More pain could be around the corner for London’s luxury housing market, as economic uncertainty saps demand among the city’s richest homebuyers.
(Bloomberg) — More pain could be around the corner for London’s luxury housing market, as economic uncertainty saps demand among the city’s richest homebuyers.
Transactions across prime London — which includes the capital’s most affluent postcodes — fell by almost a quarter in September from the same month a year ago, according to data from researcher LonRes. That’s prompted the average sale price to drop 3.1% in the same period, the largest annual fall in over two years.
Deals for homes priced between £2 million ($2.4 million) and £5 million underperformed the most, declining by more than a third year-on-year in the third quarter.
“The lack of activity does finally appear to have caught up with values,” said Nick Gregori, head of research at LonRes. “There is a risk that negative economic news in the UK and the escalating conflict in Israel and Palestine could further weaken buyer sentiment.”
Read more: Luxury London Home Sellers Cut Asking Prices to Keep Deals Alive
Rising borrowing costs, economic uncertainty and the worst cost-of-living crisis in a generation have driven a slowdown in the UK property sector this year, with sellers increasing their asking prices at the slowest pace for any October since 2008. While London’s luxury housing market is more insulated from such headwinds, with buyers typically less debt-dependent, negative sector sentiment and wider economic concerns are impacting demand across the quality spectrum.
The number of properties going under offer in prime postcodes — billed as a leading sales indicator by LonRes — dropped by 27.4% in September, compared with the same month in 2022, suggesting the picture may worsen in the coming months. One consideration is fewer people choosing to live in London for work, as remote working trends continue, the report said, evidenced by underground and bus travel plateauing at less than 80% of 2019 levels.
Agents also suggest a dearth of international buyers — historically among the keenest investors in prime London real estate — may be to blame for slower activity. Economic uncertainty and a less welcoming tax and business environment were cited as possible deterrents for foreign investors.
Read more: UK Home Sellers Restrain Asking Prices as Economic Gloom Grows
Still, insatiable demand for London rental homes showed signs of easing last month, with prime properties taking slightly longer to let than a year ago. Regardless, the annual rental growth across prime London was 9.3% in September, taking values 31% above their pre-pandemic average.
Meanwhile, the less debt-reliant nature of London’s luxury housing market means the costliest home sales are holding up better than cheaper deals. Sales for properties priced at £5 million or more were up by two thirds between July and September compared with the average for the same quarter from 2017 to 2019, the report said.
“Prime London values are well insulated by high levels of equity in the market and limited numbers of ‘forced’ sellers,” LonRes’s Gregori said. “There has also been relatively low price growth over the last decade, which suggests there’s less froth to come off this market than others.”
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