For those of us involved with the prime central London (PCL) residential property market, last week delivered some ‘good’ news; where the latest ONS housing data showed an annual increase of 9.4 per cent.
That lead Rightmove to announce that the capital has seen the biggest rise in asking prices, year-on-year, than any other region in the UK, increasing by 10.5 per cent to £643,843.
At a time when every headline seems to be warning of either the return of another financial crisis, the global markets faltering or fresh European uncertainty, this positive news came as a welcome relief to many.
However any celebration must be short-lived as these figures are simply not reflective of the market.
In particular, one factor lies within London’s new build market and the difference between asking prices and the prices - or should we say value(?) - achieved on sale. The glut of new build properties that have recently come up for sale - which are now struggling to sell – have thrown the indices off the scale.
It is clear that most developers built their schemes, based upon exit prices that reflected a rising market. Contrary to a low interest rate environment, some of the solutions to provide development finance were driven within the shadow banking sector which typically prices debt at a premium to achieve target returns for their investors.
The consequence for developers today has become all too apparent, as marketing periods will be extended. Exit prices will come under severe pressure – once all purchaser incentives have been exhausted – and these asking prices are set to be reduced, which will cause much consternation in the press – when in actuality, values won’t be tested in equal measure.
The recent stamp duty (SDLT) changes have been mooted as cause and effect on the PCL slowdown; but the reasons for the lack of transactions taking place can’t just be placed at the door of one directive or another.
London's second hand stock is stagnating – in market uncertainty all impetus to trade disappears.
Therefore because the second hand market is emotive and not wholly dependent on cashflow targets and finance packages, prices can remain constant.
It therefore stands to reason that the usual confusion, over value versus price, is only being compounded by these statistics; and we need to wait until the disparity between the new development and the resale sectors diminishes, to see the real picture of the PCL market.
The focus this year, in an uncertain market economy, should be towards mitigating risk; thereby projecting forward to create a multiple of solutions, rather than just one inevitable outcome.