London luxury housing market ‘cooling’, estate agents warn

Kate Allen
Properties stand on a cul-de-sac in a development of New England-style residential homes known as The Hamptons in the Worcester Park district of London, U.K.
Simon Dawson | Bloomberg | Getty Images

London's luxury housing market has started to slow after several years of soaring price growth, estate agents warn.

Savills, one of Britain's biggest estate agencies dealing in prime property, said in a trading statement on Monday that it had seen "some cooling" in the top end of the central London market.

The note of caution came a week after a London flat sold for £140 million, making it the most expensive in the capital, and Grosvenor Group warned this month of a "bubble" in London housing. The Duke of Westminster's property company said it was pulling back from developing new homes as "the prospect of a correction is becoming more likely".

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Savills estimated that prime central London house prices grew 8.9 per cent in the year to March 2014 but will rise only 3-4 per cent this year.

"It's a cooling in the rate of increase," said Jeremy Helsby, chief executive. "The market has had a very strong run but we believe this year it will come off."

Mr Helsby stressed that London continued to be popular with the foreign buyers who have fuelled the price growth. "We're still seeing increasing interest from Russian buyers, for example. As long as there is instability somewhere in the world, the London market will benefit," he said.

Knight Frank, a rival estate agent, has published research showing annual price growth for London homes over £10 million fell below 5 per cent in the year to April 2014, the lowest rate for four years. In Belgravia, prices rose just 0.6 per cent and in Chelsea just 1.3 per cent year on year, Knight Frank said.

Although many buyers see assets in the capital as a haven for their cash, investors purchasing for rental yield are concerned that the rents achievable on high-end homes are falling as high-spending tenants prove elusive.

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Knight Frank research showed a 1.6 per cent fall in average central London rents over the same period.

The number of new homes being let in Knightsbridge and Belgravia has fallen 15.2 per cent year on year according to research by estate agents Strutt & Parker and flat rentals in the area have dropped 6.5 per cent. New house lettings in Kensington and Notting Hill fell 6.5 per cent and flat lettings dropped 5 per cent in the same period.

Ian Potter, chief executive of estate agents' body the Association of Residential Letting Agents (ARLA), said at least half his members in London were finding it hard to rent properties out. "They are starting to see stock sitting [unlet] and they are looking for tenants, particularly for mid to high-end properties," he said.

Virginia Skilbeck, lettings director at Douglas & Gordon estate agents, said landlords were choosing to sell homes after failing to find tenants at the optimistic rent levels they wanted.

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"Landlords' expectations have been fuelled by all the rhetoric about the London market and they are being disappointed by what they can actually get," she said. "We are seeing more rented home sales now than we have had in a long time. It's unsurprising given the returns you can generate."

Some of the biggest property lenders have become cautious about financing London housing developments, fearing that a glut of projects in the pipeline will swamp the market.

More than 150 residential towers are planned for London and heritage campaigners have warned that a "wall of glass" will ruin the city's skyline.