Prime South-West London and the domestic family buyer

Market activity has been strong in the prime South West London markets over the past 12 months and transactions were at 2007 levels in the second half of 2009. In comparison to central London, the proportion of overseas buyers is low. The resurgence in demand has come from wealthy domestic buyers – often acquiring their main residence (See Graph 1).

Over the past three years, these markets have become the bellwether for the rest of the prime London market, with key demand indicators weakening much earlier than in PCL, causing transaction levels and prices to become more severely hit during the downturn of 2008.

Because buyers in this market are needs-driven, for example growing families or schooling, the fall in 2008 transaction numbers created a larger pool of pent-up demand. When this returned to the market in 2009, stock shortages became the biggest driver of house price rises.

PSWL markets have therefore seen the highest price growth (26.9%) during the 12 months leading up to the end of March 2010.

Future drivers of growth

This growth weakened in the first quarter of 2010, but values still grew by as much as 4.4%. In Fulham, Wandsworth and Barnes, where recovery was first evident, quarterly price growth fell to 2.7% (See Graph 2).

So far this price growth has been achieved without a significant injection of City bonus money, but with supply levels starting to ease and demand indicators softening, City employment and earnings are likely to play a key part in the market in 2010.

Figures from the Office of National Statistics suggest that, to date, bonuses in the financial sector continue to be suppressed. Taxation and the payment of bonuses in deferred shares are also likely to dilute the spending power of financial buyers. At a time when bonuses are at the forefront of the political agenda, this market was always more likely to be influenced by the political uncertainty surrounding the general election.

Correspondingly, key demand indicators including new buyer registrations, viewings and deals agreed, which were 45% higher than the norm in the last quarter of 2009, all softened relative to the level of supply on the market over the first quarter of 2010, bringing them in line with the average.

Outlook

This market is more exposed to higher levels of income tax, fewer bonuses and the threat of higher stamp duty. Consequently, we expect it to suffer more than central London in the next two years but rebound more strongly afterwards.