The effect of cash buyers in prime London
Making sense of the latest trends in property and economics from around the globe
3 minutes to read
Jobs
Jobs markets in the US, UK and Europe are now cooling, just not as quickly as central bankers would like.
That's why Friday's data from the US caused a sell off in many global stock markets. Job openings fell to 263,000 in September - still high by historic standards but the lowest posting since April 2021. Likewise, the S&P Global Eurozone Manufacturing PMI showed employment continued to grow despite contractions in both production and new orders. The rate of employment growth did however slip to its weakest level since February 2021. We're seeing similar patterns in the UK - see Friday's note.
The Fed in particular is seeking to walk a fine line by cooling the strong jobs market at a pace that avoids both a wage-price spiral and mass layoffs. Whether that can be done remains a point of contention among economists, though it's working so far (albeit slowly). The unemployment rate is at a five decade low of 3.5%, according to last week's data.
Farmland
The average value of UK farmland is nearly back at peaks last seen in the autumn of 2015, according to new results from the Knight Frank Farmland Index. Prices for bare agricultural land rose 1% to just over £8,300/acre in the third quarter of this year, taking annual growth to 13%.
Farmland outperformed all the other asset classes that we track during the past three months. Over a 12-month period it was only just bested by gold.
Investors view farmland as a safe haven, particularly now for its potential as a hedge against inflation. Demand is being underpinned by both tax and environmentally-driven buyers, according to the analysis from Andrew Shirley. The government's growth agenda and mooted planning reforms could also see more farmland required for new developments and infrastructure.
Price growth is slowing, however, and Q3's rate of expansion was the slowest since early-2021.
Prime London
House prices in prime central London (PCL) climbed 2.7% in the year to September, according to our latest index. In prime outer London (POL), that figure climbs to 5.2%.
The growth rate in both cases has been largely stable for about six months. Demand has far exceeded supply in prime London during most of the past two years, though that imbalance is now leveling off to some extent.
The number of new prospective buyers in PCL and POL was 53% above the five-year average (excluding 2020) in September. Meanwhile the number of new sales instructions was 22% above the five-year average and the number of offers accepted was up by 79%.
Higher mortgage costs will reverberate up through housing markets and be felt in prime London postcodes. However, the impact will be less marked due to higher levels of affluence and housing equity as well as a broader base of returning international buyers. This is particularly the case in PCL, where the percentage of cash buyers in the first nine months of this year was 52%, compared to 30% in POL.
The rental supply imbalance
Prime central London residential rental values grew by 18.6% in the year to September in PCL, down from 29.2% in April. In POL, growth was 15.4%, down from 23.5% in April.
Stock levels remain low by historical standards, with the number of new properties coming to the market down by around a third compared to the five-year average (excluding 2020) - this has been the case for the last year. Meanwhile, the number of new prospective tenants registering with Knight Frank across London in September was 68% above the five-year average.
As a result of this imbalance persisting for longer than anticipated, we revised up our rental value forecasts for 2022 and 2023 last week. We now expect rental values to end this year 15% higher in PCL and 12% in POL. We expect 6% growth in both markets next year, up from a forecast of 3.5% in July.
In other news...
BoE must stick to fighting inflation despite pain ahead, Ramsden says (Reuters), confidence slumps around the globe as cost of living crisis bites (FT), and finally, $1bn pulled from BlackRock over ESG investing concerns (FT).