PETALING JAYA (July 1): The annual price growth in prime outer London jumped to 3.1% in May 2021, the strongest rate of growth since before the European Union (EU) referendum in March 2016, according to the recent Knight Frank’s Prime London Sales & Lettings Report 2021.

Knight Frank Malaysia international residential project marketing associate director Dominic Heaton-Watson said in a press release: ”Growing demand for space and greenery after three national lockdowns in UK led to annual price growth in excess of 6% in markets like Richmond, Dulwich, Wandsworth and Belsize Park. 

“Wimbledon experienced a price growth of 9.4% in the year to May, which was the strongest of all London markets. Prices in prime central London (PCL) grew by 0.3% in the year to May. While it wasn’t a large increase, it was the first rise in five years and underlined how the recovery of the property market in PCL was not reliant on the reopening of international travel.

“The last time prices increased on an annual basis was in May 2016, the month before the EU referendum. Subsequent political uncertainty, combined with a growing number of taxes on high-value property, meant average prices fell 17% in the intervening period. A period of house price inflation in PCL had therefore been overdue and was on the horizon when the pandemic struck."

According to Knight Frank, the relaxation of international travel rules will provide a boost to the PCL property market but prices are on the uptrend anyway. 

Heaton-Watson commented: “Things are picking up where they left off after the general election in December 2019, and buyers can recognise good value after five or six years of falling prices.” 

The relaxing of international travel rules will, however, provide a more noticeable boost in locations such as Mayfair and Knightsbridge, in which “unsurprisingly, lower numbers of overseas buyers have come to the UK in recent months, but the ending of quarantine rules will continue to lift demand, meaning visiting London will become more tenable”, said Knight Frank. 

Meanwhile, another impact of rising prices is further erosion of the discount for buyers whose purchases are denominated in overseas currencies. 

Heaton-Watson remarked: “The currency effect will be exaggerated as the pound gets stronger, which in part has been driven by the country’s vaccine-fuelled economic recovery.

"The effective discount based on price and currency movements in PCL, compared to the period before the EU referendum for a buyer [whose purchase is] denominated in US dollars, was 19.2% at the end of May. That compared to 24.3% in December last year. 

“Our forecasts for prime outer London and prime regional markets have remained largely unchanged as both areas continued to benefit from a drive for more space and greenery. Cumulative growth from 2021 to 2025 still places PLC as the top performer (+25%) in the post-Covid-19 boom, and remains the preferred destination for Malaysian property buyers.”

In terms of rental, stronger demand is helping to reverse the rental value declines that have taken place in prime London property markets over the course of the pandemic, said Heaton-Watson. 

He commented: “Underlining the extent of the increase, the number of new prospective tenants in the three months to May was 76% higher than the first three months of 2020. As a result, average rental value declined 12.2% in PCL in the year to May, which compared with a fall of 14.3% in March. In prime outer London, the figure was -8.2%, compared with a decline that bottomed out at -11.7% in February. 

“Tenants were taking advantage of falling rents and moving to properties that enabled them to shorten their commute or gain extra home-working space against the positive backdrop of the UK’s economic recovery. The number of properties that were rented in locations surrounding London’s two main financial districts increased by 21% in April this year compared to March 2020.”

According to Knight Frank, in prime markets in London and the home counties, the number of tenancies started was also on the rise. In the three months to May, the figure was 24% higher than the same period in 2019, Knight Frank data showed. 

Heaton-Watson noted that in addition to domestic tenants returning to work, demand from international students was going up. This may drive activity levels higher and increase upwards pressure on rental values in coming months. However, it will be dependent on how quickly travel restrictions are relaxed and whether cases of Covid-19 remain under control. Applications for January deadline courses from non-EU students increased by 17.1% this year, which included a 22% rise from China and a 26% increase from India.

He added: “If restrictions are lifted as planned and any third wave of Covid-19 remains under control, demand could escalate quickly due to the combined effect of new students looking for accommodation in addition to those who registered last year but have been studying remotely."

According to Knight Frank, supply levels remained high due to the fact that a large number of short-let properties were transferred to the long-let market during the pandemic. However, there are signs more balance is returning, which is putting upwards pressure on rental values.

Knight Frank revealed that the ratio of new prospective tenants to market valuation appraisals is an indicator of the relationship between demand and supply. The report said: “The figure was 4.6 in May, the highest in six months, although it was not yet back to where it was before the pandemic. Furthermore, the number of new listings in prime central and prime outer London and the home counties has come down since peaking last summer, OnTheMarket data showed. The figure was 12,480 in May this year, down 47% from 23,647 last July.”