Are green shoots appearing in prime London resi market?

London’s beleaguered prime residential market appears to be showing the first tentative signs of recovery.

Prices fell by just 0.3% in the first quarter of this year compared with 2.2% in the final quarter of last year, reveals the latest data from Savills.

Although values remain 13% down on 2014, having been hit by stamp duty rises and the EU referendum, Savills believes the market “is bottoming out” and predicts a fall of just 1% total for the year.

It also highlights the recovery in transaction volumes, which it suggests should give developers more confidence in their ability to sell their own schemes, albeit at reduced prices.

Increased sales activity

Falling prices had made life difficult for some of the capital’s biggest developers. For example, the Battersea Power Station Development Company and Capital & Counties both reported sharp declines in sales rates for 2016, prompting the former to earmark more space for commercial at the expense of residential at its landmark Battersea scheme.

This year got off to a strong start, however. In January, more homes were transacted above £1m than in January 2016 or 2015, notes Savills. In March, volumes were ahead of 2015 levels although below last year’s because of the rush to beat the rise in stamp duty introduced last April.

It’s going to be a sore-tooth market because of the inherent uncertainty around Brexit - Lucian Cook, Savills

“That gap [between buyers’ and sellers’ expectations] is beginning to narrow and that’s making the market more liquid,” says Lucian Cook, head of UK residential research at Savills. “It’s going to be a sore-tooth market because there’s just that inherent uncertainty around Brexit, but it looks like it’s a bit more fluid. There has been a progressive improvement in transactions.”

Charlie Walsh, director, head of sales, at Indian developer Lodha, believes that the main factor still depressing the market is oversupply in areas such as Nine Elms, City Road and Canary Wharf. Other areas have fared better, he says, citing Mayfair, which was “pretty static” in 2016 but has picked up since the turn of the year.

“[Homes are selling] at values that are not dissimilar to what they were pre-23 June last year,” he says of the Mayfair market. “People realise the world is not ending because of Brexit, and there’s definitely a bit of fuel coming from the overseas market from the currency play.”

The improvement follows months of “pent-up demand” where buyers “sat on their hands”, he says, adding that “now they need to buy houses”.

He adds that this is reflected in demand for schemes such as Lodha’s Lincoln Square scheme, which has yet to be built but is now already around a quarter sold - in line with targets the company set before the EU referendum.

Ben Wilson, founder of prime developer Residence One, is certainly confident London will retain its “inherent value”. “It’s not Ireland or Spain or Dubai - schools, jobs and wealth are to be made,” he reasons.

Weather the storm

He adds that the company, which is marketing a £25m house on Chester Square near Victoria, views the downturn as it would any other dip in the market: if developers have “a really good product” and “realistic prices”, there are sales to be made. “Sometimes that becomes profit; sometimes it’s an arse-covering thing.”

Developers, therefore, are happy to weather the storm - and the uptick since the turn of the year has been a real fillip to the market. In Walsh’s words, “the wheels are turning”.

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