While the mainstream market is having a slowdown, London’s £10 million plus property market is still going strong thanks to pent-up covid demand, according to Knight Frank analysis.
There were 152 super-prime sales in the year to October 2022, down slightly on the previous 12 months (159), though it may rise as Land Registry records update.
Either way, the figure was higher than any of the previous five years. A total of £2.8 billion was spent in the latest 12-month period, which was the most in seven years.
Paddy Dring, global head of prime sales at Knight Frank, said: “Brexit made buyers hesitate and Covid forced them to stay at home, so frustrated demand is still working its way through the system.
“However, other risks are now on the horizon, including rising mortgage rates and speculation that house prices will fall. It can lead to expectation gaps, however marginal, between what buyers and sellers perceive as fair value.”
Knight Frank forecast that UK prices will fall by around 10% over the next two years as the lending landscape becomes tougher after 13 years of ultra-low rates.
However, prime residential markets in the capital will be more insulated than the rest of the country from rising rates due to lower levels of mortgage debt, as the map shows.
Central London has one of the biggest proportions of cash buyers in the country.
Indeed, above £10 million 54% of buyers have used cash in the last five years, Knight Frank data shows.
Prices in the second-hand market in prime central London (PCL) are expected fall by 3% next year, taking them back to the level of January this year.
Knight Frank forecast that prices will rise by 7.5% in the five years to 2026 in PCL, though new build values may not move at the same rate.
There are two other factors that will underpin demand in the short to medium term.
First, prices for £10 million-plus properties represent relative value compared to the last peak. Average prices in October were 12.2% lower than they were in September 2015.
Second, when you combine the price decline with the weakness of Sterling, discounts of around 50% are available for overseas buyers in some PCL postcodes, as we explored here.
Rory Penn, head of London sales at Knight Frank, said: “Combined with the impact of the strong dollar, the ‘Rishi effect’ has settled the market after the mini-Budget.
“While the global economy may be slowing down, private wealth will continue to be created around the world that will find its way to London.”
Several high-quality new-build developments have pushed activity between £20 million and £30 million, as there were 31 sales between £20 million and £30 million in the year to October 2022.
Rupert des Forges, head of prime central London developments at Knight Frank, said:“London remains a focus for high-net worth individuals as a relative safe haven due to global political and economic uncertainty as well as the attraction of a weak pound.
“October was the strongest month on record in terms of business transacted by our PCL development team. The supply of large spaces in the West End is now reduced, an apartment over 300 square metres is increasingly difficult to secure.”
The pipeline of £10 million-plus new homes has dipped for reasons that include increased land, labour and construction costs.
Penn added: “We’re not quite in election countdown mode yet but some discretionary buyers are becoming more cautious about the political landscape.
“For now, the super-prime market in London has very much found its feet again.”