A FAILURE by the US Federal Reserve to engineer a smooth exit from its quantitative easing programme (QE) could wipe 20 per cent off London property prices, according to new research out today.
A report by Fathom Consulting for Development Securities said that while it expects the US to manage its exit sensibly, there was a risk that tapering too soon could wipe 40 per cent off global equity prices and also have a knock-on effect on central London prices.
Fathom Consulting’s first study published last year identified the break-up of the euro as the key risk to London property prices.
“With the prospect of a euro break-up moved to the back burner, tapering by the US Federal Reserve has come to the fore as the biggest threat to prime central London (PCL) prices,” said Danny Gabay, director of Fathom.
“The gradual withdrawal of monetary stimulus by the world’s largest central banks risks removing one of the key supports to global asset prices, including PCL.”
Property prices in the capital’s most sought-after postcodes have jumped 19 per cent since the fourth quarter of 2011 to the first quarter of 2013, Fathom’s prime London residential (PLR) index shows.
A typical property in London’s golden postcode areas including Mayfair, Chelsea, St John’s Wood, Marylebone and Belgravia is now worth more than 6.5 times the national average.
The report concludes prices could only be “partially explained” by economic drivers and showed the classic signs of an asset pricing bubble.
“With the average PCL property now a little under £1.5m, valuations have never been more stretched,” Development Securities chief executive Michael Marx said. “We are less confident now than we were back in May 2012 that PCL prices are sustainable,” he added.