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London prices lead way
Published 26/11/12

PRIME house prices in London are forecast to plateau next year, while the long-awaited ripple of wealth from the capital is expected to begin its journey to the regions, according to Savills Estate Agents.

After three and half years of growth, prime London house prices are likely to see a period of little or no growth, says global real estate provider Savills in its latest forecasts.

This slowdown comes on the back of high rises since 2009, which have completely bucked the trend in the rest of the country.

Prime central London values are 22 per cent above their 2007 peak, while areas such as southwest and north London are now 12 per cent above their previous peak levels. Growth is expected to resume in 2014.

Prime central London growth has been driven primarily by inflows of international equity and net new money flowing into this market has totalled an estimated 19.5 billion since 2007 according to Savills research.

London remains a major world city destination for real asset investment and this is likely to continue after the brief lull expected in 2013.

Beyond the centre, London’s other prime markets have traditionally been more heavily dependent on domestic wealth generation, particularly in the past from the financial sector.

Prices recently have been boosted by a recycling of domestic wealth from buyers reluctant to relocate out to the commuter zone and some displacement of international wealth from prime central London.

Rarely, if ever, has there been a bigger gap between what is happening in prime London and what is happening in prime markets outside London.

The weak economic recovery has continued to suppress sentiment across the prime regional markets, with key commuter hotspots only a very recent exception.

Savills expects the long-awaited ripple of wealth to be seen in the prime commuter zone around London next year, meaning locations such as Sevenoaks, Guildford and Beaconsfield will see values rise by 1.0 per cent, making this the only part of the prime market to see any price growth in 2013.

Five year price growth will total 21 per cent in the prime inner commuter zone and 19 per cent in the outer commuter zone. Further afield, prime regional markets will begin to bottom out in 2013, before resuming growth in 2014, but the further they are from London, the weaker the expected growth will be.

Yolande Barnes, director, Savills world research, says: “Although the gap between prime London and prime regional prices has never been wider, buyers have lacked the confidence during the recession to exploit this gap. As the economy, and particularly confidence improves, we expect that this will begin to change, but it will require London and the prime suburbs to remain active and it could be 2016 before the effects of wealth migration are felt right across the UK’s prime markets.”

Guy Robinson, head of Savills residential sales in the Homes Counties, comments: “This region is already beginning to see the signs of a more positive outlook. October was extremely busy with deals being done not because of price reductions but because buyers were ready to commit, buoyed by a re-discovered confidence. As London prices plateau next year we look forward to seeing more and more house hunters venturing outside the capital to benefit from value for money in the regions.”

Charles Elsmore-Wickens of Savills Henley adds: “Activity really picked up in October with serious buyers leading to successful sales especially in the 800,000 to 1.5m price bracket. Pricing is still very important though and those vendors who are realistic in their expectations are attracting the greatest interest.”

Published 26/11/12

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