LONDON RESIDENTIAL REVIEW - RESIDENTIAL RESEARCH - SUMMER 2018 - Knight Frank
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RESIDENTIAL RESEARCH
LONDON
RESIDENTIAL
REVIEW
SUMMER 2018
THE DECLINING IMPACT OF THE EFFECT OF LANDLORD TAXES ON
THE INTEREST RATE PUZZLE
STAMP DUTY SUPPLY IN THE SALES MARKET
LONDON RESIDENTIAL REVIEW SUMMER 2018 RESIDENTIAL RESEARCH
PRIME LONDON SALES MARKET INSIGHT
KEY FINDINGS Prices have adjusted to higher rates of stamp duty but political
uncertainty is a rising influence on the market, says Tom Bill
4.9% By June this year, prime central London prices Despite this adjustment, trading conditions
The difference between old and new
had fallen 9% from the last market peak in remain subdued by historical standards, which
rates of stamp duty as a percentage
August 2015. In prime outer London, the indicates other forces are at play.
of the exchange price on a £1.7m
decline from the previous high point, which
second home First, while prices have adjusted arithmetically,
came a year later, was 6%.
higher upfront costs are likely to dampen
The extent of the declines suggests prices activity for a period of time.
in both markets are bottoming out and have
Second and more significantly, political
1/3 adjusted for the last two stamp duty increases,
which were in December 2014 and April 2016.
uncertainty is having a more marked influence.
The proportion of prime central
As Brexit talks continue against a fluid UK
London markets that reported an Based on a sample of several hundred
political backdrop, questions will surround the
annual price rise in the year to June £1m-plus sales in prime central and outer
stability of the government and the political
London in the first six months of this year,
outlook of any potential new prime minister.
the average difference between old and new
stamp duty charges as a percentage of the In this way, sentiment has become a more
+2.1% exchange price was 1.97%, rising to 4.97% important driver of demand, which makes the
The average annual rise in prices in when a notional 3% surcharge for second future direction of the market less predictable.
Notting Hill in the year to June 2018 homes and landlords is added. Underlining how individual markets have
become more idiosyncratic, one third of PCL
For example, the extra stamp duty for a £1.7m
areas reported annual price growth in June
home is £83,750 or 4.9% of the sale price.
whereas two-thirds reported a decline.
-9%
Meanwhile, average prices for £1m to £2m
homes fell 9.3% in the two years to June. The area with the highest rise was Notting
The peak to trough decline in prime Hill (2.1%). One key driver of activity in W11
central London residential pricing FIGURE 1 has been needs-driven buyers such as those
Notting Hill climbs to the top in PCL
moving for schooling or family reasons. As a
Annual price growth in Notting Hill vs PCL spread
result, it has gone from one of the weakest to
Notting Hill PCL spread low to high one of the strongest for annual price growth
20% over the last year, as figure 1 shows.
15% Buyers are scrutinising the market for value
10% but sales volumes and pricing data continued
5%
to show a broad bottoming out pattern in the
second quarter of the year.
0%
-5% One factor that is weighing on pricing is an
-10%
uptick in supply, which is creeping higher as
more landlords attempt to sell due to recent tax
-15%
changes. It remains to be seen whether some
2011
2012
2013
2014
2015
2016
2017
2018
vendors will revert back to the lettings market if
Source: Knight Frank Research pricing expectations are not met.
FIGURE 2
Recent higher levels of supply is putting downwards pressure on price growth
Supply levels in prime central London versus annual price growth
PCL Sales Listings PCL Annual Price Growth
TOM BILL 20000 2%
Head of London 0%
Residential Research 15000
-2%
10000
“Sentiment has become -4%
a more important driver of 5000
-6%
w demand, which makes the
0 -8%
future direction of the market
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
less predictable.”
Source: Knight Frank Research / Rightmove
2 Please refer to the important notice at the end of this report
PRIME LONDON PRICE AND RENTAL GROWTH, JUNE 2018 JUNE 2018 3 4
LONDON RESIDENTIAL REVIEW SUMMER 2018 RESIDENTIAL RESEARCH
PRIME LONDON LETTINGS MARKET INSIGHT
KEY FINDINGS Annual rental value growth has turned positive but tax changes
mean landlords are keeping their options open, says Tom Bill
28
The number of months since annual
In June this year, annual rental value growth on landlords because fewer lenders allow
rental value growth was last postive
(+0.8%) returned to prime central London three-year agreements, some have argued.
in prime central London, after +0.8%
for the first time since February 2016.
annual growth was recorded in June However, while rental value growth has
It followed a 28-month run of declines that returned, it would be premature to conclude
bottomed out at -5.2% in November 2016. that falling supply will continue to put
-16% Higher rates of stamp duty was the reason
upwards pressure on rental values in a
sustained manner.
The decline in the number of lettings the supply of rental properties grew, with
listings in prime central London in the more vendors opting to let their property as There is anecdotal evidence of landlords
year to June 2018 versus the previous the impact of higher stamp duty weighed on returning to the lettings market after their
12 months price growth in the sales market. pricing expectations were not met in
the sales market, a trend that would be
Tax was also the reason the trend began to
exacerbated should more landlords attempt
reverse. A series of levies affecting landlords
29% means more owners have explored a sale
a sale and thereby increase supply levels.
Increase in the number of £5,000+ per in recent months and there were 16% fewer In this way, the lettings market will self-
week lettings deals in the year to May lettings listings in prime central London in correct as landlords decide whether it
2018 versus the previous 12 months the year to June 2018 than the previous makes more financial sense to sell or
12-month period. let. This, in turn, will play a key role in
determining future supply levels and rental
The result is that a succession of
70%
value growth.
government tax changes has had a marked
Number of Knight Frank market impact on the supply dynamics in the prime In an indication that downwards pressure
London lettings market. on supply levels may not continue in a
appraisals in South Kensington
consistent or predictable way, the number
attended by sales and lettings, The latest government plan for minimum of lettings listings in prime central was 15%
compared to under 10% a year ago three-year tenancies may add to the burden lower in June this year compared to the
same month last year. That compared to
FIGURE 3 an equivalent decline of 25% in January,
Year-on-year declines in lettings listings have begun to recede
Rightmove data shows. This suggests the
Year-on-year % change in the number of lettings listings in PCL and POL at £500+ and £1,000+/week
trend for more landlords to try and sell up
London Lettings Listings - £500+/week may be slowing.
London Lettings Listings - £1,000+/week
This overall mood of indecision among
5%
property owners is reflected by the fact that
more are listing their property for rent and
0% sale simultaneously. Knight Frank’s South
Kensington lettings office is invited to attend
about 70% of market appraisals together
-5%
with the sales team, compared to a rate
of less than 10% a year ago as property
-10% owners explore both the sales and lettings
options.
-15% By price bracket, the number of tenancies
agreed in the super-prime (£5,000+ per
week) market continued to grow at the
-20%
fastest rate. There were 29% more deals
in the year to May 2018 than the previous
-25% 12-month period. This was due to higher
rates of stamp duty at the higher-value
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
end of the sales market, in addition to
uncertainty surrounding Brexit and the
Source: Knight Frank Research / Rightmove trajectory of price growth.
5LONDON RESIDENTIAL REVIEW SUMMER 2018
MACROVIEW THE INTEREST RATE PUZZLE
The economic and political backdrop to the lifting by holding rates low, it means finding RESIDENTIAL RESEARCH
prime London market was marked by a mood returns will become more of a skill. Tom Bill
of uncertainty in the second quarter of the Head of London Residential Research
While monetary policy normalises, the +44 20 7861 1492
year.
political backdrop remains uncertain. The tom.bill@knightfrank.com
The erratic flow of economic data meant recent ministerial departures have raised the
many market watchers pencilled in an interest stakes at Westminster and the longer-term HEAD OF LONDON RESIDENTIAL
rate rise one week before having to reach for ramifications of deeper cross-party alliances Noel Flint
their erasers the next. This mood of indecision on the subject of Brexit remain to be seen. +44 20 7861 5020
was captured by a Bank of England survey noel.flint@knightfrank.com
However, the shifting nature of geopolitics
that asks people whether they think rates will
rise or fall over the following 12 months. could also help change the calculations on
HEAD OF LETTINGS
both sides of the negotiating table in the
Tim Hyatt
In June this year, a quarter of respondents second half of the year. +44 20 7861 5044
replied “no idea”, which was the highest figure tim.hyatt@knightfrank.com
since the poll began in 1999. The fact that US President Donald Trump
has threatened to impose tariffs on European
Lenders have responded by pushing their car manufacturers may mean the growing PRESS OFFICE
10-year fixed rate products harder, some of global risks from protectionism are brought Harry Turner
which include deals with a penalty-free option into starker relief and a path of compromise +44 20 3861 6974
to break after five years, which is one way to becomes more inviting. harry.turner@knightfrank.com
hedge against short-term uncertainty.
The other area where the debate is shifting
However, few doubt that a rise is coming in is immigration. The new administration in
2018 and the chances appeared to grow in Italy has been described as the first populist
June when Bank of England chief economist government in Western Europe since the
Andy Haldane signalled he would back a rise Second World War and its tougher stance on
in the second half of the year and the pound immigration has reopened a debate within
duly strengthened.
the EU. This debate includes freedom of
In a wider sign of how the era of loose movement, one of the four pillars of single Knight Frank Residential Research provides
monetary policy is coming to an end, market membership. strategic advice, consultancy services and
European Central Bank president Mario forecasting to a wide range of clients worldwide
As the UK moves towards its departure date including developers, investors, funding
Draghi also said its asset purchase
from the European Union of March 2019, it organisations, corporate institutions and the
programme would end in December.
appears unlikely that negotiations will proceed public sector. All our clients recognise the need
For property investors, in a world where in a way that is impervious to such external for expert independent advice customised to
central banks are doing less of the heavy events. their specific needs.
RESIDENTIAL RESEARCH RESIDENTIAL RESEARCH RESIDENTIAL RESEARCH
PRIME LONDON PRIME LONDON
SALES INDEX LETTINGS INDEX
SUPER-PRIME INSIGHT
2018
This report analyses the performance of single-unit rental properties in the second-hand prime central and prime outer London
JUNE 2018 JUNE 2018
The prime London sales indices are based on repeat valuations of second-hand stock and do not
markets between £250 and £5,000+/ week. For an analysis of the build-to-rent market and the institutional private rented sector
include new-build property, although units from completed developments are included over time.
in London and the rest of the UK, please see our Private Rented Sector Update http://www.knightfrank.co.uk/research
PRIME CENTRAL LONDON PRIME CENTRAL LONDON
| 5,857.1 | -1.8% | -0.9% | -0.4% Prime central London index | 165.2 Annual rental value change | 0.8% Quarterly rental value change | 1.7%
Prime central London index Annual change Quarterly change Monthly change
FIGURE 1 FIGURE 2
FIGURE 1 FIGURE 2 Figure 1 Annual rental value growth has
Figure 1 The current period of price declines Annual rental value growth positive once again Tenant demand strengthens relative to supply
The length and depth of previous downturns Rising stock levels in prime central London turned positive in prime central London for
in prime central London has lasted for Annual rental value growth in prime central London Ratio of new prospective tenants to new listings,
Important Notice
Peak to trough % decline and length in months £1m+ listings in May were the highest since October the first time since January 2016. Rental
almost the same length of time as that three-month rolling average
2016
values have strengthened as supply levels
recorded in the early 1990s. However, the UK recession June Current slowdown
1% 5
1989 to June 1992 August 2015 to date 10000 have fallen, which has happened as more
current peak-to-trough decrease of -9% 0% 0%
landlords have listed their properties for sale
is considerably lower than then. Demand 8000 -1%
-5% following recent tax changes in the lettings 4
remains price-sensitive and driven to an
sector and as sales pricing appears to -2%
increasing extent by buyers with a need to -10%
6000
© Knight Frank LLP 2018 – This report is
bottom out. -3%
move, such as schooling or downsizing.
4000 -4% 3
-15%
Figure 2 As supply has declined, the relative
Figure 2 Supply has risen as more landlords Global financial 2000 -5%
-20% crisis March 2008 strength of demand has also risen. The ratio
attempt to sell following tax changes and as to March 2009 -6% 2
0
between the number of new prospective
sales pricing appears to bottom out. Some -25%
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
tenants and the number of new lettings
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
properties have gone back to the lettings
Months 36 12 35 listings rose to 4.6 in May, which was the
published for general information only and
market as asking prices are not met but the
highest figure in more than ten years. Source: Knight Frank Research Source: Knight Frank Research
trend may still weigh on sales prices. Source: Knight Frank Research Source: Knight Frank Research / Rightmove
PRIME OUTER LONDON
PRIME OUTER LONDON
Prime outer London index | 172.0 Annual rental value change | -2.09% Quarterly rental value change | 1.27%
Prime outer London index | 279.1 Annual change | -3.8% Quarterly change | -0.8% Monthly change | -0.5%
Figure 3 In a similar fashion to the sales
market in prime central London, the number
of £1m+ properties listed for sale in prime
FIGURE 3
Rising stock levels in prime outer London
£1m+ stock levels in May were the highest in more than
four years
FIGURE 4
Proportion of new properties to new buyers
rises in May
Ratio of new prospective buyers to new listings
Figure 3 The proportion of landlords who
are registering as new prospective buyers
has fallen over the last four years in prime
central and outer London. Following a series
FIGURE 3
The number of landlord buyers declines
Landlords as % of new prospective buyers in prime
London
25%
FIGURE 4
Rental listings fall in prime outer London
Number of £500+/week listings, annualised % change
25%
not to be relied upon in any way. Although
high standards have been used in the
outer London rose in May. The figure is the of recent tax changes, they accounted for
8000 10 20%
highest in more than four years and the 13% of new prospective buyers in May 20%
7000 15%
trend may impact pricing in some locations. 8 2018 compared to 20% in May 2014.
6000 10%
15%
5000 5%
Figure 4 The ratio between new prospective 6
Figure 4 The number of properties listed
4000 10% 0%
buyers and new property listings in prime for rent in prime outer London in the year to
4 -5%
3000
outer London rose to 5.7 in May. The
preparation of the information, analysis, views
May 2018 was 14% lower than the previous 5%
-10%
2000
trend, which to some extent is subject 2 12-month period. More property owners
1000 0% -15%
to seasonality, highlights the underlying are trying to sell their property following
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
0
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
Jan-18
May-18
strength of demand despite the fact that 0
tax changes that have affected landlords,
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
supply levels are rising. which is putting upwards pressure on rental
values. Source: Knight Frank Research Source: Knight Frank Research / Rightmove
Source: Knight Frank Research / Rightmove Source: Knight Frank Research
and projections presented in this report, no
The Wealth Report 2018 Prime London Sales Index Prime London Lettings Index Super-Prime Sales Insight
responsibility or liability whatsoever can be
June 2018 June 2018 2018
accepted by Knight Frank LLP for any loss or
RESIDENTIAL RESEARCH damage resultant from any use of, reliance on
or reference to the contents of this document.
LONDON As a general report, this material does not
DEVELOPMENT
HOTSPOTS ST JOHN’S WOOD MARKET INSIGHT 2018 BATTERSEA MARKET INSIGHT 2018 NOTTING HILL MARKET INSIGHT 2018 necessarily represent the view of Knight Frank
RESIDENTIAL DEVELOPMENT
OPPORTUNITY AREAS 2018
FIGURE 1 Maximum property prices in St John’s Wood
Achieved prices, 12 months to April 2018
Circles can denote multiple sales in the same postcode, in which case the highest value is displayed
FIGURE 1 Maximum property prices in Battersea
Achieved prices, 12 months to April 2018
Circles can denote multiple sales in the same postcode, in which case the highest value is displayed
Notting Hill market update
Average prices in Notting Hill increased 2.2%
in the year to May 2018. Annual growth turned
positive at the start of the year following a
FIGURE 1
Property prices in Notting Hill and surrounding area
Achieved prices, year to April 2018
Circles can denote multiple sales in the same postcode, in which case the highest value is displayed
LLP in relation to particular properties or
projects. Reproduction of this report in whole
Up to £750,000 FIGURE 2 Up to £500,000 FIGURE 2 33-month period of declines as the market l Sub-£750,000 l £750,000 to £1.5m l £1.5m to £3m l £3m to £5m l £5m-plus
£7500,000 to £1m St John’s Wood fact sheet £500,000 to £750,000 Battersea fact sheet adapted to higher transaction costs. As a result,
£1m to £2m £750,000 to £1m
Population: 75,636 Population: 68,278 prices in May were 12% below their peak in
£2m to £3m £1m to £1.5m
September 2015. Demand has risen as prices
£3m+ £1.5m+
AVERAGE PRICE Vauxhall AVERAGE PRICE have rebased and Knight Frank Notting Hill carried
Year to February 2018 £1,111,020 30+ sales Year to February 2018 £772,695
out 24% more transactions in the year to April
or in part is not allowed without prior written
Year to February 2017 £1,064,510 Year to February 2017 £732,665 Westbourne Park
Swiss Cottage
Year to February 2016 £1,015,140 Year to February 2016 £612,215
2018 than the previous 12 months. However, we
Royal Oak
Battersea Park anticipate prices will remain broadly flat in the short
£1 MILLION-PLUS SALES £1 MILLION-PLUS SALES to medium-term due to a wider sense of economic
Ladbroke Grove
Year to February 2018 287 Year to February 2018 489 and political uncertainty. The Ledbury
Year to February 2017 288 Year to February 2017 400 Portobello
nt Market
Year to February 2016 428 Year to February 2016 208 sce
Caroline Foord, Notting Hill Office Head Cre
approval of Knight Frank LLP to the form
n
Elgi
Regent's Park “Sellers increasingly understand that we Bayswater
e
£2 MILLION-PLUS SALES £2 MILLION-PLUS SALES Latimer
Grov
are in a new norm and correct pricing is Road
Year to February 2018 141 Year to February 2018 98 Ladbroke
roke
Lord's Diamond Square
Cricket Conservation
Year to February 2017 142 Year to February 2017 68 fundamental to achieving a sale. Stamp
Ladb
Ground Euston Garden
Maida Vale Area Queensway
Year to February 2016 165 Year to February 2016 39 duty changes and political uncertainty mean
Shaftesbury Notting Hill Gate
Source: Knight Frank Research / Land Registry Estate Source: Knight Frank Research / LonRes / Land Registry
buyers are not rushing to make decisions
Holland Park
and are thinking longer-term. That said,
and content within which it appears. Knight
Lisson BLUE PLAQUES BLUE PLAQUES
Grove Baker Street
Alan Turing, Mathematician, Computer Scientist Gracie Fields, Singer and Entertainer
Notting Hill retains its unique energy, great Shepherd's
Little Venice Marylebone
connectivity and wide-ranging appeal. World- Bush
Madame Marie Tussaud, Artist Daniel Defoe, Novelist
Sir Henry Wellcome, Pharmacist Joseph Chamberlain, Statesman class schools ensure strong demand from
H.G Wells, Writer Sir Basil Spence, Architect families, a trend that has contributed to a
Source: Knight Frank Research / LonRes / Land Registry
resurgence of interest at the start of 2018.”
STOCK BY PROPERTY TYPE STOCK BY PROPERTY TYPE
Frank LLP is a limited liability partnership
Source: Knight Frank Research / LonRes / Land Registry Source: Knight Frank Research / LonRes / Land Registry
Flat 92% Flat 84% FIGURE 2 Notting Hill fact sheet Population: 61,308
Contains OS data © Crown Copyright and database right 2017
St John’s Wood market update James Simpson, St John’s Wood Office Head Battersea market update Kris Ericsson, Battersea office head
Terraced 5% AVERAGE PRICE £2M+ SALES SALES BY PROPERTY TYPE AGE OF HOUSING STOCK
Across prime central London, the “Prices in St John’s Wood have re-based and Large-scale transport upgrades are “Battersea Park is one of the most sought-after
Terraced 15% Year to April 2018 £1.3m Year to April 2018 88
£5m-£10m price bracket was the only the majority of properties on the market are Semi-detached 2% taking place alongside sweeping public addresses in south London and the area’s Year to April 2017 £1.4m Year to April 2017 84 Pre-1900 56%
section of the market that recorded price now correctly priced. Following this adjustment, realm improvements in Battersea as part reputation for high-quality schools has only been Flat 88%
Year to April 2016 £1.36m Year to April 2016 104
Detached 1% Semi-detached 1%
registered in England with registered number
growth in the year to May. Furthermore, transaction volumes have stabilised. However, of regeneration plans that are bringing enhanced by the media attention on Thomas’s
sales volumes at this price point grew we are witnessing a new norm for trading new commercial tenants into the area, Battersea school. On top of that, streets in the MAXIMUM PRICE £5M+ SALES 1900-1939 9%
AGE OF HOUSING STOCK AGE OF HOUSING STOCK
Year to April 2018 £25m Year to April 2018 22 11%
12% in the year to March, LonRes data conditions, with demand
Contains OS typically centred
data © Crown Copyright and database right 2017 including Apple and the US Embassy. Battersea Park area like Prince of Wales Drive Terraced
Year to April 2017 £30.2m Year to April 2017 26
shows. This outperformance suggests around domestic and international buyers Pre-1900 28% Such projects have underpinned the have traditionally been attractive because they Pre-1900 30%
Year to April 2016 £26m Year to April 2016 34 1945-1972 15%
asking prices in higher-value markets who are driven by needs such as schooling performance of residential markets in offered a discount versus Chelsea. However, that
1900-1939 22% 1900-1939 9% Source: Knight Frank Research / LonRes
have largely adjusted to take into account and downsizing rather than investor landlords. many locations across London in recent discount has narrowed in recent years, which Semi-detached < 1%
OC305934. Our registered office is 55 Baker
higher stamp duty costs, a pattern that Buyers and sellers are used to the St John’s 28% years and we forecast price growth in means sellers need to remain realistic on pricing. 20% 1973-1999 16%
1945-1972 1945-1972
is reflected in St John’s Wood. As figure Wood market bouncing back after a slowdown, prime outer London of 12% to 13% The completion of the first phase of Battersea BLUE PLAQUES
4 shows, sales volumes in the typically which happened following the global financial 1973-1999 14% between 2018 and 2022 . As a result of Power Station is also significant. People have 1973-1999 17%
Emmeline Pankhurst Suffragette leader Hugh Greene broadcaster DetachedYou can also read
