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PostLondon's Declining Property Values (Timothy Ashby, South Africa, 08/09/18 4:31 am)
John E asked if anyone can give the "insider perspective" about London property prices.
Rosemary is in the (hopefully) final stages of selling her one-bedroom flat in a desirable area of London called Bayswater, on Inverness Terrace one block from Hyde Park. She bought it for her own residence in the early 1980s and has leased it to tenants since 1994.
Since putting it on the market in March, she has had only one offer despite determined efforts by her real estate agent. After some negotiation, she agreed to sell it six weeks ago for about 20% less than the asking price, which is about 30% less than the flat would have been worth two years ago at the last peak of the London housing cycle. While there are several factors affecting the decline in prices, including Brexit, overall economic uncertainty, lenders' tightening borrowing criteria, and the decreasing ability of (mainly young) first-time buyers to beg, borrow or steal enough cash to get a foot on the bottom rung of the property ladder and negatively impacting the market.
Our friends and contacts in the property sector expect prices to decline further, which is probably a good thing for buyers as in my opinion prices for small, tired flats and houses even in suburbs like Barnes (where we live, in Southwest London) have reached ridiculous levels. On streets near our house, Victorian "2-up, 2-down" houses are on the market for £1.2 million.
One real estate story that is often overlooked is the oversupply of commercial office space. The permitting and construction process can take years, and the new buildings in London that took years to build have millions of square feet sitting empty. Again, Brexit is an important factor (just two days ago the Financial Times reported that "With only eight months before the UK's exit from the EU, banks are starting to put into action their Brexit contingency plans, setting up alternative European hubs in places such as Paris, Frankfurt and Dublin"), but people's work habits have changed as well, with more employees at all levels working remotely.
I have colleagues at several major law firms who are encouraged to work at home and only book temporary office space or meeting rooms when necessary. These firms have reduced their commercial space by around 50%. saving hundreds of thousands in rent. Most startup tech companies in London use temporary "collaborative" work spaces such as those developed by WeWorks, which is doing very well out of the changing times.
JE comments: As I tell anyone who'll listen, Adrian is still cheap! Yesterday (August 8th) WAIS HQ-Adrian celebrated its first anniversary on the market with no offers. Think about it: Adrian is sixteen times cheaper than London. Although the theater isn't as good, the Mexican food is better.
Back to London: nothing stops a market colder than the prospect of declining prices. Why buy today when tomorrow will be cheaper? Still, how can normal folks with normal jobs even begin to afford a £1.2 million "starter home"?