Our Opinion: 2020
London property remains over-valued
London’s housing market remains over-valued, according to the UBS Global Real Estate Bubble Index. Real prices have roughly stagnated over the last four quarters, and they remain 10% below the levels reached in 2016. Not only has London’s housing market lagged the national average since then, but it has been the weakest market of all analyzed cities after Dubai.
The broad market weakness can be attributed to increasingly stretched affordability. The average required down payment in the Greater London area is now roughly twice as high as it was 10 years ago, according to Halifax. While the extension of the help-to-buy scheme, historically low mortgage rates, and constant undersupply all support the market, they’re unlikely to revive it. Moreover, as London has one of the longest commuting times for office employees, the growing acceptance of working from home will likely curb the demand for centrally located housing.
London’s prime market has also been under pressure for the last couple of years. The ongoing political uncertainties around Brexit, unfavourable taxation, and higher stamp duties have taken their toll on wealthy and foreign investors. But London will remain one of the most attractive world cities over the long term. Foreign buyers are likely to take advantage of the weaker pound and lower house prices. From a US dollar perspective, London property prices are still below their 2007 levels. In addition, the current stamp duty holiday and the upcoming introduction of a stamp duty surcharge for non-UK buyers should stimulate demand for prime properties in the coming months.
30th September 2020