Prime central London property now showing negative annual growth

Key Highlights:

• Prices for prime central London residential property dropped by 1.3% in August, the fourth consecutive month of price falls
• As a result annual growth for the sector is now negative for the first time since 2003, with homes now worth 1.6% less than a year ago
• The super-prime sector (£10m+) has become completely detached from the rest of the market, with prices rising by 2.9% in August alone, contributing to annual growth of 19.0%
• Properties in Mayfair are also weathering the storm better, with annual growth still registering at 10.3%
• The cheaper the property, the more vulnerable it is to price falls – properties worth under £1m are now worth 9.2% less than a year ago

Liam Bailey, Head of Residential Research at Knight Frank, comments:

“For the first time since 2003, annual price growth for prime residential property in Central London has dropped below zero. Prices in the capital’s most expensive areas have now reverted to approximately the level they stood at in July 2007, following four consecutive months of falling prices, although this month’s fall of 1.3% was slightly lower than those recorded in July (1.6%), June (1.7%) and May (1.5%).”

“However, performance is by no means uniform. More expensive properties, notably houses, continue to hold their value far better than cheaper properties, which in prime London tend mostly to be flats. For properties priced between £5m and £10m, for example, prices are still 1.3% higher than a year ago – but for homes worth under £1m values are now 9.2% lower than in August 2007. Nevertheless, prices fell during August for all categories below £10m.”

“Over the past few months, we have noted that ‘super-prime’ properties worth more than £10m have proved immune from the downward trends elsewhere. There are now signs that the gap between this sector and the rest of the market is growing. Price growth accelerated from 1% in July to 2.9% in August, meaning that super-prime properties are now worth 19% more than a year ago.”

“It is clear that the buyers of such homes have been relatively unaffected by the credit crunch. Indeed, spiralling commodities and oil prices are continuing to enlarge the incomes of many international ultra high net worth individuals, as well as some domestic hedge fund and private equity chiefs.”

“Buyers of prime homes beneath £10m are more affected by pessimism in the financial services sector, particularly relating to the size of this year’s bonuses. Also, homes below £1m are more vulnerable to the difficulties in accessing mortgage finance, which show no sign of easing.”

“Well-located, well-presented properties are still attracting competitive bids, which may explain why Mayfair, which contains a number of ‘trophy’ properties in various price bands, is outperforming other neighbourhoods within the prime Central area.”

“The main casualty of the slowdown, however, has been transaction volumes, which are 46% lower than at this time last year. New instructions have also dropped, with many potential vendors opting to stay out of the market, presumably until conditions improve.”

“Aside from the slight slowdown in price falls seen in August, there are other signs that the market may be on the verge of stabilising. Viewings continue to increase and are at historically high levels, suggesting that there is a great deal of pent-up demand, with potential buyers eyeing the market and waiting for signs of recovery.”

Courtesy: Knight Frank Residential Research

For further information, please contact:

Liam Bailey, Head of residential research, Knight Frank
Tel: +44 (0) 20 7861 5133
Mob: +44 (0) 7919 303148
Email: [email protected]

Davina Macdonald Lockhart, Residential pr manager, Knight Frank
Tel: +44 (0) 20 7861 1033
Mob: +44 (0) 7796 996154
Email: [email protected]