LONDON REAL ESTATE MARKET UPDATE

9 August 2013

Read our latest London Real Estate Market Update including a look at the London economy, property market and UK mortgage market developments

Things are still looking up in London as the UK's leading city retains its status as a economic centre to rival the likes of New York. London GVA is now at an impressive 12% compared to 6% nationally, and the city currently ranks fifth among global cities by GDP per person, while consistently placing first or second in most other rankings.

Job creation in the city is flying, with forecasts predicting an additional 374,000 London jobs by 2018. This is an economy that's benefiting from a shift away from its previous financial services focus, with these changes being fuelled by the technology, media and telecommunications, business consultancy and accountancy sectors.

RESIDENTIAL REAL ESTATE STILL LOOKING STRONG

Such economic growth makes for an exciting time on the London residential real estate market. Since 2007 over GBP18 billion in international capital has been invested in London real estate, and international buyers remain a growth audience for London, accounting for 34% of sales by volume and 49% by value in the last 18 months (up from 24% and 37% in 2007).

However, 54% of 2012's Prime London transactions were conducted by UK buyers, accounting for 20.1% of the market by value. UK buy-to-let investors and owner-occupiers are very much coming back to the market, with British-based buyers one of the market's fastest growing segments. This is largely down to the recent increase in mortgage availability as the national economy continues to recover from the downturn.

Despite all this demand, there is still a pressing lack of supply on the London market. Homebuilding targets are repeatedly not being met and lack of funding has been identified as a moderate-to-high risk in the house building sector.

  • Pipeline production is 35% under the Mayor's annual targets
  • Current expected new stock delivery is 13,300 units per annum over the next five years – 35% below Mayor's target  according to Savills and  Knight Frank
  • In London there is a demand for 4,186 private units a year while supply sits at just 1,970 according to annual forecasted completions according toKnight Frank

With such startling limits to the city's future supply and the wealth of potential investors eager to enter the market, Central London house prices are predicted to grow by 31% to 2018, while Prime London house prices are expected to rise by an average of 8% a year between 2013 and 2017.

In his Autumn Statement 2012, George Osborne announced a GBP200 million build-to-let fund to stimulate the private rented sector. This scheme was "significantly oversubscribed" and therefore in the 2013 Budget the Chancellor announced a five-fold increase in the fund to boost the building of privately-rented homes.

A lack of suitable options has been holding back institutions eager to make direct investment in residential assets, but they are very keen to enter the market – investors currently have GBP2.85 billion set aside for the private rented sector according to JLL, a 185% increase on 2012's level of GBP1 billion. Some large deals are hitting the market at the moment, including Essential Living and Mace's recent approval of the GBP100 million, 44-storey tower in Elephant and Castle.

UK MORTGAGE MARKET DEVELOPMENTS

Mortgage approvals for home buyers soared to a 16-month high in May 2013 – an uplift of 24% on May 2012. The Council of Mortgage Lenders suggested the strong uplift was due to "pent-up" demand for property, and the sharp increase in buyers in the market is a sure sign that this news is stimulating a more competitive sellers market with significant price growth ahead.

The new Governor of Bank of England is introducing "forward guidance" to provide extra monetary stimulus at a time when interest rates are already low as the Bank attempts to further differentiate itself from the US monetary authorities, so this trend is only likely to continue.

Another factor bringing more buyers to the market is the starting of the Help to Buy Funding Scheme. Its first phase, through which buyers will be able to fund new-build properties purchases with smaller deposits, has been taken up by nearly 7,000 home buyers in deals worth around GBP1.3 billion. The scheme's second phase will be launched in January 2014 and will help give families access to any property purchase valued under GBP600,000.

IP Global

Written by IP Global

IP Global’s full-service approach is built on extensive market research and analysis combined with a significant financial commitment to every investment we offer. We are able to manage the entire investment process end-to-end, from sourcing, financing, and management to those all important exit strategies, making investment in real estate as straightforward as investing in more traditional asset classes. Our expertise, experience and strong record have produced over USD2.8 billion in international real estate investments in over 30 markets worldwide.

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