But don’t just blame Brexit.
In Central London – the 30 most central postal codes and one of the most
ludicrously expensive housing markets in the world – eager home sellers
are slashing their asking prices to unload their properties. But even
that isn’t working.
In the 12 days after the Brexit vote, cuts to asking prices have soared by
163% compared to the 12 days before the vote, according to the Financial Times. Yet sales have plunged 18% from
before the Brexit vote. Sales had already taken a big beating before then and
are now a mind-boggling 43% below where they’d been in the same period a
year ago!
So Brexit did it?
Um, yes. Sort of. But home prices on a £-per-square-foot basis had peaked
in Q2 2014, according to real-estate data provider LonRes. Since then, the
market in Central London has been hissing hot air. By Q1 2016, prices for
homes above £5 million had dropped 8% from their 2014 peak, and prices for
homes from £2 million to £5 million had plunged 10%.
Back in December 2015, we reported that luxury housing in London was
getting mauled, based on the LonRes report for the third quarter, released at
the time. It pointed the finger at folks who, once “awash with cash, don’t
have as much to spend” [read… It Gets Ugly in the Toniest Parts of London].
Then, in its spring review, LonRes called the prime London housing market
“challenging.”
It wasn’t just the Brexit referendum and the new stamp duty – In 2014, a
change in the stamp duty made buying high-end homes more costly; and in April
this year, an additional duty was imposed on purchases beyond a primary
residence. Now there’s a third reason, and it originates deep from the bowels
of the UK economy. LonRes:
A third is now making itself known to us as it is not something that the
chancellor can bury any more. This is the balance of payments which ran at
5.2% of GDP last year and was the largest annual deficit since records began
in 1948.
If measures are not taken to bring this under control, then the mini
experiment to deflate the London property bubble will seem small change
compared to the £32.7bn deficit that exists.
The London residential market has undoubtedly slowed, and this is
impacting prices. No one will disagree that London’s prime market needed the
steam to be released from it. My guess is that this slower market will be
here for some time.
And not just in London…
Last week, the Royal Institution of Chartered Surveyors was spreading gloom with its residential market survey of the UK, conducted after the Brexit vote, that found, as the Telegraph put it, “The number of people wanting to buy a house has fallen to the lowest level since mid-2008 amid post-referendum uncertainty.”
Lucian Cook, head of residential research at Savills, told the Telegraph:
“The current month’s figures suggest countrywide impact on sentiment which is to be expected. However previous months’ results would indicate that a slowdown in London has been on the cards for some time. It looks like the Brexit vote may be the trigger for this to materialize.”
Now all hopes are once again centered on foreigners and their money to bail out the housing bubble before it completely implodes. But this time, it’s different, as they say at the worst possible moment: it’s not the Russians or the Chinese, but people whose investments and incomes are in currencies linked to the US dollar. Over the last 12 months, the pound has lost about 14% against the dollar, most of it since the Brexit vote, which would give these folks an additional discount on UK real estate.
The Financial Times expressed those industry hopes, and its new saviors, citing Anthony Payne, managing director at LonRes:
“We have heard that quite a number of Middle Eastern buyers have been coming back into the market. A lot of them are converting from dollars, and together with any discount they get [plunging prices], the saving in the actual price is quite substantial,” said Mr. Payne. “Some people are concerned by Brexit – others see it as an opportunity.”
London isn’t the only ludicrously overpriced housing market, where prices, once helped along by foreign money, are skidding. And now the industry is hoping for more foreign money to wash ashore, just when the Chinese, by far the largest group of investors in the US housing market, are getting cold feet. Read… Is this What Hit Housing in San Francisco, Manhattan, and Miami? Suddenly, Foreign Investors Pull Back