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LONDON - London is starting to look frayed around the edges. For years Britain's capital city has seen international billionaires pump their riches into its real estate in hopes of a steady return, but that could change. Figures from property Web site Rightmove.co.uk shows that asking prices in the city fell 6.8% in December, the biggest fall since the data series began in January 2002.
The fall in London prices dragged on British house prices as a whole--they dropped by 3.2%, to an average £232,396 ($467,978), from £239,986 ($483,282), a month ago. The rest of Britain saw various rates of growth, apart from the Northwest, where average asking prices also declined 1.0%. House price inflation for the country slowed to 4.8%, from 7.9%, this time last year.
Home-builders duly took a battering. Barratt Developments was down 5.4%, at 447 pence ($9.00), and Taylor Wimpey fell 4.9%, to 196.8 pence ($3.96), on Monday morning in London.
Home Retail, the owner of the Argos home appliance and electronics chain and home improvement chain Homebase, also fell 6.3%, to 309.25 pence ($6.23), its lowest ever level. The stock has fallen 28% since Nov. 1. Troubled mortgage lender Paragon fell 7.6%. (See: "A Paragon Of Disaster")
House prices in Britain have recently started slowing, but the data from Rightmove is the first to show such a steep decline in asking prices, and the figures for London in particular are startling.
The British capital boasts all of the nation's 20 most expensive postcodes and some of the costliest properties in the world. Yet while prime real estate in areas such as Kensington, Chelsea and Knightsbridge, have till now been relatively safe from the housing slowdown, even they saw a steep decline in December. Prices in the exclusive boroughs of Kensington and Chelsea fell 4.9%, Westminster slipped 5.1%, and trendy Islington, where former Prime Minister Tony Blair used to be a resident, dropped 8.4%, from last month.
Rightmove said that December's slide had been made worse by the usual winter seasonal slowdown, and a general avoidance by first-time sellers of home information packs (HIPs) legislation. Sellers of houses with four bedrooms or more have recently become required by law to commission HIPs, and the process is cumbersome.
But Miles Shipside, commercial director of Rightmove, said that a "substantial element of the fall reflects genuinely tough market conditions, and many sellers who have listed this month have priced below the market to try and sell." He said there needed to be a further 0.5% fall in the price of credit in early 2008 to return the cost of borrowing to the levels they were at before the credit crunch.
But the liquidity crisis has yet to show any sign of abating. The interbank lending rate for three months in sterling, is currently at 6.6%, or 1.1% higher than the Bank of England base rate of 5.5%.
Property investors fear that the recent tightening of credit conditions, brought on by the U.S. subprime mortgage crisis, will compel many real estate owners to sell sooner rather than later to avoid a further fall in prices. If they all sell at once, prices could crash.
"We are in a different world compared to previous housing downturns," said Shipside. "It is a world of international banking interdependencies, and a world in which the robustness of the U.K. housing market has never been tested." |
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