Property bubble, what property bubble?
25 OCTOBER 2013
There is media debate as to whether we are in another property bubble at the moment and if we are when is it going to burst. My view is that we are not.
Today’s property market is very different from five years ago. A “property bubble”, defined by the frenzy of buying property in order to make a quick return, was seen just before the 2008 crash. Today there is none of that hysteria. Entry costs into the £2million plus market come with a 7% stamp duty making speculation a potentially costly business.
So why am I convinced that we are not in a property bubble at the moment when London prices have increased exponentially?
A clearly defining characteristic between now and five years ago is that whilst the London property market might have seen extraordinary growth, the country market is only now beginning to recover and is still substantially below its peak.
London is effectively a market in its own right, independent of the rest of the UK and seen as a safe-haven for international money. The increase in property values is a direct consequence of the shortage of stock. London is a great city to live in and overseas buyers are choosing to bring their families here to take advantage of, amongst other things, schooling. Driven by equity – Savills research showed that last year £92bn worth of property was bought with no financing at all – buying property has proved to be a good long-term investment.
The country market conversely is more dependent on the UK economy apart from pockets such as Oxford, Cobham, Esher and St George’s Hill, which like prime Central London are influenced by the international market. Green shoots are beginning to show and houses in the “best in class” categories continue to sell well but a full recovery is still a few years away.
As for the outlook. An interest rate rise is looming, an election with an uncertain outcome is a couple of years away and the threat of a mansion tax is very real. As long as London maintains its cultural integrity, openness and economic and political stability we are cautiously optimistic that the capital still has the potential for further growth.