Annual price growth in prime central London fell to 2.8% in April, the lowest rate since November 2009 and is unlikely to change much this year, according to a new market analysis.
Growth has been on a downwards trajectory in recent months ahead of the general election, but the Conservative Party victory suggests April is likely to mark the low point in the cycle, says the analysis report from Knight Frank.
According to Tom Bill, head of London residential research at the firm, the principal effect on the prime London listing market is that the election result has removed the prospect of a mansion tax on listings worth more than £2 million.
‘We believe this will lift transaction levels but the extent of any short term boost to prices is less clear cut. It will also be significant to note to what degree the opposition Labour Party moderates its policies around wealth creation and taxation and whether this reduces the rhetoric of the wider economic debate,’ said Bill.
He believes that following the Conservative Party general election victory, several short term outcomes are likely. ‘First, numerous transactions put on hold pending the outcome of the vote will proceed as the risk of further listing taxation appears less of an immediate threat. Other sales will progress simply because the election is over and a deeper sense of political uncertainty has receded,’ he explained.
‘As the logjam unblocks, it is likely to be accompanied by a hardening of expectations on the part of vendors over asking prices and some will expect prices to immediately rise as a direct consequence of the election result,’ said Bill.
‘In the short term, the impact on pricing is likely to be less marked than some expect due to the quantity of listings coming onto the market. Many vendors lined up sales for Monday 11 May, irrespective of the outcome of the election. Also this short term increase in supply is likely to exceed any uptick in demand. Activity in the prime London market has dampened in recent months as buyers and sellers factor in political risks but also as they digest measures like the stamp duty increase,’ he explained.
‘The market is in the final stages of absorbing these changes, meaning some buyers will still proceed with care. Furthermore, some prospective buyers will have signed rental contracts as they hedged their bets on the outcome of the election, meaning they are unable to act for several months,’ he added.
Bill also pointed out that there is likely to be a short delay before a supply/demand equilibrium returns and a likely ‘expectation gap’ between asking prices and the prices that new and newly active buyers are prepared to pay.
‘However, price growth is likely to return more quickly in markets that have underperformed the prime central London average, including areas in Kensington and Chelsea where there has been low single digit annual growth in recent years,’ he said.
Bill explained that areas with low stock levels where a series of high quality listings comes onto the market, are likely to see price growth outperform the average in a prime London market where demand is increasingly product rather than postcode driven.
‘Despite the election result, it would be wrong to believe there will be no further political measures that may impact the market. The Conservative Party may tighten up the rules surrounding non-dom status or review the current council tax bands. Knight Frank forecasts negligible growth in 2015 in prime central London and 3% in prime outer London,’ Bill concluded.
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Source: Property News Spain