Deals are back on the table as prime central London transactions jump 29% (from a low base)

Deal numbers in prime central London rallied by 29% in the week following the Brexit vote (compared to the same week in May), says Knight Frank, but, as already reported by Savills, prices dipped in June by 0.2%

That monthly price drop (the weakest monthly result since November 2014) takes PCL’s annual price performance to -0.6% in the year to June 2016, but there’s a now familiar mismatch between the higher- and lower-value segments of the market (which is reflected in local area performance); sub-£1m prices increased by 0.4% in the three months to June, while the £5m-£10m bracket dropped by 0.9%.

There are, however, some rosy fingers creeping into the high-end market, as Knight Frank reports that the number of new prospective buyers between £5m and £10m rose by 8% in the year to June, and by 9% in the £2m-£5m bracket. This could be down to under-performance of more expensive homes in London over the past couple of years, prompting some buyers to see glimpses of opportunity/value in the coming months.

Vendors across PCL have been “adopting a more realistic approach” to pricing, says Knight Frank, cutting prices to entice buyers through the fug of economic uncertainty. And it seems to have worked – helped along by a result, any result, in the referendum – with activity seeing a significant uptick.

Albeit that this is from an incredibly low start-point – Land Registry data shows zero super-prime £10m+ deals in April and May – but transaction numbers across prime London jumped by 38% in the week immediately after the referendum compared to the prior week, and by 29% compared to the same seven days a month earlier. London estate agency has Douglas & Gordon reported even more dramatic turnaround, claiming that its deal numbers “nearly tripled” in the aftermath of the Brexit vote.

While there was a clear release of deals-in-waiting after the referendum, it doesn’t look like the market is exactly blossoming: Knight Frank’s initial assessment of the current situation shows that new-buyer registrations and viewings have both slipped back slightly compared to the same period a month ago.

The lettings market has seen a short-term boost on the back of all the uncertainty, with the highest number of new prospective tenants registering with Knight Frank since September 2015, and June pulling in the firm’s third highest ever number of rental viewings.

But over-supply – the number of new properties coming onto the market in the six months to June 2016 rose 24.3% compared to 2015 – is keeping rents down; values dropped by 3% in June.

There are reasons for investors to be cheerful though, as the prime gross yield in June came in at 3.1%. That’s a fair chunk above the current record-low yield on a ten-year government bond (around 0.8%).

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