London Property Market Spikes Following December Elections

The London property sector had been under huge pressure since the 2016 Referendum. With British politics divided on how the country should leave the common block, several failed attempts to get a Withdrawal Agreement passed by the Parliament had led to worry among investors, who feared the UK could leave in a disorderly fashion.

Relief following Brexit certainty

However, four years after the UK vote to leave the EU, the December election had resulted in a strong majority for Boris Johnson. As a result, the UK is no longer an EU member since January 31st, 2020. Following the election, the London property market had enjoyed an uptick. According to Tom Bill, Head of London Residential Research at Knight Frank, the activity in prime central London had improved meaningfully.

He claimed that “in the ten working days following the general election, Knight Frank carried out more exchanges in price central London than any ten-day period since December 2016”. In addition, the number of new prospective buyers rose to its highest weekly total in more than 15 years. Based on the numbers, activity in the London real estate is at its strongest level since 2014, showing the Brexit impact had largely been absorbed in the capital.

Home Buyer Activity Spiked in January

Although the seasonality is always favorable in January, the home buyer activity in January 2020 had seen an unprecedented uptick. Based on the numbers released by the international real estate consultant Knight Frank, London home buyer activity spiked 92% in January, with people capitalizing on the certainty brought by the December 2019 general election.

There are clear early indications that the relative political certainty had started to boost activity in the London property markets. The number of exchanges for existing homes in price central London in December 2019 was the highest total since April 2014, on a monthly basis, according to worldpropertyjournal.com. Ofir Eyal Bar, a real estate investor that is active on these markets, mentioned that “London real estate activity is back on its track, now that the UK is out of the EU, with the next big milestone represented by the agreement of future relationship between the two blocks”.

London Occupancy in late 2019

Despite the UK left the EU and erased a big worry mounting on real estate, not all news is positive. In particular, the London hotel market had endured an occupancy dip in late 2019. According to new data provided by HVS London, AlixPartners and STR, the RevPAR (rooms revenue per available room) had grown by 0.9% in the last quarter of 2019.

Average occupancy for hotels in the UK’s capital dropped back to 84.8% in Q4, even though the average room rate had increased by 1.9%. Russell Kett, chairman of HVS London, believes that “softening occupancy will be a concern in London, particularly given the high number of £hotels project in the pipeline, although the fact room rates had risen by nearly 2% in encouraging”.

Transaction volumes in London increased in Q4 to £1.5 billion, even though transactions in the regions dropped by 38% to £2.2 billion. The next big question ahead will be what happens with the investors’ sentiment, and most analysts believe a cautiously optimistic approach will be the norm until the UK and EU will agree on their future relations.

Brexit Impact in 2020

The UK is no longer an EU member since the end of January, but the risk of a no-deal had not vanished. We’re at the beginning of a transition period ending in December 2020, by the time hard negotiations will be held. If both sides won’t find common ground and no extension will be granted, the specter of a no-deal in the second half of 2020 can potentially rise.

Interest rates are expected to start a gradual normalization process in 2020 and in case that happens, it will mean the end of a period of ultra-low mortgage rates and squeeze affordability for some purchases. Across the UK, the price growth is expected to be around 2% in 2020, and 15% cumulatively between 2020 and 2024.

We must also mention the shortage of new homes that will underpin values, given that it’s unlikely it will be fully reversed in the coming years. Because of conflicting factors, forecasting future real estate becomes a unique challenge, Knight Frank reports.

Summary

Now that the UK got out of the EU a big problem disappeared, but other political roadblocks should show up in 2020. The immediate reaction to the December general election had been positive, but it’s uncertain whether the sentiment will remain elevated throughout 2020. Fluctuations should become a norm, given that there must be a political agreement by December 2020, a short deadline according to political experts. Will Europe find a way to solve the division, or will it continue to operate in a fragmented manner?

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.