need to buy, don’t. But those who do, know to act. They have their funds on shore and available, with lawyers instructed and surveyors lined up.
Everyone will of course know that they can’t time the market. Clever buyers and sellers consider the property picture from both sides: rational and emotional. Taking into account time frames and value—the use of the property as a place to live and its performance as an investment—is a healthy approach to asset management.
Always take advice. A conversation with an objective professional can clarify your thinking and help you formulate a winning strategy.
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