An increasingly fragmented property market
The UK’s property market is becoming increasingly fragmented as it is variously impacted by the many headwinds it is encountering.
This has resulted in different growth dynamics driving the core sectors which we have defined as PCL’s mainstream Private Rented Sector (PRS), PCL’s luxury property market, Greater London’s new build sector and the domestic market, outside PCL.
An analysis of just released Land Registry data for Q2 2016, the most comprehensive data set available, shows a roller coaster year to date. Vividly demonstrating the distorting effect of changes in tax legislation, sales volumes have fallen dramatically in all sectors in Q2, following a rush of activity during the previous quarter, as buyers sought to be beat April’s 3% additional rate stamp duty deadline.
PCL’s discretionary luxury property market has been particularly hard hit in Q2, resulting in a painful quarter for the ‘Houses’ sector, where average prices have fallen 21%. Price growth, however, in Q2 has been strong in PCL’s PRS: a consequence of it being less impacted by the majority of the new residential property taxes introduced over the last 4 years, as well as traditionally being a consistent performer. Meanwhile, Greater London’s new build sector saw a 43% reduction in sales compared with last year as international interest for these units, often selling at a 25% premium over older stock, begins to wane.
For the rest of the domestic market, encompassing most of Greater London and England and Wales, Q2 has seen large falls in price and sale volumes. Whilst uncertainty pre-Brexit resulted in a ‘wait and see’ attitude, harsher salary caps on mortgage lending may have also begun to impede buyers. Due to the lag in Land Registry reporting, the data for Q3 is not available. However, empirical information indicates that the roller coaster has continued. The devaluation of sterling has encouraged more proactive investors to enter the market and buy opportunistically, particularly in the new build sector, albeit seeking heavily discounted prices.