This week we discussed Algebris Investments’ ranking of the world’s largest financial bubbles. London property ranked second on the list, behind Australian property (see here). There is growing evidence the former is bursting. In its October 2017 survey, the Royal Institute of Chartered Surveyors (RICS) reported the largest proportion of respondents seeing a drop in London house prices versus the previous month since 2009. The net balance at nearly two thirds (-63%) in the capital contrasted sharply with a national average which was marginally in positive territory (+1%). The RICS data corroborated yesterday’s Bank of England’s regional agents’ report which highlighted “signs of excess supply in London and the South, but some excess demand in most other parts of the United Kingdom”.
According to Bloomberg.
London’s housing market is being battered from all sides. A survey by the Royal Institution of Chartered Surveyors showed a price gauge at its lowest level for seven years, and far below the national average.
Real-estate agents are more pessimistic about the market in the capital than any other region, with contributors flagging a potent mix of concerns, including Brexit uncertainty, the Bank of England’s interest-rate hike and the government’s budget later this month.
Speaking to the FT, RICS’ chief economist gave his take on what’s causing the weakness, surprisingly only referring to Brexit indirectly.
Simon Rubinsohn, RICS chief economist, said various factors - including higher cost of moving, a lack of fresh listings and political uncertainty - seemed to be taking their toll on market activity, with first-time buyers focused on Help to Buy properties rather than the existing housing stock.
“With both buyer enquiries slipping and sales expectations also subdued, the sense is that homeowners are staying put,” he said. “A stagnant second-hand market is bad news for the wider economy.”
Besides London, the RICS survey showed that house prices are declining in three other regions, two of them being “commuter-able” to London – the South East and East Anglia – as well as the North East.
As far as the outlook is concerned, the RICS survey painted a negative picture with the majority of respondents expecting further price falls in London. Furthermore, the price weakness is expected to spread beyond London and the three other regions to include the South West and the West Midlands. On a national basis, the balance of respondents expecting house prices to fall was -10%.
Bloomberg listed some of the respondents’ comments about the London market.
Buyer Interest Collapse
“We usually have buyers registering, keen to move before Christmas, said Alan Fuller of Allan Fuller Estate Agents in Putney. “So far we are registering 80 percent less than normal during October. Vendors more receptive to price drops and some are agreeing to 10 percent reductions, which are then attracting interest.”
Limited Transactions
“October saw buyers more prepared to make offers, many at levels that vendors (who are under no pressure) are not willing to accept, limiting the value of transactions,” said Robert Green of John D Wood & Co. in Chelsea.
Brexit Uncertainty
“The market is slowly adapting to higher” stamp duty, said Christopher Ames of Ames Belgravia, “but still not coping with the Brexit uncertainty.”
10% Below
“Market remains active up to 1.5 million pounds, whereas above 2 million pounds offers are coming in around 10 percent below asking,” said JJ King at Andrew Scott Robertson in the Merton borough. “Instruction levels are slowing although valuations are up.”
Luxury Homes
“The prime London market shows signs of regaining momentum,” James Crawford of Knight Frank said. Simon Aldous of Savills disagreed, saying prices across the best districts are continuing to soften with the greatest falls at the top end of the market.
Suppressed Demand
“Brexit uncertainty and stamp duty continue to suppress market activity,” said James Gubbins of Dauntons in Pimlico. Terry Osborne of Tuckerman Residential in the SW1 post code was even more succinct with his one-word summary of the market: “Brexit.”
The comment which caught our eye more than the others concerned the E2 post code. Not only does it border the City of London, but parts of it have become very “trendy” in recent years.
East London Crash?
“The sales market has dramatically changed and technically crashed across the board,” said valuer Josh Homans. “In E2, the difference between asking and sale price is a staggering 20 percent.”