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TODAY'S OTHER NEWS

How has the prime London market fared in 2021 so far?

The annual price decline in prime central London (PCL) was 4.3% for the third consecutive month in January, while average rents fell 13% in the year to January, according to Knight Frank.

Its latest Prime London report analysed how the sales and lettings markets performed in the first month of the year. We outline the key findings below.

House prices dip amidst supply/demand imbalance

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House prices in prime central London fell 4.3% during the year to January – a figure that has remained steady for three months, suggesting that house prices are broadly flat for the moment.

Meanwhile, average prices in prime outer London fell 2.9% in the year annually, which was the smallest decline since the first national lockdown last March.

The number of transactions in PCL was 12% higher in January than the same month last year, highlighting how the release of pent-up demand after the market reopened last May is translating into exchanges.

Knight Frank recognised an emerging supply/demand imbalance in prime London markets that is keeping upwards pressure on prices. The number of new prospective buyers was 14% higher than the five-year average in January. At the same time, the number of market appraisal valuations was 27% below the five-year average as more sellers than buyers hesitate during Lockdown 3.0.

Analysis of transactions over the course of 2020 also shows the impact of stronger domestic demand. The £5-£10 million price bracket in PCL experienced the biggest jump in the number of sales, rising 16.1% from 2019 – the largest increase since 2013. Exchanges, meanwhile, fell 10% across all price brackets in PCL.

The data also reveals the differing reliance on domestic and overseas buyers across various markets. The spread between the annual price growth in Greater London (9.6%) and PCL (-4.3%) in November was 13.9%, underlining the extent to which domestic demand has sprung back in the capital.

This means any impact on prices by the April introduction of the 2% stamp duty surcharge for overseas buyers is likely to be muted.

Tom Bill, head of UK residential research at Knight Frank, comments: “The absence of international travellers means we are in the unique situation of having a stamp duty surcharge that is largely baked into the price before it is introduced.”

“Overseas buyers will need to take this weaker performance into account once restrictions are lifted and price negotiations restart.”

Growth in supply puts pressure on asking rents

Average rents in prime central London fell 13% in the year to January amid high levels of supply. The trend was less marked in prime outer London, where rents fell by 10.7% annually.

The declines have been smaller in some leafier parts of the capital, where the supply of lettings property has been kept in check by a relatively buoyant sales market.

A high number of properties switching from the short-let market has been a feature of the lettings market in the capital since the pandemic, which has been exacerbated during tighter lockdown restrictions.

The number of market valuation appraisals for the lettings market rose by 63% versus the five-year average in January, highlighting how supply levels continue to rise.

Meanwhile, the number of tenancies started in January was 19% ahead of the five-year average in London, underlining how activity levels remain strong despite falling rents.

The last time annual rental declines were as big was in 2009 during the global financial crisis, when average rents in PCL fell 17.8% in the year to September 2009.

David Mumby, head of prime central London lettings at Knight Frank, says prime London rents have ‘undergone a fundamental reset’.

“Rents are falling, and I think the trend will continue until the airports re-open and we see the return of international travel,” he says. “We are not being inundated with new stock at the same rate as last year, but supply levels are still high.”

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