Tulip Mania comes to London

BruegelTulipMania“It doesn’t really matter how you judge them, London house prices seem to go up and up and when it comes to London property most estate agents would prefer you to use a ruler measured in feet – just like altitude! Prices have reached dizzying heights accessible only the the likes of Felix Baumgartner with yields on prime residential property now often below 4%. Once you have taken off the cost of managing the property, the voids, dilapidation’s and the illiquidity of property you might be lucky to get 1.5%pa net which makes a regular bank account look attractive. No, by traditional measures house are over-priced.

When you talk to London agents they will point to the influx of foreign money who see London, even at 4% as a better bet than wherever they might call home  – be that somewhere in Europe like Greece, China or Eastern Europe where their money is vulnerable and their lives often equally unsafe! Even if your ‘investment’ in Sw3 were to fall in value by 25% it’s almost certainly better than what might happen if you left your money abroad. Whilst London prices make no sense to us it’s a safe port in a storm for many even if for many it’s Tulip Mania all over again.

Central London property isn’t concerned about Funding for Lending, about Government initiatives like ‘New Buy’ or ‘First Buy’. Those buying here almost always have cash to spend borrowing perhaps modestly purely because at 2% they can make their actual cash work much harder elsewhere. Most sellers accept that the buyer for their property will probably speak English only as a second language – French, Italian or Russian being more likely to be heard in South Ken, Notting Hill and Maida Vale. This international market is what is keeping London prices up and the bubble taut.

But it’s not like this across the whole of London. New homes are being built albeit far slower than demand dictates, domestic buyers don’t have the firepower to buy in outlying parts any more than they have in the centre and supply of stock is woefully low. All this adds to the ‘them and us’ feeling of many agents who see the fuss made in Prime Central London to be as irrelevant as the market in Bradford. Turnover is a trickle of what it was with little sign of improvement in the next 24 months.

What does this mean? The deals done in the centre of Town will keep averages on the Rightmove House Price Index up across London and whilst Chelsea may see another 10% this year it’s unlikely that Hackney or Epping will stay positive. Overall foreign money will keep the bubble taught but for how long? Just until the last patsy has fallen for the sales pitch that includes the words “£4000 per square foot isn’t that unusual in Fulham!