What will happen to the Canary Wharf property market in 2019?
As 2018 draws to a close the question on everyone’s mind is: what will 2019 hold for the property market?
Now, there are agencies far larger than Proper Local, with whole floors of staff dedicated to research into property prices and sentiment. We can’t pretend to have a team such as this, but we do have plenty of common sense, and some good old-fashioned proper area knowledge.
Over the last 6 months it’s Brexit which has dominated the news, not only here in the UK, but worldwide too. And indeed, it is Brexit which is currently the main factor affecting not only property prices, but perhaps more importantly ‘confidence’ too.
For us, the property market’s performance is based on three main factors: supply, demand and confidence (plus a further factor often not mentioned).
What has typified 2018 is strong supply of new-build properties (particularly in and around Canary Wharf), and poor demand. The reason we’ve had poor demand is just very simply due to a lack of confidence in what Brexit will mean for the UK economy in general.
Put yourself in a buyer’s shoes. If you believed (rightly or wrongly) that property prices were going to fall further, then why would you but right now? You’d wait, and that’s what they’re doing too.
This lack of confidence also affects sellers who are thinking of selling. Big (and small) developers need to sell, so their stock will be on the market and available. But for private, individual sellers, in the knowledge that values will be higher in the future, well, they just hold off marketing for now, unless of course they ‘need’ to sell.
The reason we still have activity (people buying and selling) is due to the division between those who ‘want’ to buy or sell, and those who ‘need’ to. In any property market there will always be those who need to buy and sell, whether that’s due to death, divorce, debt or other family factors (such as a growing family). So, what we’ve experienced in 2018 is a falling away of the ‘want’ buyers and sellers. The ‘want’ buyers are only buying for secondary reasons such as a preference to be closer to work, a larger garden, a spare bedroom, and so on. And these buyers will just wait until there’s more certainty with the economy, in the same way that the ‘want’ sellers will wait for prices to increase.
However, its not all about Brexit.
Brexit is the reason right now, but in the run up to it all of these factors had a bearing on buyers’ and sellers’ confidence: a general election in 2015, a general election in 2017, changes to stamp duty for UK buyers, second home stamp duty changes, taxation changes for international buyers, and taxation changes for UK landlords.
All of the above affect confidence.
Moreover, let’s not forget that capitalist economies are typified by bust and boom. That they are cyclical in their very nature.
Finally, let’s also ponder something often not mentioned: affordability.
We believe that affordability is not only one of the main factors affecting the London property market right now, but that it will continue to affect the market 2019 and beyond.
Consider this. A good quality one bedroom apartment in and around Canary Wharf is circa £400,000 (let’s put to one side that many of the one bedroom apartments in the developments due to complete in 2019-2020 have sold in the £550,000 to £650,000 range). The maximum earning multiple that a mortgage company will use is 4.5 times income. Let’s assume our buyer earns a very respectable £75,000 per year. He or she can borrow a maximum of £337,500. So, a deposit of £62,500 will be needed. Let’s assume that the bank of mum and dad, or savings will fulfil that. So, for now, it works, just.
However, our worked example above is a borderline example. How many first-time buyers earn £75,000 per year? How many have £62,500 in savings, or parents with sufficient liquidity? Not that many perhaps.
So, affordability, perhaps more than anything else, is the factor that may well hold up the growth of property prices.
What will happen to the property market in 2019?
We believe that 2019 will be very similar to 2018, typified by lower than ‘normal’ transaction levels, with values remaining broadly flat.
If you’d like to hear more about our thoughts, then please do get in touch. (We could have written an awful lot more!)