But new high-end towers will continue to flood the market.
After decades of mind-boggling growth, home prices in metropolitan London, according to official numbers, started to fall this year, if barely. Between March and September, they slid 2.3%. But it’s a lot worse in the most expensive parts of the city: Prices in central London have already dropped 15% since 2014, according to James Hyman, head of the residential agency division at Cluttons. He expects another 7% drop over the next year and a half. And the total volume of transactions has fallen by a fifth, according toResidential Analysts.
In 2014, a change in the stamp duty made buying high-end homes in the UK more costly. In London, the city that hosts the highest number of super-rich individuals per capita in the world, high-end homes are the staple product. And it’s getting harder and harder to offload them: The Guardian reportedthat over half of the 1,900 ultra-luxury apartments built in London last year failed to sell. This freeze at the high end is fueling concerns that the city would be left with dozens of “posh ghost towers.”
The newest phantom skyscraper is London’s Centre Point Tower, a 33-story office building from the 1960s that was recently converted into multi-million-pound luxury apartments. But demand is anemic and the developer behind the project, Almacantar, has all but given up trying to sell the flats after receiving too many “detached from reality” lowball offers. Until conditions improve, half of the tower’s 82 flats will lie empty.
Yet even as demand for upscale real estate in London fades, there’s little sign of any slow down in the construction of luxury apartments, meaning there will be an even greater glut of upscale real estate in the near future. That’s likely to further exacerbate the fall in prices.
It’s the latest in a long line of reality checks for London. Clearly, those at the thin upper crust of the global wealth and income scale — just about the only people left who can afford to buy residential property in London these days — either have less money to spend on over-priced high-end London real estate or are splashing it elsewhere, including in other parts of the UK.
Predictably, Brexit is getting a large share of the blame for London’s downturn. Henry Pryor, an independent luxury property buying agent, toldThe Guardian that well-heeled overseas buyers were concerned about the risk of overpaying for central London properties, particularly if the economy was hit by a disorderly Brexit or if the Labour Party leader Jeremy Corbyn became prime minister and introduced a wealth tax.
UK estate agents are feeling the pain, with the largest firm, Countrywide, teetering on the brink of bankruptcy, and Foxtons, a bellwether firm long-associated with gentrification in the capital, struggling.
Besides Brexit-based fears, there are plenty of other reasons for the current market malaise, including a slew of new taxes targeting buy-to-let landlords and overseas speculators. To help local people get on the property ladder, the government has tried to crack down on buy-to-let landlords and foreign investors looking for a safe market in which to expand their global property portfolios.
And it seems to have worked — to an extent! Overseas demand for London real estate has slumped by as much as 70% since 2014, according to James Hyman at Cluttons. Yet while a lot of pent-up stream may have been released from the market, prices have still not fallen nearly enough to make London property affordable for young professionals.
For most locals, owning a house in London remains all but impossible. The cost of the average London residence is almost 14 times the median full-time salary in the city. In select parts of the capital, homes for first-time buyers might be 20, 30 or even more than 40 times their salary. Despite government initiatives to help bridge the affordability gap, most of which have merely helped fuel demand, and with it higher prices, just a third of young adults can afford to buy a house in London on a 10% deposit and a maximum mortgage of 4.5 times their salaries, says the Institute for Fiscal Studies. In 1996, 91% could afford to do so.
For many young or even middle-aged professionals, the only hope of getting onto the “property ladder” is to get a financial leg up from their parents, a luxury that’s available only to the children of relatively affluent families. Some less moneyed parents may decide to remortgage their own homes or serve as guarantors on the 100% mortgage deals that are becoming increasingly common to help their children buy their first home.
So widespread is this phenomenon that in 2017 the so-called “Bank of Mum and Dad” became the ninth largest mortgage lender in the UK, with parents helping to provide deposits for more than 298,000 mortgages — the equivalent of 26% of all transactions. But even the Bank of Mum & Dad appears to be running low on funds, with overall lending expected to drop to £5.7 billion this year from last year’s peak of £6.5 billion. By Don Quijones.
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