March Residential Comment – James Perris

What we are seeing in Ukraine is heartbreaking, frustrating, depressing, infuriating, terrifying and multiple other emotions too numerous to name. But you don’t need to be a surveyor to tell you this, and as our day job is property, and putting emotions aside, the question is what effect could this now have on London house prices.

I had planned for a fairly upbeat article on the London residential market given the strong performance over the last few weeks, a reasonably good 2021, and the beginning of the end to the pandemic in many countries. But events across Europe seem to leave little choice but to change the tone and try to see if there will be any consequences, albeit based on events as at today, without further significant escalation in the crisis.

Despite national statistics in the press stating how strong the residential market is, with record prices hit, this has not quite been the story in London since 2015 as the lonres table of House Price data shows.

(Lonres Sales data colour lines illustrate bedroom quantity orange is small 1 bedroom houses and up to black which is 5 and over)

The London residential property market had only just been recovering from the fairly difficult last 6 years. House prices in London started falling in 2014 and 2015 with the tax changes, were then knocked back further by Brexit and after temporarily recovering after the 2019 election, the market was then presented with the pandemic making buyers move away from urban areas and meaning the crucial overseas market couldn’t travel. But despite all this the market was recovering in 2021 and prices were strengthening, albeit encouraged by a lack of supply of homes coming onto the market.

But has the Ukraine crisis sent the London market backwards again?

Our best case scenario is that successful peace talks take place and the damage is short lived with the exception of Russia being under severe sanctions for many years to come. Russian owners have over 100 of the 400 homes on St Georges Hill and many in Virginia Water/Wentworth. There are estimates of over 1000 known Russian owners of prime London property and probably three times as many unknown.

With Abramovich leading the way, many are now selling and in a worst case scenario half may be forced to sell due to not being able to return to the UK, significant loss of value in their assets, inability to access funds or even confiscation. Whilst I doubt that amount of supply of high value homes coming to the market in a short space of time could be soaked up around Surrey, in London these quantities should not affect the market with so much international and national demand willing to still buy these assets.

So this current situation we feel would have no effect on the London markets recent recovery. But successful peace talks are looking less and less likely and as the war continues there will be greater sanctions, greater loss across all financial markets, inflation and higher interest rates which will all impact the property market.

The correction in the market in 2014 was not directly caused by the extra money buyers had to pay. Extra taxes had been applied in the preceding years to no affect, because as long as the market is inflating buyers continue with their purchases and higher transactional costs can be absorbed. But the 2014 stamp duty tax increase was the tax that paused the market. If a market pauses so do buyers, and the lower offers then come in, buyers see prices falling and purchases are put on hold in the belief of buying the asset cheaper “next year” and the spiral starts.

Whilst there is still pent-up demand from 2 years of the pandemic backlog, a continuation of this war, which will be drawing in many nations to different extents, will pause the market at a time when prices are just starting to recover. This could set the property market back, a downward trend may begin and prices could correct.

Hopefully Putin’s inner circle will see sense and this won’t escalate resulting in a limited effect on London house prices but, at the time of writing, the signs are not good and that will affect prices of everything everywhere, including London property as sentiment changes.



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