Kay & Co – Hyde Park & Bayswater

A review of 2015

If 2014 was a year characterised by lightning fast sales, rapidly rising property values and the fear of a property bubble near bursting, 2015 was quiet by comparison. We have put together a review of the year that paints a slightly sombre picture but also accentuates the positives that could be taken out of it for Bayswater and Hyde Park (W2) and how these could be carried over into the new-year.

Election concerns

The election loomed large in the first few months of the year and this created a wait and see approach from many vendors and buyers. One of the major concerns was the potential implementation of mansion tax. However, despite avoiding this, the property market generally failed to pick up as anticipated.

The real reasons for the challenging market

It quickly became apparent that the main culprit for the quieter market conditions was stamp duty. The increased tax bill for purchases in the upper price thresholds was having a major impact on demand. The impact was compounded by a few other factors, like the increased tax burden, stock market fluctuations and the strength of Sterling against some currencies, which put off some overseas buyers. As a result, transaction levels over 2015 as a whole across prime central London were 18% lower than in 2014.

How did Bayswater and Hyde Park fare?

Although transaction levels in W2 over 2015 were 27% lower than in 2014, this does not tell the whole story. In a similar vein to the whole of prime central London, the biggest decrease in transactions took place in the first half of the year. However, while PCL as a whole failed to pick up, transaction levels in W2 actually started to improve as the year progressed. This area benefited from buyers looking further afield in light of the high costs of buying in more expensive parts. Indeed, by the final quarter of 2015, the number of sales recorded in W2 was 15% higher than the final quarter of 2014. In contrast, there were 19% fewer sales recorded in PCL in the fourth quarter of 2015 compared to the same period a year earlier.

Annual change in transactions across W2 compared to prime central London

w2 graph1

Source: Dataloft using LonRes data

How did this affect property prices?

As a result of lower demand levels across central London, average sales prices per square foot ended the year largely unchanged on the final quarter of 2014. In W2 prices fell in the first quarter of the year but the area then enjoyed three successive quarters of growth. This meant that, on an annual basis, average prices per square foot in W2 ended the year 5% higher than in the final quarter of 2014.

Annual change in average prices per square foot across W2 compared to prime central London

w2 graph2

Source: Dataloft using LonRes data

Why have Bayswater and Hyde Park fared better than PCL as a whole?

As overseas demand waned in some parts of central London and higher stamp duty charges acted as a deterrent to some buyers in the most central parts, properties in W2 were appealing to domestic owner-occupiers. Lower prices than in other parts of central London meant that over half of buyers (52%) in W2 benefited from stamp duty reform and paid a lower level of tax than they would have done in 2014. Those who did end up with a higher stamp duty rate paid, on average, £52,000 more than they would have done based on the same sale a year earlier. In contrast, 65% of buyers across prime central London incurred additional stamp duty charges. On average, this amounted to an additional amount of £91,000 per property sale.

Proportion of property sales in 2015 which paid more or less stamp duty under revised rules

w2 graph3

Source: Dataloft using LonRes data

What about 2016 for Bayswater and Hyde Park?

In the short term, transaction levels are likely to be strongest in the first quarter of 2016 as investors and second home purchasers rush to complete before the additional 3% stamp duty comes into force in April. After this, the market may quieten again as high pricing and tax burdens make buyers think twice about their next move.

However, the appeal of Bayswater to occupiers is likely to continue in 2016, particularly with the increased costs of buying elsewhere in central London. This should cushion it from reduced demand levels in other parts of central London.

Average sales prices are likely to continue to rise in 2016, albeit at low levels of growth. A period of low level growth will be good news for those who concerned about over-pricing in the wider market.

The lettings market

Across Bayswater and central London, 2015 was rather a mixed year for the lettings market. Although the year started strongly, levels of demand for rental property started to wane as the year progressed. The volatility in financial markets across the world and weaker levels of employment in some sectors were contributing factors.

At the same time, the slower sales market meant that some vendors who were unable to sell their properties offered them for rent. This led to an increase in rental stock in some areas. With more choice of available properties, tenants were able to be more selective and were also prepared to negotiate on rents. This affected the rental values achieved in the second half of the year.

In Bayswater, average rental values rose by 9.8% in the first half of the year but then fell back by 7.8% in the following six months. However, the strong rise in the first half of the year meant that, on an annual basis, rents rose by 2.1% across Bayswater. This compares with a 4.2% increase in rents across central London as a whole between Q4 2014 and Q4 2015.

Change in average rental values in the first and second half of 2015

w2 graph4

Source: Dataloft, using LonRes data

Note that Bayswater and Hyde Park catchment area (referred to in this report as W2) includes the postcode sectors of W2 2 and W2 3.

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