Investors exit London prime real estate market en masse

12

July

2017

London’s Prime Real Estate Hits Bear-Market Territory

If you thought Brexit had the potential to hit the massive London prime real estate market at some point, think again. It already has.

Prices in London have been tumbling at the fastest and steepest rate since the 2008 financial crisis, and from the viewpoint of international investors, top-quality London homes have now entered bear-market territory — meaning a fall of more than 20% from the top.

Thanks to the plunge in the British pound since last year’s referendum on European Union membership, the price index of “prime central-London” properties is now down a staggering 23% from its 2015 peak when measured in US dollars, sliding 17% in just the past year.

That’s an alarming amount of volatility for an investment generally considered extremely safe, and punctures the myth that the only direction for the city’s property market is up.

Henry Pryor, a veteran buyer’s agent who’s been active in the London market for more than 30 years commented: “We’ve frightened off the savvy international buyer,” adding that price falls “have further to go”. Pryor estimates that at the top of the market —homes selling for around £20m and up — prices have fallen 25% in sterling terms.

London property has been one of the most astonishing asset classes in the world in recent decades, and it has become a major portfolio element for the international super-rich. Over the past 40 years, prices in central London have risen 50-fold, according to real-estate agency Knight Frank. That is twice the rise in the Dow Jones Industrial Average DJIA over the same period.

Downward Pressure Result of UK’s Uncertain Political Landscape

Britain’s forthcoming exit from the European Union, the political turmoil in the wake of the recent election, new taxes on transactions, and sky-high prices have all come together to send the London prime real estate market into reverse.

Experts here say that the boom earlier this decade caused developers to launch a massive wave of new buildings, many designed to appeal as investments to the international wealthy.

And while the Brexit shock has slowed the launch of new developments, those already underway really have no choice but to carry on to completion.

Rental Yields Offer No Value in London

At the top end of the market, rental yield on luxury properties are averaging around 3%. When you bear in mind that inflation in the UK is running at around 3% a year – a landlord effectively earns nothing in return for his or her capital and trouble.