London's housing market stalls

Overseas Education | Fanny Potkin 12 Oct 2017

giuliano valentino's family home in west London has been on the market for six months and he has already dropped the price.

"We'll give it away before we actually sell it," he says.

His predicament is a sharp contrast to the years of frenzied bidding for houses in Britain's capital, where a quadrupling of prices in the past two decades made the property market look like a one-way bet.

The 59-year-old businessman lowered the price of his four-bedroom house by 75,000 (HK$772,000) to 860,000 but still found no takers.

Potential buyers such as Mo Valipour are holding off. "We went ahead with an offer and then Brexit happened," said the software engineer.

The combination of rising inflation, after last year's vote to leave the EU drove down the pound, and big uncertainties about what Brexit means for house prices meant he no longer wanted get into the market.

Neither are sure when they will be able to move as the unaffordability of housing in London, which now costs around 10 times the average salary, also takes its toll. Only 65 percent of Britons now own their own homes, below the EU average of 70 percent.

In London only half of households do.

House prices in London fell by an annual 0.6 percent in September, the first fall in eight years, according to Nationwide, while other measures have shown prices rising far more slowly than in recent years.

In the high-end central London market, Savills said prices fell 3.2 percent in the year to October.

London's market has slowed more sharply than the rest of the country but prices across Britain are rising only slowly, potentially boding ill for consumer demand, which drives economic growth.

The value of the UK's housing stock is now at a record 6.8 trillion, almost 1.5 times the value of all the companies on the London Stock Exchange.

Predicting the future direction of the market has become much more difficult, partly because far fewer houses are changing hands. Five estate agents said sales had effectively ground to a halt in the second quarter due to the uncertainty about Britain's planned withdrawal from the European Union, combined with higher property taxes and a slowing economy.

"There's a lack of confidence in the housing market. We are not just not seeing sales," said an estate agent in Central London, who did not want to be named due to the sensitivity of the situation for his firm's business.

The latest official statistics show the number of homes sold in London in May were down by over a third compared with two years ago. Preliminary data for June-August 2017 are even more dismal. Those houses that are on the market are taking longer to sell than a year ago, according to online portal Rightmove.

Twenty-two property market experts said prices in London were overvalued, but their forecasts for the next three years ranged widely from a 17.5 percent drop to a 9 percent rise.

"Time to buckle up," said Josh Holmans from Valunation, one of the most pessimistic respondents to a study by the Royal Institution of Chartered Surveyors.

"Unless sales pick up pace this train driver may stall her engine. Not confident at all."

Three estate agents said they were counting on continuing low interest rates to help house sales.

While the Bank of England is widely expected to start raising rates soon, possibly as soon as November 2, most economists expect only a modest and slowly rising path for rates ahead.

For housing, they are weighing worries that Brexit will squeeze incomes and hurt the capital's big financial services industry against a shortage of homes in low-rise London that has long supported prices.

Martin Ellis, an economist with Halifax, is among the many who predict no rise in prices - but also no large drop. "We're going to be stuck with a flat market for the foreseeable future. There is a squeeze on incomes and I don't expect to see big falls in house prices that would improve affordability for a lot of people," he said.


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