A cooler prime
Two "quiet quarters", where not much happens, is just what the London prime property market needs, according to Tom Bill, Knight Frank's head of London residential research.
He knows that's unlikely: even though the dust may have settled on tax changes announced in the April budget, and Sadiq Khan was voted in as London mayor last month, the Brexit referendum lies ahead on June 23 - plus the unfolding of the US presidential election.
But it's not only political uncertainty which is dampening demand in the British capital, Bill asserts. The market itself has become politicised, against the backdrop of sensitive "live" issues around wealth and affordability.
Once the darling of "safe-haven" property investors everywhere, the London residential market has been slowing since mid-2014 as subdued demand saw sales volume fall and price growth reined in.
The continuing global economic uncertainties seem to have rattled investors, Bill notes, and even in the superprime "golden postcodes" of Mayfair, Knightsbridge and Belgravia, vendors were becoming "more realistic", dropping their asking prices by 10 per cent or more, in order to achieve a sale.
Most notably, a 12 per cent tax hike on properties valued over £1.5 million (HK$17 million), imposed in December 2014, put the brakes on the high-end sector. "Demand started to decline markedly," Bill says. Further factors were yet to unfold: a new capital gains tax introduced on properties sold after April 6 last year, and an additional 3 per cent stamp duty imposed on purchases of buy-to-let properties effective from April 1.
Data tracking market activity for first quarter this year shows little uplift. Annual growth in prime central London inched up by a marginal 0.8 per cent in March, and it only crept into positive territory due to the stronger performance of markets around the City fringe, like Islington, Bill notes. He also expects further declines in the lead-up to the Brexit referendum.
"Some buyers are likely to hesitate ahead of the EU referendum in June as they did before the Scottish independence vote in 2014, producing a 'Brexit effect' irrespective of the result," Bill says.
Sophie Chick, associate director of residential research at Savills, observes that the market has reacted "relatively rationally" to the recent changes, but she also sees no upturn on the immediate horizon. "We expect prime central London property prices to remain broadly flat through 2016 and most of 2017, followed by a gradual return to trend rates of price growth over the medium term supported by the fundamentals of wealth generation," she says.
Yet, London's residential property still outperforms other asset classes, according to Knight Frank. Over the 12-month period to February 2016, prime central London values gained 4 per cent, while prime outer London gained 7 per cent. Commodities, over the same period, lost 35 per cent; the FTSE 100 was down 9 per cent; and the S&P 500 lost 7 per cent.
"We're in a low yield, uncertain environment at the moment, which makes all property, commercial and residential, an attractive investment in terms of rentals," Bill says.
There's also a supply-demand imbalance, which ticks investor boxes.
According to Savills, London needs 64,000 new homes a year - a 28 per cent increase on the company's 2013 estimate of 50,000. "The hike takes into account population growth and migration, as well as projected employment growth, on the back of London's strong economic performance," says Susan Emmett, Savills' director of residential research.
The biggest supply shortage is in the lower value markets, particularly for homes priced under £450 per square foot - the equivalent of £270,000 for a small two bedroom flat, she adds.
"Our analysis of future supply against demand during the five years to the end of 2020 indicates that 36,500 homes will be delivered per annum across the whole of London, leaving a shortfall of 27,500 a year."
Savills' housing demand figure is above the Greater London Authority's assessment of need, which lies between 49,000 and 62,000 a year, Emmett concedes. "However, with only 27,800 new homes delivered in the year to March 2015, actual supply is well short of any measure."
And regardless of market fluctuations, says CBRE, nothing can prise London from its perch as one of the most desirable residential markets on the planet. Its research shows property values in the British capital continue to considerably out-perform almost every other major city, despite a slight drop in prime and super-prime prices since the 2015 peak.
"With demand strongly outweighing supply, the thriving international financial centres of Hong Kong, London and New York are consistently rated the top three, even though their positions within that may alter slightly from year to year," says Jennet Siebrits, head of residential research at CBRE.