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In response to changing markets conditions
London, 29th February 2016 – Demand for Central London residential has weakened, forcing JLL to reconsider price growth forecasts published on 3 November 2015. This has been driven by a deepening of global economic uncertainty, notably from China, but more significantly by the imposition of an additional 3% Stamp Duty charge for second home purchasers and investors.
This change has resulted in shifting buyer preferences and a diminishing appetite for high-value (i.e. £2 million+) properties in new build developments.
Adam Challis, Head of Residential research at JLL comments: “We are seeing a shift in appetite with purchasers now seeking long-term growth prospects in the medium to lower end of the price spectrum and our expectation is that demand in the sub-£1 million market will remain buoyant throughout 2016, albeit with an increasing note of caution.”
Challis continues: “The attributes that underpin demand for London residential property remain sound and it is expected that buyers will continue to identify value opportunities in Zone 2 and beyond during the first-half of 2016. As a result, new build pricing for these properties is expect to remain broadly flat, provided that developers adjust expectations to suit this new market condition.”
New build developments rely on off-plan investor sales, as owner occupiers typically chose to purchase new-build properties closer to the date of construction completion. Off-plan sales are generally a pre-requisite for the release of construction finance, meaning that the viability of new developments is directly impacted by weakening demand from these purchasers.
Andrew Frost, Head of Residential at JLL adds: “By including new build property within the 3% SDLT increase, Government has directly undermined its own priority to boost housing supply. Furthermore, the change has made higher-density schemes demonstrably more risky, increasing the burden of new supply on suburban and greenbelt locations.”
Despite this policy-driven headwind to market demand, the attributes that underpin demand for London residential property remain sound. The UK economy continues to post European-leading and broad-based GDP growth, supported by all-time record employment levels. At the same time, aided by depressed oil prices, inflation is expected to remain low. This in turn lowers the pressure on the Bank of England to raise the base rate and supports improving activity in the mortgage market.
JLL Central London Residential Forecast Restatement.pdf
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