Savills : Realistic pricing delivers a boost to prime London sales volumes

Higher taxes and political and economic uncertainty continued to suppress prime London residential values throughout 2016, but as prices became more aligned with buyer expectations of value so the market became more fluid, according to the latest data from international real estate adviser, Savills.

Average house prices across all prime London fell by -2.2 per cent in the final three months of 2016. This left values down -4.9 per cent year on year and -5.8 per cent since the shock stamp duty increases of December 2014 and subsequent announcement of a 3 per cent surcharge on additional homes effective from April 1 2016.

The highest value markets of prime central London continue to be most impacted by the stamp duty effect, with prices down by an average of -6.9 per cent year on year, against a Savills forecast of -9.0 per cent for 2016. This means that prime central London prices are down -12.5 per cent in total since the December 2014 peak.

By contrast, in outer prime London, where the average value is just below £2 million, prices fell -4.0 per cent in 2016 and are just -2.7 per cent down from where they were two years ago.

Table of prime London price movement

'Committed sellers increasingly understand the need to factor in both the additional stamp duty and economic uncertainty to their price expectations in order to attract still very cautious buyers, ' says Lucian Cook, Savills UK head of residential research.

'We saw a real dearth of transactions over the late spring and summer months following the race to beat the new 3 per cent surcharge. But further price adjustments, coupled with the currency play for international buyers, appear to have triggered greater buyer commitment and prime London sales volumes picked up significantly in September, October and November before easing back in December.'

According to data from Lonres, central London sales of properties worth over £1 million were 21 per cent down year on year in 2016. In the three months to the end of July, transaction volumes were running at about half the same period in 2015, but in the last quarter of the year had recovered to within 16% of 2015 full year numbers.

Savills own market intelligence suggests that from January to the end of November there were around 320 sales worth over £5m in London, with a total of over £3.7 billion spent in this part of the market. In volume terms, sales were 17 per cent below those in this bracket in the same 11 month period of 2015.

Contrary to some reports, the very top end of the market has been more active than in 2015. In the 11 months to the end of November £1.43 billion was spent on properties worth over £20 million compared to £1.07billion in 2015.

'Recent market activity demonstrates the continued appeal of prime London property at the right price,' says Cook. 'But buyer sentiment remains fragile. Improved transaction levels are the result of adjusted pricing and should not be seen as a precursor to price rises in the foreseeable future. High stamp duty rates and the uncertainty created by negotiations to leave Europe will still need to be factored into expectations on value.'

Savills forecast for prime London anticipates no price growth over the next two years, with a recovery to trend growth not coming until 2019. The forecast is for prime central London growth to total 21 per cent in the five years to the end of 2021.