Prime Central London Sales Index

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1. Prices in prime central London softened for the second consecutive month in December against an increasingly unpredictable political backdrop. A decline of -0.1% was smaller than the -0.2% registered in November and annual growth eased to 5.1%. Though the annual rate was the lowest in five years, prices have risen 52% over that period. At the start of December, Chancellor George Osborne increased stamp duty for properties above 937,500 in a move designed to outmanoeuvre his political opponents five months from the general election. Following a spike in transactions before the new system came into effect at midnight on 3 December, there has been a period of tougher negotiation between buyers and vendors that in some instances has led to prices adjusting downwards slightly to account for the new higher charge. Some sellers and buyers opted to split the difference between the old and new charges and overall there has been minimal evidence to date of deals falling through. Firstly, it indicates how likely the prime central London market is to absorb the changes in the short to medium term. The market has reacted in a largely level- headed manner to previous similar changes, including a rise in stamp duty to 7% from 5% for properties over 2 million in March 2012. Despite negative forecasts at the time, prices have since grown 17% in the 2 million to 5 million price bracket, as figure 2 shows. Second, there has been a debate surrounding the taxation of high-value residential property, including the proposed mansion tax, for more than five years. The composed initial reaction to the stamp duty changes and the fact annual growth has been moderating for three years indicate the market has priced in some form of political intervention. However, that is only true up to a point and uncertainty remains over the possibility of further property taxes after the election. After Decembers stamp duty changes and an OECD report this month showing UK property taxes as a proportion of total tax revenues are already the highest in the world, the case for further property taxation is significantly weaker than it was in November. DECEMBER 2014 Prices declined -0.1% in December, which meant annual growth slowed to 5.1% Annual growth is the lowest in five years but prices have risen 52% since the end of 2009 The market has begun to absorb stamp duty changes and in some instances prices have moderated slightly to reflect the new charges Prices have risen 17% since the last time stamp duty rates were raised for high-value properties OECD report findings raise questions over the viability of further property taxation in the UK TOM BILL Head of London Residential Research The composed initial reaction to the stamp duty changes and the fact annual growth has been moderating for three years indicate the market has priced in some form of political intervention. Follow Tom at @TomBill_KF For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief THE PRIME CENTRAL LONDON MARKET STARTS TO ABSORB STAMP DUTY CHANGES The restrained initial reaction to Decembers stamp duty changes suggests the market had been braced for some form of political intervention, says Tom Bill RESIDENTIAL RESEARCH PRIME CENTRAL LONDON SALES INDEX FIGURE 1 Prime central London price growth in December 2014 Source: Knight Frank Residential Research Source: Knight Frank Residential Research Monthly growth 3-month growth 6-month growth Annual growth 90 95 100 105 110 115 120 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 0 50 100 150 2013 2012 2014 Price growth (rebased) Sales volumes (rebased) 5.1% -0.3% -0.1% 0.7% FIGURE 2 Price and transaction growth following the march 2012 stamp duty changes 2. RESIDENTIAL RESEARCH Tom Bill Head of London Residential Research +44 20 7861 1492 tom.bill@knightfrank.com PRESS OFFICE Daisy Ziegler +44 20 7861 1031 daisy.ziegler@knightfrank.com Knight Frank LLP 2014 - This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934.Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members names. PRIME CENTRAL LONDON SALES INDEX RECENT MARKET-LEADING RESEARCH PUBLICATIONS Knight Frank Research Reports are available at KnightFrank.com/Research Mayfair Report 2014London Review Summer 2014 The Wealth Report 2014 Prime Central London Rentals Index December 2014 THE EPICENTRE OF LUXURY LONDON THE RETAIL EFFECT ON RESIDENTIAL PRICES RESIDENTIAL RESEARCH MAYFAIR 2014LONDON MARKET FOCUS REGAINING ITS STATUS AS LONDONS LEADING ADDRESS RESIDENTIAL RESEARCH IMPACT OF TAX CHANGES MANSION TAX AND THE LETTINGS MARKET AREAS OF OUTPERFORMANCE LONDON RESIDENTIAL REVIEWLONG-TERM REWARDS, SHORT-TERM UNCERTAINTY WINTER 2015 THE GLOBAL PERSPECTIVE ON PRIME PROPERTY AND WEALTH the wealth report 2014 50 75 100 125 150 175 200 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Prime central London Hedge funds (HFRI composite index) Commododities (S&P GSCI index) Shares (FTSE 100 total return index 9% 3.7% -21.4% 5.6% Rental values in prime central London were flat for the second consecutive month in December as a seasonal year-end slowdown and the impact of global economic uncertainty dampened demand. Though monthly growth slowed to zero by the end of the year, the annual increase in rental values was 3.3%, which was the highest rate in three years. Annual growth has been climbing steadily since July as the UK economy improves and some buyers switch to the rental market while political uncertainty surrounds the outcome of the general election and the prospect of further property taxes remains. However, while the UKs economic indicators have improved, caution surrounded the world economy in the last quarter of the year, including falling oil prices and the economic outlook in China and the euro zone. The result is that companies or individuals are more likely to postpone decision-making while they wait for clarity. As figure 2 shows, global economic unpredictability rose in December. The VIX index measures volatility on the US stock market and the spike in December is linked to the recent drop in oil prices, which has unnerved investors due to its pace and impact on oil-exporting countries like Russia. It followed a spike in October linked to events in Syria and Hong Kong as well as the Ebola outbreak and concerns the Federal Reserve was going to raise interest rates sooner than expected. Despite this uncertain global economic and political backdrop, prime central London residential property remained a sound investment in 2014, as figure 2 shows. Total returns, which include rental income and capital value growth, outperformed a series of other asset classes in the year to November, proving its resilience as an investment. For example, while commodity prices have fallen markedly, partly due to concerns over the Chinese economy, demand among Chinese tenants and buyers for prime central London property has increased, buoyed by its safe haven appeal. This is underlined by the fact the number of Chinese tenants increased by almost fourfold in 2014 compared to 2013. DECEMBER 2014 Rental value growth was flat for the second consecutive month in December Annual growth hit a three-year high of 3.3% as the UK recovery continued Some buyers have opted to rent due to the possibility of further property taxation after the general election Prime central London property outperformed other asset classes in 2014 despite global economic volatility The number of Chinese tenants rose fourfold between 2013 and 2014 in spite of Chinas economic slowdown TOM BILL Head of London Residential Research While commodity prices have fallen markedly, partly due to concerns over the Chinese economy, demand among Chinese tenants and buyers for prime central London property has increased Follow Tom at @TomBill_KF For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief RENTAL GROWTH HITS A THREE- YEAR HIGH AS ECONOMIC UNCERTAINTY RISES The recovery in the prime central London rental market continued in December despite the impact of wider economic uncertainty in the final quarter of the year, says Tom Bill RESIDENTIAL RESEARCH PRIME CENTRAL LONDON RENTAL INDEX FIGURE 1 Prime central London rental value growth in December 2014 FIGURE 2 Prime central London property outperforms other asset classes in a volatile year (12 months to November 2014) Source: Knight Frank Residential Research Source: Knight Frank Residential Research DOWN Monthly growth 3-month growth 6-month growth Annual growth VIX volatility index 3.3% 0.5% 0% 1.7% FIGURE 3 Price growth in prime central London by area in the year to December 2014 DATA DIGEST The Knight Frank Prime Central London Index, established in 1976, is the longest running and most comprehensive index covering the prime central London residential marketplace. The index is based on a repeat valuation methodology that tracks capital values of prime central London residential property. Prime central London is defined in the index as covering: Belgravia, Chelsea, Hyde Park, Islington, Kensington, Knightsbridge, Marylebone, Mayfair, Notting Hill, South Kensington, St Johns Wood, Riverside* the City and the City Fringe. Prime London comprises all areas in prime central London, as well as Barnes, Canary Wharf, Chiswick, Clapham, Fulham, Hampstead, Richmond, Wandsworth, Wapping and Wimbledon. * Riverside in prime central London covers the Thames riverfront from Battersea Bridge in the west to Tower Bridge in the east, including Londons South Bank. The City Fringe encompasses the half-mile fringe surrounding most of the City including Clerkenwell and Farringdon in the west and Shoreditch and Whitechapel in the east. Knight Frank Prime Central London Index KF Prime Central London Index 12-month % change 6-month % change 3-month % change Monthly % change Dec-13 6,017.9 7.7% 3.6% 1.9% 0.8% Jan-14 6,043.6 7.8% 3.6% 1.5% 0.4% Feb-14 6,083.4 7.5% 3.7% 1.9% 0.7% Mar-14 6,135.1 7.5% 3.8% 1.9% 0.8% Apr-14 6,182.4 7.5% 3.8% 2.3% 0.8% May-14 6,231.2 7.8% 4.4% 2.4% 0.8% Jun-14 6,278.7 8.1% 4.3% 2.3% 0.8% Jul-14 6,297.3 7.9% 4.2% 1.9% 0.3% Aug-14 6,318.9 7.7% 3.9% 1.4% 0.3% Sep-14 6,343.4 7.4% 3.4% 1.0% 0.4% Oct-14 6,343.4 6.5% 2.6% 0.7% 0.0% Nov-14 6,330.7 6.1% 1.6% 0.2% -0.2% Dec-14 6,323.7 5.1% 0.7% -0.3% -0.1% Source: Knight Frank Residential Research

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