After a summer of dreams what next - Market Report September 2012

There is universal agreement that London has been the star of the summer of 2012 and its global branding has been massively enhanced by the events and images beamed all over the world. Even the most sceptical “Brit”, brought up on a diet of national self-deprecation and glorious of failure, can only have been hugely impressed by the creativity and the slickness which has just rolled on through the summer from Jubilee to Olympics to Paralympics. In the Jubilee pageant, it was the River Thames and its hinterland at centre stage and the creation of sporting venues in such landmarks as Horse Guards parade, the Serpentine and Greenwich Park together with the magnificent Olympic park and stadium have glorified London’s real estate in the eyes of the world. For London residential property, this can have done nothing but good.

In the shorter term, it is more prosaic issues such as supply and demand, finance and politics which drive prices in Central London. Everyone knows that prices have risen significantly over the last five years, even allowing for a dip in 2008 / 2009. To give an idea of the scale of price increase, in 2007, in D&G land as a whole, it took the sale of approximately 14,000 properties to realise a total of nearly £8m in sales. In 2011/12, it has taken the sale of approximately only 10,000 properties to realise the same total value. Lower volumes are not down to less demand but less supply and it is oversupply that normally knocks values. Compared with the summer of 2011, the stock of property available to sell is down 9%, whilst applicant applications are almost exactly the same. Overall, prices have increased by approximately 6% in the first half of 2012, so are on track to meet our prediction of 8% in the year as a whole. Perversely, we believe that more instability in the world as a whole – a deepening Euro crisis, the Arab Spring, a changing of the guard in China – the more London will draw in capital and push prices higher. On the negative side, our politicians are grappling with immigration worries, a desperate need to raise revenue with “rich” foreigners an obvious target and a series of regulatory issues surrounding the City, a major force in the UK economy. How they deal with these will influence investment decisions in London.

In the rental market, our prediction of a 4% increase in rental values in 2012 is looking overcooked. Even though tenant applications year on year are up by 11%, property available has increased by 25%. Whilst the percentage is significant, the applicants per property ratio has only reduced from 10.2 to 9.1. Overall, ratios will disguise significant variations both by location and type of property, so if you are looking to let your property, ask your local D&G office for advice.  In the first six months, rents have been broadly flat with a 0.1% decrease.

Michael Hodgson