London luxury home deals set to slump deeper for rest of year

LONDON – More pain could be around the corner for London’s luxury housing market as economic uncertainty saps demand among the city’s richest home buyers.

Transactions across prime London – which includes the capital’s most affluent postcodes – fell by almost a quarter in September from the same month in 2022, according to data from a report by researcher LonRes.

This has prompted the average sale price to drop 3.1 per cent in the same period, the largest annual fall in over two years.

Deals for homes priced between £2 million and £5 million (between S$3.3 million and S$8.3 million) underperformed the most, declining by more than a third year on year in the third quarter.

“The lack of activity does finally appear to have caught up with values,” said Mr Nick Gregori, head of research at LonRes.

“There is a risk that negative economic news in the United Kingdom and the escalating conflict in Israel and Palestine could further weaken buyer sentiment,” he added.

Rising borrowing costs, economic uncertainty and the worst cost-of-living crisis in a generation have driven a slowdown in the British property sector in 2023, with sellers increasing their asking prices at the slowest pace for any October since 2008.

While London’s luxury housing market is more insulated from such headwinds, with buyers typically less debt-dependent, negative sector sentiment and wider economic concerns are impacting demand across the quality spectrum. 

The number of properties going under offer in prime postcodes – billed as a leading sales indicator by LonRes – dropped by 27.4 per cent in September compared with the same month in 2022, suggesting that the picture may worsen in the coming months.

One consideration is fewer people choosing to live in London for work as remote working trends continue, the report said, evidenced by underground and bus travel plateauing at less than 80 per cent of 2019 levels. 

Agents also suggest that a dearth of international buyers – historically among the keenest investors in prime London real estate – may be to blame for slower activity.

Economic uncertainty and a less welcoming tax and business environment were cited as possible deterrents for foreign investors. 

Still, insatiable demand for London rental homes showed signs of easing in September, with prime properties taking slightly longer to let than a year ago.

Regardless, the annual rental growth across prime London was 9.3 per cent in September, taking values 31 per cent above their pre-pandemic average.

Meanwhile, the less debt-reliant nature of London’s luxury housing market means that the costliest home sales are holding up better than cheaper deals.

Sales for properties priced at £5 million or more were up by two-thirds between July and September compared with the average for the same quarter from 2017 to 2019, the report said.

“Prime London values are well insulated by high levels of equity in the market and limited numbers of ‘forced’ sellers,” Mr Gregori said.

“There has also been relatively low price growth over the last decade, which suggests there’s less froth to come off this market than others.” BLOOMBERG