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Top of central London property market hit by foreign buyer no show

Evening Standard logo Evening Standard 7/1/2022 Jonathan Prynn
kensingtongardenssquarehp.jpg © Joas Souza kensingtongardenssquarehp.jpg

Wealthy foreign buyers have still not returned to the central London property market in the numbers seen before the pandemic despite the lifting of all restrictions in the UK, a report warns today.

The shortfall means that the bounce back in the prime central market is much slower than expected with prices still well below their 2014 peak, said the research from leading London estate agents Savills.

Average prices grew just 0.7% in the second quarter and 3.3% year on year.

Although that is the fastest rate since September 2014, it is still lagging well below growth across London and the UK as a whole.

Many Asian buyers, particularly those from China and Hong Kong, have been reluctant to visit London because of still onerous Covid restrictions when they return home. Returning passengers have to quarantine for at least 14 days.

Russian buyers have also completely dried up since the start of the war in Ukraine, although they had been becoming rarer since relations with the west first nosedived over the invasion of Crimea in 2014.

That was also the year when stamp duty reforms introduced by former Chancellor George Osborne hugely increased rates on purchases over £1 million including a new 15% top rate on homes worth more than £2 million bought through a company - a route used by many overseas investors.

Since then a wave of setbacks has hit the prime central market including Brexit, further tax changes and more recently the pandemic.

Frances McDonald, research analyst at Savills, said: “As London continues its return to normality, central London values have continued to recover over the past three months, after being in the doldrums for much of the pandemic.

“However, prices in prime central London are still down 17.6% on their 2014 peak, meaning there is still plenty of opportunity for buyers – especially those buying in foreign currencies, given the recent improvement in currency advantage.

“But unless high net worth foreign investors return in their pre-pandemic numbers, we can expect the market to continue to recover at a slow and steady pace, rather than with a sharp uptick.”

She added: “Sales at the top end of the market have been driven by domestic buyers since the start of the pandemic and remain the driving force of the market. International arrivals to the UK are still 18% lower than the same period in 2019, as a result growth is delayed by a slower than projected return to normal travel.

“The top end of the market is less reliant on borrowing, reducing its exposure to further rate rises. However it is not completely immune. The low cost of borrowing over recent years has allowed prime buyers to take out larger mortgages, particularly in the South West and West London family house markets.

“However, with rates still historically low, we don’t expect to see any impact in the short term, particularly given the high levels of equity across most prime locations and buyers’ propensity to lock into fixed term deals.”

Houses continue to outperform flats but the gap between the two is narrowing.

McDonald added: “The return of workers back to the capital has been a driving force in the rebalancing between houses and flats. Even with hybrid-working becoming more conventional, workers still want to be close to the office, and the number using the tube to travel into the City hit a new post pandemic high in June at 60% of the pre-pandemic norm.”

As a result of changing demand, the distribution of growth has shifted away from locations which performed best over the pandemic, to areas of London which combine strong first-time buyer, family and investor markets – as well as outside space.

Figures are: Notting Hill (+2.2%), Clapham (+2.1%), St Johns Wood (+2.1%) and Pimlico (+2.0%) that have overtaken the likes of Wimbledon (1.4%), Chiswick (+1.0%) and Wandsworth (+1.0%).

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