Savills Research: Value of prime residential property in London up again

LONDON: Savills Research expects the introduction of the new 5% stamp duty tax on properties of more than £1 million (RM4.98 million) may provide a short boost to the central London market over 2010 and 2011 as buyers seek to complete deals before its introduction in April 2011.

The effects will be short term, however, and may slightly suppress house price growth over future years, Savills Research added in its latest Market in Minutes on Prime Residential Markets in London and the UK.

The research house expected -1% falls in central London values in 2010, although this market will be less exposed than the mainstream given the continued prospect of overseas demand and stock constraints.

Stronger rental growth should begin to push out yields by year-end, which may further encourage investors to central London.

Among the investors it will attract are from the Americas and South East Asia, it said, assuming the dollar-sterling exchange rate remains low.

“Supply levels of rental properties in prime central London continued to fall over 1Q2010 as temporary landlords become sellers, returning their properties to the sales market. Low levels of supply, along with stronger corporate demand has pushed up rents in prime central London by 2.8% in 1Q2010 taking rental values 5.1% higher over the last 12 months,” it added.

Savills Research said rental growth in prime markets of central London is heavily dependent on prospects for employment in the financial and business services sector. Latest estimates from Oxford Economics for central London suggest a further 6,000 job losses in the sector over 2010, which is a significant improvement on the 21,000 losses which were being predicted six months ago.

“Employment prospects are expected to be much more favourable in 2011 and we are already seeing increased levels of corporate demand in the market.

“Indeed, the Savills market strength indicator [comparing viewings, applicants, renewals and deals to numbers of properties available to let], highlights a supply/demand imbalance in Central London that has caused rental values to pick up over the last nine months. We would expect some growth in rents to continue throughout 2010, gathering momentum once the employment market turns positive into 2011,” it added.

Comparable levels of rental and capital growth over 1Q saw yields in central London stabilise at 4.2% gross, it said.

On the property sales market, 1Q2010 saw growth of 3% in the value of prime residential properties in Central London. This means values are 17% higher than 12 months ago and just 10% lower than their peak in September 2007.

“However, the rate of growth has started to slow as new demand has begun to weaken against slightly rising levels of supply. Values of flats grew more strongly over 1Q, boosted by international buyers seeking real estate investment opportunities within London to capitalise on the opportunities presented by continued weakness in sterling.

“This same weakness in sterling has discouraged international vendors from selling up and has limited any increase in stock levels which might otherwise have been expected in improved market conditions. As such, values of flats in prime central London rose by 3.9% over 1Q. In contrast, the house market, characterised by occupational demand often for use as a second home, rose by just 2%,” Savills said.

The prime regional property prices, meanwhile, grew by 2% over 1Q2010, with growth, while positive, continuing to lag behind that of prime central London.

“Since values bottomed out in the regions in 1H2009, the South East has led the recovery with a 10.4% upturn in values. The ripple effect out from London has continued into 2010 with the Eastern region reporting the highest growth in 1Q [3.8%],” it added.