Prime London Property Update: Mojo Rising (Part 2)
(LUDGROVE JANUARY 2020 NEWSLETTER)
Ludgrove's final Newsletter of 2019 was entitled "Mojo Risin" on the basis we anticipate 2020 will be the year Prime London property at long last regains it mojo. And so far the market has not disappointed.
A large number of sales agencies have recorded huge increases in buyer registrations as well as agreed sales. Knight Frank for example has experienced a +92% (y.o.y) increase in new buyer registrations in the second week of January and Rightmove registered a 19% increase in agreed (mainstream) London sales. Vendors seem to be recalibrating their price expectations too with Rightmove Prime London Asking Prices up 7.1% y.oy:
However, whilst the appetite of Buyers is clearly burgeoning, supply has so far failed to respond in any meaningful fashion. To some extent this is unsurprising as real estate recessions tend to shake-out the 'loose holders' of assets including speculators, leveraged developers, inexperienced investors and over-extended home-owners until all that remains are the hardy holders. Indeed, the longer the recession, the deeper the shake-out and with the 2014-2019 Prime London Bear Market being the longest on record, the vast majority of 'loose holders' have been purged.
This is borne out in the data. The Knight Frank index of new listings also shows that stock levels are down over 20% y.o.y in Prime Central and Prime Outer London. However, it is important to note this is from an already extremely depressed level. 2019 transactions are down c55% from the last year of normalised transactions in 2014 and to put things in context it would take a +122% increase in transactions to return to a normally functioning market:
Furthermore, in certain areas of the market, stock levels are even more depressed. Below we highlight a few localised examples where choices are extremely limited:
Houses for Sale in Select Price Brackets (Prime London & Prime Commuter London):
Mayfair above £20m: 2 for sale & 0 new listings in 2020.
Notting Hill £5-10m: 10 for sale (of which 1 new listing in 2020).
Kensington below £3m: 9 for sale & 0 new listings in 2020.
Cobham & Oxshott £2 to £3m: 5 for sale (of which 2 new listings in 2020).
Source: Ludgrove Property (excludes off-market properties).
It is also important to bear in mind that a significant number of the houses listed above are compromised. For good reason they have sat on the market for months on end struggling to find a buyer. Of course, there are a number of properties in each of the above that are for sale off-market but the fact remains the supply of stock is exceptionally low.
Outlook and Conclusion:
Data from LonRes shows the Prime Central London Market bottomed in Q1 2019 (in line with Ludgrove's 2018 forecast) and has already risen +9.5% from the low, retracing around 45% of the fall from the top of market:
With a bottom in place, the extreme supply/demand dynamics outlined above and the 12 fundamental drivers we detailed in our last newsletter we are of the opinion that prices are on an upward trajectory in 2020.
Ludgrove Property Ltd
Tel: +44 (0)207 889 2860
Biography: Fraser Slater is the CEO and Founder of Ludgrove Property. Prior to Ludgrove Fraser spent 20 years in The City. In the course of his career he was a Real Estate Analyst, the Fund Manager of a £6bn Equity portfolio for USS Ltd and the Founder and CEO of WDB Capital, a London based Fund Management business. In 2008 WDB Capital outperformed its peer group by +52% making Fraser's portfolio one of Europe's best performing Funds during the Financial Crisis. In the same year his Fund was nominated New Fund of the Year by EuroHedge. After leaving The City, Fraser started Ludgrove with an ambition to be Prime London's leading Property Buying agency with an emphasis on original research and delivering a highly value-added service to clients.
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