Is strong sterling impacting the London property market?

The second quarter of 2015 saw a like-for-like drop of 26% in the number of properties sold in London with a value in excess of £1 million. This year on year drop is significant and has caught the headlines although there does seem to be a different scenario emerging behind the scenes. It will come as no surprise to those who follow the London property market that it has become something of a “safe haven” for a number of overseas investors. However, there are also other factors to take into consideration.

Strong sterling

The strength of the UK economy, together with the likelihood of an interest rate rise sooner rather than later, has culminated in a very strong run for sterling. This has given UK investors looking overseas significantly more spending power although on the flipside of the coin it has impacted some of the U.K.’s more traditional overseas investors.

While the likes of China have their own woes at this moment in time, countries such as Russia and Malaysia have also seen a significant devaluation of their currency in worldwide markets. This will lead to a short to medium term reduction in investors from these areas looking at UK/London property although this will be mitigated to a certain extent due to the “safe haven” tag often associated with London.

Short-term concern

There has been ongoing economic concern surrounding the likes of China and the US for some time now and indeed the Chinese economy is certainly struggling. Whether this 26% annual reduction in London property sales worth in excess of £1 million will continue is certainly a matter for discussion. The vast majority of experts believe that this is but a short-term hiccup in the long-term development of the London property market. However, others believe that London property prices will take a “breather” in the short term which could bring prices back to a more realistic footing.

The reality is that nobody really knows how the mix of a strong currency and the so-called “safe haven” status associated with London will pan out. These are obviously from opposite ends of the spectrum and when you throw into account the ongoing woes of China it makes the situation even more difficult to predict.

Will we see profit takers in the London market?

While sales are down towards the top end of the London property market this has not been reflected in London property prices which continue to remain relatively firm. The fact is there has been excessive demand for London property for some time now with limited supply which has led to pent-up demand. Even though this pent-up demand may weaken in the short term, due to the issues mentioned above, it will give something of a backbone of support going forward.

Try as the sceptics might, it is proving exceptionally difficult to drag the London property market downwards. We have seen some short-term hiccups, we have seen some challenges along the way but in general the demand for London property has remained relatively strong. What will it actually take to create a short-term “correction” in the London property market?

Whatever it might be, it does not look like emerging in the short term……….