While the UK’s vote in favour of Brexit triggered some short-term uncertainty in the prime London property market, it is important not to overstate its impact. Price growth had been slowing for two years in prime central London, an area broadly confined to zone 1 on the London tube map.
It is a similar story in prime markets between zones 2 to 6, with weaker growth in areas like Barnes, Hampstead and Canary Wharf. More affordable boroughs, such as Waltham Forest and Lewisham, have fared better and continue to post stronger growth.
Why the slowdown? Well, despite the headlines focussing on the impact of Brexit, a much wider range of issues has impacted performance. The slowdown in central London followed a period of strong growth as the market cemented its reputation as a safe-haven following the financial crisis.
Robust growth led to robust headlines and the London proper ty market became more interesting to politicians in need of additional tax revenue. Ensuing stamp duty rises acted as a fur ther brake on the market, leading to a stand-off between sellers, who were reluctant to cut asking prices, and buyers, who faced increased purchase costs.
Ironically, the surprise of the EU referendum result has led to more realistic pricing. While the market remains weaker than 12 months ago, most sales are continuing, provided asking prices have adjusted to the more subdued market conditions.
What has also become clear since June is that demand to be in London remains very strong. Weak Sterling is an added incentive for some buyers. As an EU deal takes shape, the UK’s absence from the bloc is unlikely to deter many from living in one of the most significant cities on the planet. In this current market, the prosaic truth is that buyers are primarily seeking good value.
Furthermore, we are not building enough homes in Greater London. This structural undersupply par tly explains the relative robustness of prices in London following the economic and political fallout from the referendum.
From an investor’s perspective, it should also be remembered that there are few satisfactory answers to the question “where else do I put my money?” The bond market? If your yield is not negative it will probably be as low as it has been in several centuries. Hedge funds? Even the smartest investors in the room are struggling to second-guess central bankers and the main indices don’t make good reading. Stock markets have been pumped up by QE money and looked due a correction this summer.
Securing a double-digit return on a London proper ty investment is not as straightforward as it once was. But if your homework goes beyond the latest newspaper headlines, buying bricks and mor tar in London remains a sound decision, Brexit or no Brexit.