London’s prime central property market is set to grow 21.5 per cent over the next five years, according to real estate consultant Savills, which upgraded its outlook for the sector to reflect pent-up demand from wealthy overseas buyers.
Savills said it’s more positive forecast came on the back of the extended stamp duty holiday, as well as better availability of mortgage finance and the effect of repeated lockdowns on what affluent buyers want from their homes.
However, the sector is also expected to receive an uplift from overseas buyers after the government eased travel restrictions for international visitors from certain countries earlier this month, including the UAE, which was moved from the red list to the amber.
Alex Christian, director, Savills Private Office, said the recovery of the prime London market was hit by the delayed easing of travel restrictions, but there are already “green shoots of recovery”.
“Since quarantine restrictions were dropped for fully vaccinated travellers from Europe and the US earlier this month, we have already seen a flurry of activity from overseas clients, particularly from families who are keen to enter the prime London market before the new school term starts in September,” Mr Christian said.
“Now that the requirement for hotel quarantine has also been dropped for residents of the UAE and Qatar, many of our contacts have also started to get in touch regarding plans to visit the UK later this month and into September, as they seek to take advantage of the historical value on offer in the Capital. This should have a relatively profound effect on the prime market in the coming months.”
High quality, "turn-key' homes, and ‘lock up and leave" flats are in highest demand from prime overseas buyers, Mr Christian said, however, a lack of stock on the market continues to act as constraint.
“As such, the opportunity to take advantage of lower prices – and strong forecasted growth – will not be around for long," he said.
The company expects prime housing market across the whole country to grow 9 per cent this year, up from an earlier forecast of 5 per cent, while the five-year forecast has been boosted to 25.1 per cent from 20.5 per cent, led by London’s suburbs, up 26 per cent, and the wider south, up 25.7 per cent, which have hugely benefited from buyers relocating from more central locations.
“Some sellers operating in the prime market have been relatively reluctant to bring their properties to the market over the past year, in part due to the concerns around the risks that Covid-19 presents, but also because of the lack of available properties for them to buy. With fewer properties available to meet demand, prices have increased more rapidly than previously predicted," said Frances Clacy, a research analyst at Savills.
“But, as lockdown restrictions have been lifted and the vaccine rollout continues at pace, more stock is likely to come to the market. As such, a readjustment in buyer and seller expectations will be crucial to maintain the current market momentum.”
Britain’s property market surged 8.5 per cent last year after Chancellor of the Exchequer Rishi Sunak unveiled a stamp duty holiday in July last year to bolster the market.
A desire for more space and a new life outside cities also inspired many to relocate as the work-from-home trend took off and people become frustrated by being stuck in smaller properties during a series of UK lockdowns.
The number of Londoners buying homes outside the UK capital soared to a record high in the first half of this year, according to a recent Hamptons report, as the pandemic encouraged residents to quit city life and buy elsewhere in Britain.
However, UK house price growth cooled in July to 7.6 per cent, growing at its slowest rate since March in a signal that the tapering of the stamp duty holiday is taking momentum out of a red-hot property market.
While prime central London values have increased over the past year for the first time since late 2014, they only grew by a marginal 0.5 per cent.
However, prices are expected to escalate more significantly in the second half of this year, ending 2021 3 per cent up followed by a strong bounce of 8 per cent in 2022 due to the easing travel restrictions
Prime central London flats market, in particular, have lagged as it tends to be more dominated by those from overseas and those seeking a pied-à-terre for use mid-week.
Meanwhile, outside of London, country houses and coastal locations in the £2m-plus category have seen substantial surges in demand but constrained supply and this has led to annual price growth of 12.9 per cent and 14.6 per cent respectively.
Looking ahead, Ms Clacy said values are set to continue rising but price growth will soften amid rising interest rates and higher taxes, particularly for overseas buyers.
“Both may reduce buyers’ spending power, which will limit price growth in the medium to long term,” she said.