It Gets Ugly in the Toniest Parts of London

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Those once “awash with cash don’t have as much to spend.”

It gets ugly for luxury homes in the toniest parts of London.

The combined value of homes that were sold in prime central London, which includes Belgravia and Chelsea, plunged 24.5% in 2015, year-over-year, to just under £3 billion, according to real-estate data provider LonRes. Prices edged down 1.4%, but transaction volume collapsed. It was even worse at the upper end: transactions of homes over £5 million ($7.5 million) plummeted 30.5%!

LonRes had already warned earlier in its third quarter report:

It was a London bubble that was threatening to undermine the UK economy, as identified by the Bank of England last year. The old argument of prevailing market conditions just being the natural forces of supply and demand doesn’t wash when the outlier, that is the massive influx of overseas investment, tips rising house prices into overdrive.

New taxes on homes over £938,000 ($1.4 million), based on changes to the Stamp Duty Land Tax system at the end of 2014, caught some of the blame. But it wasn’t the only reason, LonRes said. Other factors include the dearth of wealthy foreign buyers. Russians had been impacted by the collapse in oil prices, and Chinese had been hit by the turbulence in China. And for them, there were other uncertainties:

A popular topic at the moment is the authenticity and provenance of the money used to buy property in prime central London (PCL). To this end, HMRC [the UK government’s tax collection department] has discovered that it is entirely conceivable that some buyers may not have made their newly discovered fortunes in an entirely honest and legal manner. Only a year ago, The Times reported that London was the money laundering capital of the world, and Alexander Lebedev, owner of the Evening Standard, claimed then that £1 trillion had been stolen from Russia since 2000.

But now the HMRC wants the industry to help crack down on it, which “will make those who see London as an easy touch think again, and it is likely to contribute to a general slowing throughout the London market, where transaction levels have fallen by 25%.”

LonRes added more gems:

Increased uncertainty across the world’s financial markets has exacerbated the situation further and led to falling demand.

However, perhaps a more fundamental issue is pricing. The gap between buyer and seller expectations remains a major stumbling block, with price reductions often required to close deals – although realistic initial pricing is a better option for all concerned.

At the time, 78% of the agents surveyed by LonRes thought sellers were “being unrealistic about asking prices.”

Now, as the real-estate year has come to a close, Anthony Payne, director at LonRes, told the Financial Times:

“The top end of the market in the last few years has been reliant on foreigners, but a series of things are affecting them that are out of the government’s control – the strength of the pound, the weakness of the oil prices, the state of Chinese markets.”

“Those people who were awash with cash don’t have as much cash to spend.”

There were other problems in the expensive central areas: 37.9% of the homes sold had their prices reduced, after sellers got sufficiently desperate, up from 28.4% in 2014. On average, homes sold at 93.2% of asking price this year, down from 95.5% in 2014. And in some cases, Payne said, to make a deal, sellers had to absorb the new taxes.

Payne called it “a pause in the market,” a period during which sellers come to grips with a new reality, “that property is not where it was two years ago,” and lower their asking prices in order to be able to make a deal. Or they decide not to sell. Meanwhile, “buyers sit tight.” And the result, he said, will probably be a drop in prices.

This is how it always starts out. First, transaction volume collapses as sellers dream of soaring prices while buyers lose interest or can no longer afford them. Then, when sellers are desperate enough, or when they’re forced to sell, they will have to slash prices before buyers show any interest. Once prices start heading south, buyers adjust to this new reality. They feel they’re making money by waiting. They’re nibbling only at even lower prices. And this is how bubbles, such as the one in London’s housing market, deflate – with hot air hissing out of them for all to hear. They don’t “plateau.”

Similarly, the booming apartment sector of the magnificent commercial property bubble in the US is also struggling with an identity crisis, and industry gurus have now declared a “plateau.” But after the last time they’d declared a “plateau,” the market crashed. Read…  Bone-Chilling “Plateau” in Apartment Boom Resurfaces, Smartest Money Bails Out

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  17 comments for “It Gets Ugly in the Toniest Parts of London

  1. night-train
    December 21, 2015 at 4:18 am

    Money being laundered in the high end real estate market. I’m shocked I tell you. Shocked! This kind of revelation could cause me to lose faith in our global markets.

  2. December 21, 2015 at 4:55 am

    You can blame money laundering, oil, sub-prime and so on, but you best not blame one of the millennasls, at least not face to face. I made a dumb comment, which is something I do way too often, about how utterly dumb and irresponsible are the millennials. This 28 year old Stanford PhD politely asked, “Bob, ever hear of Tulip mania or The Great Depression?”

    • Petunia
      December 21, 2015 at 8:22 am

      The millennials are the victims of the baby boomer generation. They will live with all the debt and the rot it created. I often talk to my son about how much better things were when his father and I were young. We had the sense of unlimited possibility, he knows he will be lucky to have a normal life. These young people are not stupid, or greedy, they are trying to enjoy their time in their own way, and it is definitely not the same as it was for us.

      • nigelk
        December 21, 2015 at 12:14 pm

        To all the boomers, on behalf of the under-35 crowd:

        Thanks for pulling the ladder up behind you. We’ll be cleaning up your selfish mess for 30 years. We’ll make do somehow.

        • interesting
          December 21, 2015 at 4:45 pm

          somehow i’m considered a boomer but i missed the money train.

        • Jesse
          December 29, 2015 at 10:30 am

          Me too. Paid dearly after the last housing bubble burst and now getting by in a cabin in the mountains of NC with a years supply of food in the basement and plenty of ammo. The dogs can live off of rabbits and squirrels

        • Chip Javert
          January 2, 2016 at 9:51 pm

          Millenials (born 1980-2000) have been voting for the same failed leadership as Boomers (in fact, larger %ages of Millenials voted for the Democrats). How’s that hope & change stuff working out for ya?

          The “ladder” is meaningful education and successfully competing with the rest of the world’s smart people.

          I realize my comments won’t dent your victimhood, but what are you going to change so you can compete with China…India…Korea, etc, etc (all these people were rice farmers when I was your age).

      • Chip Javert
        January 2, 2016 at 9:42 pm


        Millennials (born 1980-2000) will also be using cellphones and PCs invented by Boomers (among other things). A significant %age of this cohort voted in several of the last elections, and are as culpable as Boomers for our poor selection of leaders and the resulting financial mess. Votes actually have consequences.

        Millennials may not be greedy (questionable) or stupid, but they definitely are not as well educated compared to the rest of the world as Boomers were (accident of WW2)…and that directly impacts productivity which directly impacts life style.

        Ya want a good job? Don’t accumulate $100,000 of student loans for a French Lit degree. Nothing wrong with French Lit – it just won’t get you out of mom & dad’s basement.

  3. hidflect
    December 21, 2015 at 5:52 am

    The frothiest part of the bubble pops first, obviously, as a declining market focuses the minds of buyers and sellers the way an impending execution does. But the market further down the rung is more in tune to needs and so will fall much less. I compare the RE market to a freshly opened bag of sliced bread. The exposed end falls over completely but each slice further down falls incrementally less.

    • Crazy Horse
      December 21, 2015 at 6:21 pm

      I compare the real estate market to a freshly opened bag of manure. The only part that stays green is the frothy bubbling part on top because it is populated by real “players”. Banksters, Frackers, and merchants of Death who stole so much their only problem is figuring how to dispose of it all.

  4. Xabier
    December 21, 2015 at 6:09 am

    Another significant change in the UK is that richer Brits (mostly) are eschewing rural properties with large gardens, formerly much prized, and looking very closely at maintenance and above all heating costs. They just don’t have as much cash as before.

    This class of people were also edged out of central London to formerly unfashionable streets by the foreign hot money.

  5. Petunia
    December 21, 2015 at 9:55 am

    In Miami $10M+ condos are often in the news so I looked up the carrying cost of an apartment selling at that price. Assuming you pay cash for the apt the taxes are $200K and the condo fees at least another $40K. That $240K a year is not a problem in a rising market where you may recapture the cost in a future sale. But, in a declining market it is money gone forever. Very few rich people are that rich.

    • Chip Javert
      January 2, 2016 at 10:02 pm

      Wow! Hyberbable alert: A quick web search of the Miami (pop: 5M) MLS found 29 (twenty-nine) condos over $10M; 537 from $1-10M. Yes, I realize these are just the listed condos & asking price.

      Still, if you’re seriously focusing your world view on 29 condos, there are probably more pressing issues.

  6. Cae
    December 21, 2015 at 11:59 am

    Is the NYC market mirroring this?

  7. Mark
    December 21, 2015 at 12:47 pm

    It is same situation here in Toronto. Housing market is driven by foreign money and when this stops it is going to be very slippery slope for real estate.

    • Les Francis
      December 21, 2015 at 7:28 pm

      Inner city apartment, top end housing and up market suburbs in Australia also driven by foreign money.
      Recent survey found that 18 percent of properties in capital cities are not tenanted,owner occupied or offered to the tenant market – vacant.
      Ghost properties outside China.

  8. chris hauser
    December 22, 2015 at 11:58 am

    it goes without saying that this is not news unless you were waiting for the news to confirm the news that is not news.

    brics volatile down and not so much money coming to london. really?

    12% tax on purchase, and traffic down. really?

    silly prices followed by more hitting the market, and buyers leery. really?

    why go on, it’s not news.

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