Suckers’ rally for Central London house prices fades as rich renters enjoy flat glut

The mooted recovery in central London property prices is fizzling out, according to the latest housing data.

New supply in the London sales market is now decisively outpacing actual demand again, according to the August 2017 data from the Royal Institute of Chartered Surveyors, which is biased to inner London respondents.

The same data picks up a switch in demand from buying (the red line on the chart below) to renting (the blue line).

London renters of a certain level of income have enjoyed a prolonged period when new supply of property to rent outweighed demand from prospective tenants.

Coincidentally, the growing popularity of renting among the rich — to the extent of selling up to rent — was noted by an Evening Standard columnist this morning.

It may not be ‘a Brexit thing’ so much as the sense the rich have for a bargain, with a cascade of new luxury flats dampening the cost of renting in central London.

On the Albert Embankment, for example, asking rents have been slashed on the newly completed Merano Residences building but apartments remain available nearly two months after going on the market.

One of around 15 apartments yet to find a tenant

Landlords in the building, who have to cover service charges in the region of £1,000 per month from the rent, may be regretting their investment.

One person who is beating a retreat is the founder of Foxtons, who notably sold that business at the top of the market in 2007, and is now selling land he owns next door to Merano Residences.

That’s unlikely to have much impact on the glut of luxury flats. Just within 500 metres from Merano, building is already well underway on three other developments. Two will be completing next year (see video for more detail).

Completions are baked into the cake, due to the frenzy of off-plan sales over the past few years. Investors may be able to sell on their designated property to someone else before completion, but are on the hook for the full amount regardless.

Stamp duty receipts on those approaching completions are also locked in, which those campaigning for a reduction in the tax might want to reflect on.

The stamp duty take may or may not defy gravity for another year, but the government gets £213,750 in tax for every £2m investment property sold, and there are thousands of these set to complete over the next two years.

A glut of luxury flats doesn’t much help the average London renter, but one part of the market can eventually have some effect on another. Data from the Office for National Statistics indicates that the increase in the average rent paid in London — after a runaway few years — is now very modest.

It’s not beyond a possibility that the ONS picks up a fall in the average London rent in the near future.

The Royal Institute of Chartered Surveyors is expecting as much (though remember its focus is on central London). Even despite the pick-up in demand for lettings, its members on balance predict rents continuing to fall this autumn.

Finally, RICS expressed concern that more landlords will be exiting rather than entering the market over the next year. The question in central London is do they still have time to exit at a good price?

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