For the last decade, London was one of the hottest housing markets in the world.
That, however, could be coming to an end. Fears of Brexit becoming a reality caused many high end, luxury buyers to turn away from this market.
The result is severe downward presssure.
Price dropped over 12% due to the fact that almost half the homes built or under construction still have no buyer. Unless this situation turns quickly with more buyers stepping up, expect this pressure to grow.
Fears are that London might end up with empty luxury towers since this segment of the market is faring worse than the overall numbers. More than 1,900 luxury apartments built last year remain unsold.
While fears over Brexit is contributing to the downturn, there are other factors to consider.
The Chinese injected a ton of liquidity in the market by getting into the "flipping" game. Their goal was to buy units early in the construction process and flip the properties for a large profit upon completion. This is a sound approach when prices are on their way up. The recent reversal is causing people to try to cover in an effort to cut losses.
Another factor is the rising interest rates in the United States. This stems the attractiveness of the London market since the spread between yeilds is tightened. The U.S. Federal Reserve is taking the rate increase at a slow pace yet they are moving up. The difference from 2 years ago is signficant.
Last year, more than half of U.K. property purchases were international while London registered 1/3. With these buyers drying up for the reasons mentoined, this has weakened the market considerably.
Developers are caught trying to unload finished units at a serve discount. Sadly, for them, this does not seem to be working. They are offering all kinds of free incentives including carpeting, furniture, and even automobiles in an attempt to give incentive for buyers to purchase. The numbers reflect how little impact this strategy is having.
London is seeing the fastest decline in prices since the 2008 crash.
All is not gloomy. Other areas are seeing significant growth.
Interestingly, prices grew strongly in other parts of the country with east Midlands, East Anglia, Scotland and Yorkshire recording the fastest growth clips in housing prices at 7.3 percent, 7.2 percent, 6.7 percent and 6.1 percent, respectively.
This is worth watching. Is the global real estate market in peril due to the other factors mentioned or is this simply a case of Brexit affecting London. Over the last decade, Hong Kong, London, Toronto, San francisco, and New York City were some of the hottest markets on the planet.
Will London's issues bleed over to other cities?
To read more about this topic, follow this link.
https://safehaven.com/article/45840/Brexit-Is-Killing-Londons-Housing-Boom