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Property market comment

June 2008

The sub-prime crisis in the US precipitated a credit crunch, with the immediate fallout the likes of which have not previously been seen. The speed of change in market conditions took even the most seasoned property professionals by surprise. Across the mainstream and prime markets a marked fall in both turnover and prices has been in evidence, and at an increasing pace, since October 2007. Sales volumes (additionally affected by lower mortgage approvals) were almost 50% below their long term average over the last quarter with prices this year in general being 5 – 15% below their peak of September last year. Indeed, since November 2008, other than on one occasion this year when we were involved in sealed bids for an exceptional property, we have managed to negotiate up to 19% off the original marketing price on all properties, valued between £750k and £7m, sourced on our clients’ behalves.

The exception to the above conditions is the super-prime market, particularly in Central London, which is still surprisingly potent. This is illustrated by reports of the recent £100m sale by Knight Frank & Rutley of a house in Kensington. This is the only market sector where there has been a growth in year on year sales over the last quarter and thus the sharp price decreases seen elsewhere in the market are unlikely to be replicated here. Perhaps the fears regarding the non-dom situation have turned out not to be as big a factor on price levels in this market as previously expected. Whilst price increases in this sector of the market are not expected, a greater level of stability is with prices overall remaining static.

What does this mean for our buying clients? Whilst estate agents and vendors are, to some extent, crying in their milk, buying agents and their clients can readily embrace what is happening to the UK property market in terms of making it work to their good. There are buying opportunities to be had, the greatness of which has not been seen for many years. The newspapers are reporting nothing but doom and gloom with regards to a tightening of mortgage lending and falling house prices, however, what is not being so widely reported is the best buying climate to be had since the early 90’s (in fact probably better even given that borrowing, despite its current difficulties, is so much cheaper than then) and this we see set to continue for some time to come. Whilst saying this, we are fully aware that despite these price drops affordability does still remains an issue for some because borrowing has become more expensive. However, for those with a decent ratio of capital to borrowing we lean on the logic of Warren Buffett who once said, “Be fearful when others are greedy; be greedy when others are fearful” and in following this premise I believe we have entered a period of great buying opportunity.

At the end of the day whilst we do not have a crystal ball to predict property prices for this time next year we see the next 6 months, particularly, as a window of opportunity for hard negotiating on properties below the £10m mark. Come late Autumn/early Spring we believe that many of those prospective buyers who have been sitting on the fence may well decide just to “get on with it” thus bringing about more buyers and therefore less negotiating power. However, a further fall-out from the end of fixed rate mortgages and those finding it harder to re-mortgage leading to an increase in forced sales could negate the increase in numbers of opportunistic buyers allowing the current opportunities to be had for even longer.

Whatever the next 6 – 12 months brings we look forward to negotiating hard on our clients’ behalves to achieve their purchases on the best possible terms.

Sarah Van der Noot – Managing Director, London Property Search.

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