Quarterly Research

Winter 2014



The housing market in our area remains in rude health as we begin 2014. Whilst a resurgence in the housing market nationally has taken some attention away from London, we continue to see strong growth in both prices and activity.

Across Notting Hill, Holland Park and Kensington, prices per square foot rose by 9.4% over the last twelve months, with the number of homes changing hands rising by 42% over the same period.

2013 saw a turnaround in the fortunes of both the housing market and the wider economy. As headlines became increasingly positive, confidence started to grow. Inflation reached the Bank of England’s target of 2% and economic growth exceeded expectations, up 1.9% by the year end (the highest annual growth figure since 2007). The housing market also saw an influx of new buyers, with transactions rising 16% and the number of mortgage approvals increasing by 20%.

The opening weeks of 2014 have seen a continuation in good news. The International Monetary Fund (IMF) has upgraded its 2014 forecast for the UK economy to 2.4% and government figures have been released showing the unemployment rate now stands at 7.1%, having experienced the biggest quarterly drop for 16 years.

Compared with initial forecasts published for 2013, which significantly underestimated growth last year, expectations for 2014 are far more positive. The consensus forecast for growth in UK house prices in 2014 is 7%, and the prime London market is expected to see increases of 5% by the year end.

Market activity

2013 was a busy year, both for us at Crayson and the overall housing market in our area. The total value of homes sold last year in our area exceeded £1.8 billion, £662 million more than the total value in 2012.

Sales started steadily in the first quarter of the year (10% higher than in Q1 2012), but rose significantly between March and December, with the number of properties sold 53% higher than the same nine month period in 2012.

Despite the introduction of a 7% stamp duty rate for homes over £2 million in 2012, it was this sector of the market which saw the highest growth in transactions in 2013, up 77% year-on-year.
Values in our area have risen by over a third (34%) in the past five years, with growth of 9.4% over the last twelve months alone. Flats recorded higher price growth than houses last year. Apartments in Westbourne Grove and Bayswater saw the highest growth in achieved prices, 13.2% above 2012 values.

Homes in Kensington continue to command the highest prices, with properties sold in the last three months achieving £1,658 per performing market for price growth within our area with values increasing by 44%.

The Notting Hill market saw the most significant rise in transactions, up 52% on 2012. Demand for houses in Notting Hill and Holland Park remained high, with the number of sales increasing by 81% year-on-year and properties sold achieving an average of £1,513 per square foot over the last twelve months.


Supply & demand

Since London returned to work in January, demand from new applicants for homes in our area has continued, with little sign of the market slowing.

Whilst we have seen an increase in properties reaching the market since the New Year, new instructions over the last three months of 2013 fell by 19% compared with the same period a year earlier. However, on closer analysis, there was a wide variation in this figure. The number of homes coming on to the market at under £2 million in the last three months of 2013 was 29% lower than in Q4 2012, whilst the number of new instructions at over £2 million increased by 8% over the same period.

Opportunities for residential development in our area of London have proved difficult to secure in recent years. Over the last decade there have been just 1,289 new homes completed for private sale. Ladbroke Grove saw the highest number of new homes completed at 426, compared with just 63 in Holland Park.

There are currently 16 new developments under construction in our area. Once completed, these schemes will provide 932 new homes for private sale, 65% of which are being built in just two developments,

375 Kensington High Street and the first phase of Portobello Square. Homes currently being marketed at Portobello Square include apartments, mews and town houses. Flats are also being offered for sale across various buildings at 375 Kensington High Street, due to complete between summer 2014 and 2016. Looking ahead, there are 1,766 private units with permission or in the planning pipeline.


Economic update

For both the housing market and the economy, 2013 far exceeded expectations. House prices nationally rose 4.4% in 2013, with the number of transactions up 16% on 2012. The FTSE100 posted its strongest year since 2009, ending the year up 14.4%. Confidence increased considerably amongst UK consumers and gross mortgage lending increased by 24% in 2013 according to the Council of Mortgage Lenders, with further growth of 15% forecast in 2014.

In January, the IMF upgraded its 2014 forecast for the UK economy to 2.4%, up from 1.9% in October. Consensus forecasts compiled by the Treasury suggest GDP growth of 2.7% by the year end. The latest government figures show unemployment fell by 167,000 to 2.32 million (7.1%) in the three months to November, the biggest quarterly drop since 1997. Despite being a welcome boost for the UK economy, there were concerns over the impact on interest rates.

With expectations that unemployment would not reach 7% until at least 2016, the Bank of England announced last August that they would look to increase interest rates once unemployment reached 7%. However, the Bank has now announced that it will place less emphasis on unemployment figures in its considerations on raising interest rates.

Both the Liberal Democrats and Labour continue to voice their support for the implementation of a ‘mansion tax’ beyond the next election. Whilst details on the exact charge and how this would be implemented are still unclear, we will be watching this with interest over the coming months.


A safe haven

The proportion of residents living in Kensington & Chelsea who were born overseas (currently 51.6%) is a key driver in maintaining the borough’s safe haven status as an area to invest. According to research by Oxford University, house prices in London have a direct correlation with political uncertainty in particular countries.

The research suggests that an increase in political and economic uncertainty overseas can result in price rises in London areas with a higher proportion of residents from that particular country. An example of this would be the increase in French buyers in Kensington following Hollande’s announcements over taxation of high earners in France.

The study also found that in the parts of London with a higher share of residents originating from a particular country, house prices were nearly half a per cent higher in the months following an increase in that country’s annually measured political uncertainty.


Crystal ball gazing

With the prime London market increasingly tied to the fortunes of the global economy, forecasting how our market will perform has become increasingly difficult. Forecasters, often basing their predictions on performance over previous economic cycles, are now having to contend with global, as well as local factors to determine the rate of house price growth. Unsurprisingly this means that unexpected global events have an increasing bearing on the fortunes of our market.

Comparing consensus forecasts for the prime London market illustrates this point. At the start of 2013, many were forecasting little or no growth across prime London, however, we ended the year with values almost 10% higher. Outlined below are the predictions for and actual performance of prime London property.


Market overview

W8 is one of the most expensive and sought-after postcodes in London. Whilst the area has over 10,800 dwellings, properties rarely reach the market. Over the past five years just 1,628 homes have changed hands, 15% of housing stock.

W8 is a truly international area. According to the most recent Census, 57% of residents were born overseas, with those born elsewhere in Europe accounting for 23% of all residents. Of the residents from mainland Europe, 32% were French born.

With high demand for properties, yet relatively low levels of new supply, prices in W8 have increased considerably over the past decade. Average values per square foot have risen by 173% since 2003. Two bedroom flats, which a decade ago averaged £517,000, are now selling for in excess of £1.35 million.

Properties sold in 2013 achieved an average of £1,545 per square foot. Houses, which accounted for 31% of sales last year, commanded a premium of 23% over flats, selling for an average of £1,777 per square foot in 2013.

If correctly priced, homes which do reach the market are selling quickly. Last year Crayson sold an unmodernised, stucco fronted house on Scarsdale Villas, achieving in excess of asking price at almost £2,000 per square foot.

The most popular properties are located within an area controlled by one of London’s largest landed estates. The Phillimore Estate covers an area totalling 20 acres. Properties on the estate (W8 7) and to the south east in W8 5 command a premium, averaging 15% more per square foot than elsewhere in W8 in 2013.


Meeting demand

In the last twelve months the market in W8 has been particularly active, with 334 homes finding new owners, 98 more than in 2012. The upper end of the market has been especially busy, 45% of properties sold in 2013 achieved over £2 million, compared with 25% five years ago.

The increase in sales, alongside a rise in high value properties changing hands, meant the total value of sales in 2013 exceeded £896 million, 46% higher than in 2012.

Whilst transactions increased by 43% between 2012 and 2013, the number of new properties reaching the market in the second half of 2013 fell by 2.6%, compared with the same period a year earlier.

As well as a limited number of existing properties reaching the market within W8, opportunities for residential development remain scarce. Over the past decade there have been just 274 homes built for private sale. Looking ahead, there are currently 439 private units that are either under construction, with permission, or in the planning pipeline.

There are three developments currently under construction on Kensington High Street. The site of the former Commonwealth Institute is being redeveloped to incorporate 62 new homes, alongside a new 100,000 square foot Design Museum. Construction is well underway at the 97 unit De Vere Gardens development on the site of the former Thistle hotel. Over the border into W14, the Inland Revenue building is being redeveloped to provide 467 homes for private sale.