Uncertainty still reigns

It has become apparent from talking to our local Estate Agents that uncertainty about the potential for rises and falls in Barbican apartment purchase prices is continuing.  The froth has probably come off some properties on the market seen as overpriced and looking at movements in London house prices over the past year a significant part of the overall percentage decline, or weakening in advances – depends whose figures one takes – problem may well be the plus £925,000 homes which now attract a higher level of stamp duty (10%) – and there are/used to be an awfully large proportion of Barbican flats coming in at that level and above.  But the problem is almost certainly far worse in boroughs like Kensington & Chelsea and Westminster where average residential property prices are over the £1 million mark.  By contrast the average residential property price in the City of London was a somewhat lower £763,000 in December last year.

According to City AM newspaper, house prices rose last year across the capital – between around 14% in Barking and Dagenham where house prices averaged a hugely lower, and much more affordable, £289,000 – down to a negative 2% in Hammersmith and Fulham, where average house prices are around £756,000, but that is the only London Borough which showed a house price decline during the year according to the newspaper’s research.  Overall, according to City AM again the average rise across London was around 7.5% in the year to December, but did seem to slow down after the Brexit vote.

But this is very much an over-simplification.  As one can see from the comments from the local estate agents there does seem to be some evidence of a slippage in Barbican prices, although perhaps not a particularly significant one as yet. They are seeing the time taken to sell a Barbican Flat increasing from a few days to a few weeks, although that kind of gap between a property coming to market and being sold would be considered brilliant across most of the country!   If one  also takes into account the new build properties around us, they may well ultimately be seen as having been brought to the market at what, in hindsight, may prove to have been a particularly difficult time for holding their prices but given they tended to come on at a premium to similarly sized Barbican properties that should not, perhaps be considered as too surprising.

The prospect of a post-Brexit market, and what that may mean in terms of house price growth, or decline, in London in particular is obviously affecting the market and will likely continue to do so until the end of the decade when the fallout from any political and economic changes will become clearer.  Until then some buyers will almost certainly hold off – and this is also giving something of a boost to the lettings market as there is a greater incentive to ‘try before you buy’.  It does seem to be the smaller Barbican properties – studios and one-bed apartments – which seem to be most in demand in this respect, but at least one of our local estate agents is reporting shortage of rental stock, which should help keep lettings rates strong.

According to research by local agents Hurford Salvi Carr (HSC) looking at the City as a whole, rather than the Barbican micro-market in particular, 2016 was a momentous year for the UK, marked by its mid-year shock decision to leave the EU and drawing to a close behind the US’s unlikely election of Donald Trump as its 45th president. Six months on from the EU referendum and after enduring 2 years of the most punitive stamp duty rates, the agency suggests that the market actually seems to have reached a state of relative calm.

The agency reckons that the ‘new normal’ is a low transaction, post-growth environment. Buyers and sellers have accepted that prices are no longer rising and their behaviour has become more predictable as a result. The same can be said of landlords and tenants in the lettings sector, who enjoyed a stable market in 2016.

A low growth London market is not unwelcome says HSC,  but it does have consequences. The number of sales completed across Midtown, City and East London in 2016 was 60% lower than in 2015 and 2015 was already 20% lower than 2014. That experience is representative of the wider Central London market according to Land Registry data. It has led to some ‘post Brexit’ price reductions but, if buyers are not in the mood for buying, no amount of price reduction will change their minds. Indeed seeing prices reduced can undermine confidence in the whole idea of becoming a homeowner.

Despite price reductions of around 5% in H2 2016, transaction levels remain stubbornly low. Central London owners are rarely forced-sellers and when prices are flat or falling, owners simply choose not to bring their properties to the market.   Interestingly HSC currently appears to have no Barbican properties for sale or to let which suggests that there is still something of a shortage of available stock here, which will help steady prices – even in what might be seen as a relatively weak marketplace.

That, of course, leaves fewer options for those who want to buy, increases the supply of rental stock and yields less stamp duty for the Treasury, notes the agency. The fact that house moves are known to be one of the key triggers for consumer spending, supporting retail sales of homewares, furnishing and DIY, will be on the government radar.

While all is quiet on the sales front, activity has been channelled into the rental market. Not only are disaffected vendors deciding to let their properties instead of selling but prospective buyers are choosing to rent rather than own a home – thus, crucially, demand and supply for rental property have both increased although the boost to supply has been greater.

Supply has also had an influx from three sources: investors (who rushed to buy ahead of the April stamp duty deadline on second homes), owners (who have been unable to sell at the price they hoped for) and developers (who have completed schemes presold to investors). At the same time the government targeted Landlords with additional taxes including an additional 3% stamp duty that was added to investment purchases in April 2016. This further eroded the return along with new restrictions on investor’s ability to offset interest on a buy to let mortgage against tax from the rental income which will begin to take effect from April 2017. This is part of a wider antilandlord agenda which is intended to improve the chances of first time buyers getting onto the housing ladder.

The spectre of Brexit has undoubtedly cast a shadow over 2016 and residential sales were hit by a period of inactivity leading up to referendum. It is a shadow that is unlikely to lift any time soon.. With so many factors in doubt – trade tariffs, border controls, cultural attitudes, political sympathies, employment trends, business confidence, and now the date of Article 50, the temptation for buyers and sellers to ‘wait and see’ is strong – and without capital growth, there is no pressure to make to a hasty decision.

The HSC report concluded that 2016 ended with a very welcome sense of realism as buyers and sellers began to return to the market with some reassurance that life after Brexit may not be as daunting as some campaigners had feared.  The full report is available via the www.hurford-salvi-carr.co.uk website.

LOCAL AGENTS’ COMMENTS

Sales

Nick Scott at Scott City: Towards the end of 2016 we saw a steady improvement in sales generally after prices were adjusted to reflect the market. Although there is still uncertainty over Brexit with some buyers remaining cautious many are just getting on with it. So far 2017 has continued in a positive way with enquiry levels higher and more sales particularly in the Barbican being agreed. After a tough 2016 we are feeling more optimistic about the sales market for this year.  www.scottcity.co.uk

Tina Evans at Frank Harris: We have had a slightly subdued start to the year but we do have some fabulous instructions on our books, so I am sure that with the weather improving and some incredibly good news on mortgage deals we will see more buyers starting to commit.  Blake Tower will also see the first residents move in, so please welcome your new neighbours, if you are still interested in purchasing a property in this newly converted tower there are a small number of flats still available.  We don’t honestly think there will be any increases in prices in 2017, in fact possibly further softening until the political situation is clearer, but the Barbican is unique and a good agent will emphasise the very best points about the estate and how it works.  www.frankharris.co.uk

Tom O’Halloran at Thomas Michael: After a slow and subdued second half to 2016 we are optimistic of an increase in activity as we move into spring of this year. While there is not the sense of urgency of previous years when values were rising rapidly, we have a number of serious and credible buyers registered and sales will be agreed if flats are brought to market at the right price level.  www.thomasmichael.co.uk

Glen Cook of Hamilton Brooks: The market has slowed down in the last two quarters, the selling period which once was a week or less, can now still be a week for the ‘in demand’ blocks/types/towers or for property in less demand 6-8 weeks. Planning a sale has never been as tricky as this since the financial crisis in 2007, buyers do still exist but in much smaller numbers, but buyers are now much more wary/canny and in no rush unless it’s the right thing.  The days are gone when anyone can sell a Barbican flat, it now takes persuasion, knowledge, experience and patience. And of course the correct valuation.  www.hamiltonbrooks.co.uk

Lettings

Joe Davison at Scott City: After the unpredictable year that was 2016, the Rental Market in and around the Barbican is still seeing high levels of demand, with the Studios and One bedrooms proving to be the most popular in terms of enquiry levels. January/ February are usually very busy times for rentals, and so far this year has been no different, with the only problem being not enough stock available within the Barbican.

Glen Cook at Hamilton Brooks: The new ‘try before you buy’ is definitely having an effect on the rental market, demand is strong but not crazy.  Presentation is key in the Barbican with completion from the likes of brand new properties in The Heron, Roman House and Frobisher Crescent.  Please seek advice when it comes to floorings/curtains/blinds/colour schemes/furnishings its pays you back in the end.

Tom O’Halloran at Thomas Michael:  The rental market remains buoyant and we continue to receive a number of applicants looking to rent specifically in the Barbican, aware of the numerous benefits of living here. Studios and 1 bedrooms continue to be most in demand with applicants registered. If you would like a rental appraisal or just discuss the lettings process we would be pleased to hear from you.