Chestertons London Residential Property Market Report Mid Year 2018

1 Chestertons London Residential Property Market Report – Mid Year 2018

Sales market: Key trends –– Propety values may be stabilising with some submarkets recording growth over second quarter –– Price falls in some lower-end locations –– Asking prices and sales for new built homes both down

Supply and demand The property market in London's higher-end Sellers remained active this quarter, but many residential areas gathered momentum in the appeared to be reluctant to accept lower second quarter of this year, with buyers becoming market prices and instead were waiting until much more active. This is reflected in the 25% prices matched their expectations. Nonetheless, increase in property viewings over the quarter, the number of properties on the market which is 33% higher than the same time last increased 6% over the last three months and year. There has also been a one third increase in was 10% higher than this time last year. new registered buyers, increasing registrations by nearly 60% since this time last year.

Key market indicators: Q2 2018 v Q1 2018

40% 34.9% 35% 30.8% 30% 25% 25.1% 22.9% 20% 15% 10% 5.6% 5% –6.3% 0% -5% -10% Market Available Applicants Viewings Price Reductions Exchanges Appraisals properties

Source: Chestertons Research

2 Despite the overall increase in activity, buyers Buy-to-Let landlords are showing more signs sensitivity towards price did not change. of retreating from the market in reaction to the Nearly half of all properties marketed in London phased reduction of tax relief on finance related during the second quarter experienced a price costs. A recent survey conducted by the National reduction, with an average discount of 9.1%*. Landlords’ Association revealed that 19% of its The gap between buyer and seller expectations members intended to sell their properties this inevitably impacted sales figures, which have year, which would provide a welcome boost to decreased by 9.2% since this time last year. sales but would also have a significant impact High stamp duty rates and Brexit concerns on the rental market. continued to deter some buyers, in particular overseas buyers and financial services workers. *According to LonRes In the wider market, evidence suggests that sales activity slowed during the quarter, a result of ongoing affordability issues and a lack of available properties for sale.

Property values Price growth across Greater London remained reported months, albeit marginally, with a drop weak. According to Land Registry data, achieved of 0.7% recorded in the 12 months to June. prices have now fallen in each of the last two

Higher-end London v Greater London annual price growth

25%

20%

15%

10%

5%

0%

-5%

-10% Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

Greater London Higher-end London

Source: Chestertons Research & Land Registry

3 There was a slight decline in prices in London's locations the top properties attracted multiple higher-end locations during the quarter. buyers offering above asking price. Nonetheless, Chestertons recorded a fall of 0.4% over the the increase in active buyers combined with the quarter and a 2.5% drop over a 12 month level of discounting already experienced suggests period in property value. that the end of falling prices is near. Predicting when the market reaches a turning point remains difficult, as in some sought after

Higher-end areas in London exchanges by price band: Q2 2018

11.5% 24% less than £500,000 8.9% £500,000 – £749,999

£750,000 – £999,999

£1m – £1.499m 16.7% 25.5% £1.5m – £1.999m

£2m and above 13.5%

Source: Chestertons Research

New homes market Between April and June, the number of newly built homes sold dropped by just over 20% compared to the first quarter, reaching 5,150. 46% of the 68,000 homes currently under construction in London at the end of second quarter were unsold as were 1,450 of completed new homes. Build-to-Rent (BTR) properties and homes under the Help-to-Buy scheme continued to account for a substantial amount of sales during the quarter – 39% in the case of BTR. With a further56,500 new homes currently planned, it suggests the importance of BTR to overall sales is likely to increase.

4 London BTR sales numbers & as % of total sales

8000 40%

7000 35%

6000 30%

5000 25%

4000 20%

3000 15%

2000 1%

1000 5%

0 0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 & Q2 2018

BTR sales BTR sales as % of total sales

Source: Molior

The property development pipeline remains planning applications has been reducing every high, as construction of new properties rose by year since 2014. As of June, unimplemented 8.5% during the second quarter of the year and planning permissions for private new homes in completion of new homes were up 28.4% on the developments of more than 20 properties stood previous quarter. However, the number of new at 176,000.

London12000 new homes: starts, completions & sales: Q1 2013 - Q2 2018

10000

8000

6000

4000

2000

0 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

Starts Completions Sales

Source: Molior

5 At the end of June, asking prices for newly Nonetheless, the long term performance is built homes were down 2% on the 2017 year- strong with 73% asking price increase recorded end average*. between 2010 and 2017.

*According to Molior

Average£1000 asking price for London new homes

£900

£800

£700

£600

£500

£400

£300

2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 Q2 2018 2018

Source: Molior

Outlook

The heady days of double digit growth across The supply of resale properties remains limited the wider Greater London property market are while the oversupply issues in the new homes long gone. The Land Registry reports that annual market are predominantly in the higher price achieved prices have fallen marginally in each of brackets. Combined with the continuing the last four months, although in a number of affordability issues, this is holding the market boroughs annual price growth is still comfortably back and the likelihood of anything more than above inflation. While availability remains slight growth for house prices over the next 1-2 limited, interest rates are low and employment years is remote. prospects are favorable, some level of growth However, a major downturn is equally as is likely to continue. unlikely without a major economic or financial In August, the Bank of England increased the shockwave, although Brexit uncertainties have bank rate to 0.75%. According to Nationwide, arguably increased over the past few months around two thirds of London homeowners with as the UK government seems unable to agree mortgages are on a fixed rate deal, so will not a unified approach to negotiations and Brussels be affected immediately. The remainder are on remains in an uncompromising mood. variable rate mortgages and the larger the size of their mortgage the greater the financial impact will be.

6 Asking prices are still decreasing in London's It does, however, appear that achieved higher-end areas where stamp duty continues to prices are close to rising again and in some negatively impact buyer attitudes. submarkets there has already been a slight return to price growth.

London residential price growth forecasts

2018-22 total 2018 2019 2020 2021 2022 (compounded) growth London 1.0% 0.0% 2.0% 3.0% 4.0% 10.4% Higher-end London 0.0% 2.0% 3.0% 3.0% 3.0% 11.5%

Source: Chestertons Research

7 Higher-end residential capital values (£/sq ft) & 3-month growth as at end-Jun 2018

The Chestertons Higher-end London Residential Sales & Lettings Indices track quarterly changes in capital values in 28 locations across London. They are fixed-base indices using the quarterly repeat valuation of a standard basket of properties (selected so as to be representative of a typical cross-section of prime stock within each location) in order to remove inconsistencies that can 710 arise from using a transaction-based approach where the number and type 0.0% 799 of properties may vary significantly between reporting periods. We have not -2.6% applied any adjustment for seasonality or property mix. The geographical coverage of our indices is as follows: 889 Barnes, Park, Battersea & , Camden, , 974 781 Chelsea, , , East Sheen, , & St John’s Wood -2.0% Camden 0.0% Blackheath, Hampstead, Hyde Park, Islington, Kensington, -0.3% Kentish Town, , & , Little Venice, , Notting 1,219 Hill, , Richmond, South Kensington, St John’s Wood, , Little Venice Mayfair & and Tower Bridge. -1.2% 1,280 1,250 Hyde 1,111 0.3% Covent Garden 0.0% Park -5.0% 2,209 1.6% 1,545 835 Kensington 0.0% Tower 2,392 Knightsbridge -3.8% & Belgravia Bridge 582 -2.1% -7.7% Chiswick Chelsea 1,706 1,171 -2.5% Westminster To Canary Wharf -2.0% & Pimlico South Kensington 1,758 0.0% 750 931 833 -4.1% Kew -0.7% Fulham -0.7% Barnes 868 Battersea 0.7% Park 700 1.3% East Sheen 909 726 0.0% Battersea 762 -0.7% Putney & Clapham -1.1% Richmond Canary Wharf 635 -2.6% 700 & Docklands -0.2% Wandsworth

Greenwich & Blackheath 592 -1.5%

Source: Chestertons Research

8 Lettings market: Key trends –– Rents are beginning to stabilise in many areas –– Landlords are selling off rental properties in reaction to tax changes –– Slight increase in yields over the second quarter

Supply and demand The higher-end London lettings market was This reflects fewer new rental properties coming busier in the second quarter of the year, with new to the market, with tenants deciding to stay put applicant registrations and viewings seeing a and landlords happy to avert void periods. substantial increase compared to the first quarter. In the wider Greater London market overall, This change reflects a number of factors: an demand remained robust but tenants increase in available properties, more landlords continued to suffer affordability issues. Survey prepared to accept reductions on asking rent evidence varies according to the source, and more tenants needing to finalise their but analysis suggests that rent accounts accommodation. for anything from 33% to 50% of average household income in the capital. Nonetheless, the London higher-end market remained difficult and consequently the number There is limited availability of lower price range of completed lettings deals only rose by around properties which is forcing tenants either to move 5% over the quarter. further away from , consider flat- sharing or even move back to the parental home. The number of tenants choosing to renew their existing lease rose by nearly 21% over the quarter and were 9% up on June last year.

Key market indicators: Q2 2018 v Q1 2018

60% 55.1% 50%

40%

30% 21.0% 24.1% 20% 14.3% 10% 5.1% 0% Market Available New Applicants Property Views Agreed Lets Appraisals Properties

Source: Chestertons Research

9 Rents & yield Although Chestertons recorded a slight fall in This reflects a reduction in available rental quarter two, there are signs that rental values properties as landlords sell some of their are stabilising. mortgaged portfolios, in reaction to higher tax bills. In the year to June, rents dropped by just 0.3% compared to a 12 month fall of 2.6% at the end Chestertons reported that gross yields rose of the previous quarter. An average London rent to 3.1% at the end of June. Central London of £1,596 pcm in June was reported*. yields were unchanged at 2.6% while yields at submarket level ranged from 4.7% in Average monthly rental price growth for new Canary Wharf down to 2.0% in Knightsbridge tenancies across Greater London accelerated to & Belgravia. 4.7% in the year to June*.

*According to HomeLet

Quarterly higher-end areas rental price growth

2.0%

1.5%

1.0%

0.5%

0.0%

-0.5%

-1.0%

-1.5%

-2.0%

-2.5%

-3.0%

-3.5% Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

Source: Chestertons Research

10 London gross residential yields (end-Jun 2018)

Canary Wharf Islington Chiswick Covent Garden Kentish Town Fulham Camden Battersea Park Greenwich Hampstead Notting Hill Wandsworth Kew St John's Wood East Sheen Richmond Prime London average Kensington Westminster & Pimlico Tower Bridge Battersea Rise Putney Barnes Chelsea & S Kensington South Kensington PCL average Mayfair Hyde Park Little Venice Knightsbridge & Belgravia 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Source: Chestertons Research

Outlook While tenants remain inflexible with regard to If they decide to sell to owner occupiers in their budgets, rents are compelled to be lowered greater numbers, this would result in fewer in those locations where available properties rental properties in London and could therefore remains high. push rents up. However, in locations where supply and demand Tenant affordability has been squeezed to is more balanced, a stabilisation in rental prices, almost breaking point. Research has found and even some growth, has been experienced. that the price of renting a two-bedroom flat in London has risen at almost three times the rate The potential question which could arise is how of earnings growth since 2011*. This suggests smaller accidental landlords with mortgaged that prospects for above inflation future rental properties will react to the phasing out of the growth are limited. 100% tax relief on finance costs. *According to GMB Union

London rental value forecast

2018-22 total 2018 2019 2020 2021 2022 (compounded) growth London 2.5% 2.5% 3.0% 3.0% 3.0% 14.8% Higher-end London 1.0% 2.0% 2.5% 3.0% 3.0% 12.0%

Source: Chestertons Research

11 Higher-end London residential weekly rental values & 3-month growth as at end-Jun 2018

The Chestertons Higher-end London Residential Sales & Lettings Indices track quarterly changes in rental values in 28 locations across London. They are fixed-base indices and are based on the quarterly repeat valuation of a standard basket of properties (selected so as to be representative of the typical cross-section of prime stock within each location) in order to remove inconsistencies which can arise from using a transaction based approach 655 where the number and type of properties may vary significantly between Hampstead -2.5 reporting periods. We have not applied any adjustment for seasonality or % 671 property mix. The geographical coverage of our indices is as follows: 1.2% Kentish Town Barnes, Battersea Park, Battersea Rise, Camden, Canary Wharf, Chelsea, Chiswick, Covent Garden, East Sheen, Fulham, Greenwich, Hampstead, Hyde 85 801 Park, Islington, Kensington, Kentish Town, Kew, Knightsbridge & Belgravia, 1,28 2 t Johns ood 9 3.2 Camden 2.1% slington Little Venice, Mayfair, Notting Hill, Putney, Richmond, St. John's Wood, South 0.0% % Kensington, Tower Bridge, Wandsworth and Westminster & Pimlico. 876 Little enice -3.0% ayfair 698 777 Hyde 743 3.9% Covent Garden otting Hill 4.9% ark 0.0% 1,728 3.4% 1,23 Kensington 1 Tower 463 1.6% Knightsbridge 0.0% 1,447 Bridge 0.0% & Belgravia 689 Chelsea 1.8% Chiswick 991 620 -2.5% estminster To Canary Wharf outh Kensington -4.1% & imlico 989 0.1% 682 91 783 -0.4% Kew 3 2.7% Barnes 2.1% ulham 568 -3.6 Battersea % ark 669 3.4 ast heen % 615 Battersea 597 -2.1 69 utney % & Clapham 601 9 0.0% Canary harf 2 1.5% Richmond & ocklands .8% 439 3.3% andsworth Greenwich & Blackheath 437 0.9%

Source: Chestertons Research

12 Contact Chestertons is the London and international residential property specialist that knows its business and markets like no one else and every year helps thousands of people buy, sell, let, rent and manage their homes and investments. With more than 30 offices across the capital, Chestertons has one of the largest networks in London, as well as a strong international presence around the globe.

Nicholas Barnes Richard Davies Head of Research Head of Lettings T: 020 3040 8406 T: 020 3040 8244 E: [email protected] E: [email protected] Local Offices: BARNES HAMPSTEAD NORTH BARNES Sales: 020 8748 8833 Sales: 020 7794 3311 Sales: 020 8748 8833 Lettings: 020 8748 7733 Lettings: 020 7794 1125 Lettings: 020 8748 7733 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

BATTERSEA & CLAPHAM HYDE PARK PARSONS GREEN Sales: 020 7924 4400 Sales: 020 7298 5900 Sales: 020 7731 4448 Lettings: 020 7298 5630 Lettings: 020 7298 5950 Lettings: 020 7348 7777 [email protected] [email protected] [email protected] [email protected] [email protected] PUTNEY BATTERSEA PARK ISLINGTON Sales: 020 8246 5959 Sales: 020 3040 8700 Sales: 020 7359 9777 Lettings: 020 8704 1000 [email protected] Lettings: 020 7226 4221 [email protected] Lettings: 020 3040 8700 [email protected] [email protected] [email protected] [email protected] RICHMOND CAMDEN KENSINGTON Sales: 020 3758 3222 Sales: 020 7267 2053 Sales: 020 7937 7244 Lettings: 020 3758 3333 Lettings: 020 7267 3574 Lettings: 020 7937 7260 [email protected] [email protected] [email protected] lettings.richmond @chestertons.com [email protected] [email protected] SOUTH KENSINGTON CANARY WHARF KENSINGTON CHURCH STREET Sales: 020 7589 1234 Sales: 020 7510 8310 Sales: 020 7937 7244 Lettings: 020 7589 1244 Lettings: 020 7510 8310 Lettings: 020 3040 8446 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] ST JOHN’S WOOD CHELSEA KENTISH TOWN Sales: 020 3040 8611 Sales: 020 7594 4740 Sales: 020 7267 1010 Lettings: 020 3040 8622 Lettings: 020 7594 4750 Lettings: 020 7267 1010 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] TOWER BRIDGE CHISWICK KEW Sales: 020 7357 7999 Sales: 020 8995 3443 Sales: 020 8104 0340 Lettings: 020 7357 6911 Lettings: 020 8747 3133 Lettings: 020 8104 0340 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] WANDSWORTH CITY KNIGHTSBRIDGE Sales: 020 8104 7530 City: 020 3040 8390 Sales: 020 7235 8090 Lettings: 020 8104 7540 [email protected] Lettings: 020 7235 3530 [email protected] [email protected] [email protected] COVENT GARDEN [email protected] Sales: 020 3040 8300 WESTMINSTER & PIMLICO Lettings: 020 3040 8400 LITTLE VENICE Sales: 020 3040 8201 [email protected] Sales: 020 7286 4632 Lettings: 020 3040 8220 lettings.covent [email protected] Lettings: 020 7266 2369 [email protected] [email protected] [email protected] EAST SHEEN [email protected] Sales: 020 8104 0580 WEST PUTNEY [email protected] Sales: 020 3040 8444 [email protected] Sales: 020 8104 7550 Lettings: 020 3040 8444 Lettings: 020 8104 7555 [email protected] FULHAM, FULHAM ROAD [email protected] [email protected] Sales: 020 7384 9898 [email protected] Lettings: 020 7384 9899 [email protected] MAYFAIR [email protected] Sales: 020 7629 4513 Lettings: 020 7288 8301 FULHAM, MUNSTER ROAD [email protected] Sales: 020 7384 9898 [email protected] [email protected] NOTTING HILL GREENWICH & BLACKHEATH Sales: 020 3040 8585 Sales: 020 8104 7500 Lettings: 020 3040 8588 Lettings: 020 8104 7510 [email protected] [email protected] [email protected] [email protected]

The contents of this report are intended for the purpose of general information and should not be relied upon as the basis for decision taking on the part of the reader. Although every effort has been made to ensure the accuracy of the information contained within this report at the time of writing, no liability is accepted by Chesterton Global for any loss or damage resulting from its use. Reproduction of this report in whole or in part is not permitted without the prior written approval of Chesterton Global. September 2018. 13 Hampstead Kentish Town

Camden & Primrose Hill Islington St. John’s Wood Little Venice Marylebone Hyde Park Covent Garden Notting Hill City Mayfair Kensington Tower Bridge Canary Wharf Knightsbridge & Belgravia Chiswick South Kensington Chelsea Westminster & Pimlico Earls Court Greenwich & Blackheath Battersea Park Kew Barnes Fulham Parsons Green East Sheen Battersea & Clapham Putney Richmond Wandsworth

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Reproduction of this document in whole or in part is not permitted without the prior written approval of Chestertons. October 2018.