LONDON – The growing uncertainty surrounding the United Kingdom’s exit from Europe is hobbling the prime property market in central London and slowing turnover as home buyers wrestle with ongoing political uncertainty.
The most expensive parts of the London property market like Mayfair and South Kensington typically draw significant interest from international buyers.
But the UK and European governments are struggling to agree on the terms for Britain’s departure from the European Union.
Prime Minister Theresa May’s proposals also have been rejected by her own parliament, leaving the process in disarray and causing potential London home buyers to pause.
A survey by the Royal Institution of Chartered Surveyors that measures the UK’s house prices dropped to its lowest level in over six years this December, dragged down by the London market.
The 3,514 transactions for residential sales in this upscale area in London in 2018 were the lowest on record, according to property-investment group London Central Portfolio.
The figure was down roughly 46 percent from 2014, before the UK began preparing for the Brexit vote.
That compares with a 26 percent drop in transactions for outer London, where international buyers and sellers have a far smaller role in the housing market.
The rest of England and Wales experienced only a 2 percent drop over the same period.
More than 56 percent of the properties sold in prime central London locations – such as South Kensington, one of London’s most expensive areas – in the last quarter were sold lower than the original asking price, according to property-data group LonRes, up from 35.2 percent during the same period four years ago.
The average selling price was down 12.2 percent to GBP1.69 million.
The market for prime central London is brutal, said Alexander Leon, head of sales and acquisitions at Malverns, an estate agent based in South Kensington. “There are people looking around to pick up bargains; but because of the area being as affluent as it is, many people don’t feel the need to rush to sell.”
Analysts say the slowdown predates the June 2016 Brexit referendum to leave the EU.
Prices had risen to record levels and looked more vulnerable to a correction, especially after the government enacted a tax on purchasing a home and inheritance tax that drove away international buyers and those acquiring homes as an investment.
Even a cheaper currency, which lowers costs for international buyers, isn’t driving demand from overseas.
“What happens in prime [locations] feeds through to what then happens in the rest of London and then the whole of the UK,” said Marcus Dixon, head of research at LonRes, the property-data group, adding that the ripple effects of Brexit could be felt outside the capital in time if jobs and people move away.
Even the top end of the market hasn’t been immune.
Last week, it emerged Ken Griffin, the billionaire behind the Citadel hedge fund, bought a historic mansion near Buckingham Palace for GBP95 million – millions of pounds below the asking price, according people familiar with the matter.
The net asset value for London Central Portfolio’s fund that focuses on high-end real estate in London and includes 40 small properties around Hyde Park – near Buckingham Palace – dropped 20 percent between March and September last year.
Naomi Heaton, chief executive officer at the investment group, said the market can rebound once the terms of Brexit are set with the European Union.
“It’s more about having a direction of travel because whatever decision we make, a ‘soft Brexit’ or May’s deal or whatever, it’s still going to take another two years to get that through,” Heaton said.
Others said even if May manages to craft a deal, slow growth could weigh on UK real estate.
“At the margin it may give a bit more stability and confidence, but the fundamental issues in this market will still act as a drag,” said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors.