Understanding the property market

Shortage of supply continues to drive the prime residential markets in which we operate, in both Central London and the country.

In the last few years these markets have gone through a rollercoaster ride, following the fall-out of the credit crisis and a worldwide downturn. The weakness of the pound began to lead the recovery in prime Central London at the beginning of 2009, with international buyers becoming the main drivers of this market. Last year the proportion of Prime Purchase clients who were from overseas increased quite substantially to approximately 70% in London, from an historic average of nearer 40%.

Furthermore, we noticed a relatively new trend of these buyers being increasingly prepared to look beyond their traditional confines of prime Central London when searching for their UK home. In 2006, just 9% of our buyers in the country were from overseas, but by 2009 this had risen to 23%. Perhaps not surprisingly, the counties of most interest tend to be near London and include the Home Counties and Hampshire, especially those close to popular schools. So international buyers still perceive the UK as offering good value and being a safe long-term property investment. 

Investor and saver disillusionment with banks, bonds and equities has also helped the residential market. Despite price falls, bricks and mortar is still regarded by many cash and equity-rich buyers as being a safe and tangible asset to hold, especially if buying for the long term.  

Prime residential prices in 2009 therefore bounced back quite quickly with a real surge in the last quarter, as confidence returned and needs-driven buyers returned to the markets. Lack of supply continues to dominate the market, and competition is once more commonplace for those properties that are realistically priced. Recent research published by Savills, saw growth of 3% in the value of prime residential properties in Central London during the first quarter of 2010. Prices are now 17% higher than 12 months ago, and just 10% below their peak in September 2007. Prime regional prices in the country grew by 2% over the first quarter.

Those very few properties that qualify as ‘best in class' in prime locations, are once again outperforming the market. In volatile times, they continue to hold their value almost regardless of wider conditions, and we see no reason why this should change in the future, as London continues to attract significant interest, and investment, from around the world. Therefore we predict the market could become even more polarised between the prime and mainstream markets. This too will apply to properties that fall within the ‘best in class' category, and those that are blighted or within secondary locations. 

As we move into the second quarter of 2010, there seems little likelihood of any significant improvement in stock levels. Historically, vendors often prefer not to market property in the run-up to a General Election, and equally there is a feeling that the demand from the financial and business services sector could be constrained by the prospect of a squeeze on earnings. The expectation for the remainder of this year is for softer market conditions, set against low stock levels. With this in mind, taking advantage of opportunities to buy will be crucial.

Independent advice based on an authoritative and analytical view of the market has never been more important to our clients. Our ability to monitor sales (many of which are private) enables clients to secure properties when the price represents good value, a judgement increasingly hard to make in the current market without the kind of local knowledge that Prime Purchase can provide.

Farmland

Historically, farmland has been viewed as a safe haven in times of economic uncertainty. The average price of farmland has grown from £2,000 an acre to over £5,000 an acre since 2000, and is predicted to increase again over the next decade. It has therefore been one of the strongest-performing assets in recent years, having seen a rise of over 150%. We predict that supply will continue to be very limited, as owners of land generally see it as a long-term investment and have little incentive to sell in the current low interest rate environment. Demand remains strong from commercial farmers, overseas buyers, and UK investors attracted by the tax benefits of owning and trading land. Amenity buyers have also returned to the market.