But prices only reveal so much; a more telling metric was that 55 per cent of respondents to last month’s UK Residential Market Survey from the Royal Institute of Chartered Surveyors (RICS) noted a rise in the number of properties being withdrawn from sale when compared with a year ago. It may be that many sellers are not only unwilling, but perhaps even unable to reduce prices appreciably from existing levels.
This is borne out by comments from James Gubbins, a partner at Dauntons, an independent estate agency (and chartered surveyors) serving London SW1, who said that “speculative offers are on the increase with the expectation that some sellers will be distressed enough to compromise – as yet they aren’t”. While mortgage delinquencies and forced sales aren't generally synonymous with London's most exclusive postcodes, the gap between what sellers are asking for their homes, and what buyers are willing to pay, is now greater than it was in the wake of the financial crisis.
We shouldn’t be surprised. Property markets tend to operate in long cycles; a point promulgated by economic commentators such as Fred Harrison, who, in April 2005, warned that the property boom would only last for another three years before it would crash in 2008. One of Mr Harrison’s central criticisms of the neo-classical school of economics is that it distils the basis of a functioning economy to labour and capital thereby downplaying the central influence of land (or ‘rent’ as it’s traditionally referred to). It is now usually viewed as a mere adjunct to capital.
Fred Harrison and his ilk believe this is reflected in the tax regimes of most advanced economies, which target profits and wages above property (or land) taxation. The argument runs that this creates skewed incentives. Ergo, house prices have been inflated well beyond historic norms from early in the current cycle because of ultra-low interest rates. It means that as the cycle peaks, as it may well be doing now, there is so much further to fall. A way to modulate the peaks and troughs of the cycle – effectively reducing the incentive to inflate property values – is by raising the rate of property taxation and reducing taxes on incomes and profits.
Perhaps these ‘land-locked’ economists are off-beam. After all, you could make the argument that property prices in cities such as London, which benefit from mature and transparent markets, are now largely governed by international flows – certainly true at the top end of the market. And for the first time in two years, China is relaxing limits on outbound investments by wealthy individuals and institutions, as a stabilising economy and a strengthening currency give the Communist Party more confidence that it has capital outflows under control. Of course, China is tied into the same 18-year real estate cycle as that of the western economies, so it won’t be immune to the correction that Mr Harrison believes is imminent.
But if you’re thinking of taking a contrarian punt on London-linked property funds, there’s a left-field factor worth considering. The UK government will publish a draft bill this summer outlining the creation of a 'world-first' register to crack down on criminals laundering dirty money through the UK property market, which is to go live by early 2021. The Department for Business, Energy and Industrial Strategy’s register will compel overseas companies that own or buy property in the UK to provide details of their ultimate owners. This will help to reduce opportunities for criminals to use shell companies to buy properties in London and elsewhere.
