Asking Prices Being Cut in Central London But Are Prices Actually Falling?

Reductions in price on existing stock appear to be bringing the asking price to the same level as last year

08 April 2016

Roughly 40pct of properties listed for sale in Earl’s Court, a district within the Borough of Kensington and Chelsea having postcode SW5, have had their price cut since coming to market. Similarly, roughly 35pct of properties listed for sale in Chelsea and Knightsbridge, SW3, in prime central London, have had a price reduction. Overall, the Borough of Kensington and Chelsea has seen an average of 33pct of properties listed for sale reduced since their introduction to the market with the average price reduction being roughly 8% of the original asking price.

This pattern is repeated across central London. But, are asking prices in these areas actually falling?

Propcision, a property analysis firm, has conducted new research that suggests that prices in central London are remaining static. Any reductions in price on existing stock appear to be bringing the asking price to the same level as last year.

Michelle Ricci, co-founder of Propcision, explains, “The data suggests that we are seeing resistance in the central London market. To make an analogy, it’s like throwing a ball into the air, at some point the ball will stop moving upward and shift downward. In statistics, we call this a point of resistance. The upward trend Prime Central London enjoyed for the past few years has started to show signs of resistance. This is typically associated with the start of correction although not necessarily a downward trend –as in the ball analogy. We feel the data suggests asking prices are holding steady with levels seen in the past 6 months. However, that said, there are particular areas of vulnerability that may start to show demonstrable evidence of a downward trend - most notably new-builds.”

Propcision is monitoring various factors that are associated with a directional market. Factors include duration or time a property has been the market, volume or stock levels, and underlying price per square foot – all indicators of liquidity and price pressure. Healthy housing markets exhibit active levels of buying and selling alongside controlled stock levels. When one of these factors start to change, then it could be an early indicator of a directional market. Currently, in Prime Central London indicators suggest some areas are experiencing resistance to higher prices and therefore suggests a correction or stagnation. Generally speaking, even though the public may see prices being reduced in these areas, at the moment, pricing levels still, on a whole, are on the same level as last year.

Kensington and Chelsea are not alone as between 28 and 30pct of the properties listed for sale have undergone a price reduction in Kingston Upon Thames, Hammersmith and Fulham, Wandsworth and Westminster. Postcodes such as W1, W2, and SW8 tend to be the most active postcodes for price cuts.

As reported in Property Report, “Research by global real estate consultant Knight Frank found that from mid-2011 to mid-2013, non-UK nationals made 69 percent of prime central new-build purchases in London, while non-UK residents made 49 percent.”

Thus, prime central London new builds may be particularly vulnerable to a correction as foreign investors may view the economic and political climate in Britain to be uncertain. Tax and Stamp Duty changes alongside falling sterling and unfavourable housing indices for central London are certainly factors in the correction.

Michelle Ricci comments “It has already been observed that certain pockets within central London postcodes have undergone sharp asking price reductions for new builds. However, values still remain relatively high. We are monitoring these areas for evidence of accumulation of housing stock alongside further reductions. If this proves to be the case, then the market could change from “steady” to downward for properties fitting certain characteristics. This may subsequently affect other areas of the market. ”

“In the case of new builds, institutional investors, buying in bulk, may scoop apartments before they reach the open market thereby avoiding any publically-advertised discounts and associated negative press.”

A surprise finding was that Kingston Upon Thames had roughly 30pct of properties listed for sale reduced in price. Postcode KT6 in Surbiton experienced the highest percentage with roughly 38pct of properties listed for sale having undergone a price reduction. This rate rivals Earl’s Court and is far more difficult to rationalise as in the case of luxury property in central London.

Whilst some areas of London data suggest a shift in pricing sentiment, the rest of London exhibited relatively normal levels of price reductions that can typically average between 18-23pct of properties listed for sale. On a more favourable note, data for Bexley, Redbridge, Newham, Barking and Dagenham, and Enfield suggest continued buoyancy. These boroughs, in particular, have a higher affordability level and have been fertile grounds for the buy to let investors. Sellers in these boroughs would have little incentive to reduce asking prices when the buy to let rush was occurring in the start of the year.

Michelle Ricci adds: “We are monitoring closely to see if this trend continues in the next few months. “

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