Prime Residential Property Extract: The prime residential markets showed remarkable performance in the first three quarters of 2007. They were relatively insulated from the affordability issues which dogged the mainstream markets but this all began to change in October. The markets had to contend with the global credit crises and, as a consequence, reduced demand from City buyers who were harbouring reduced bonus expectations.

In prime central London, the effect was felt most acutely.  A 20% - 25% fall in the number of buyers from the financial services sector in the last quarter caused the froth to come off the market leading to a 2% fall in values.  That said, annual growth was at 16.2% by the year end.  This fall came as little surprise to us.  It is similar in extent and effect to previous falls following shocks to the financial sector.

“The very top end of the markets have performed best”

The much less volatile prime regional and country house markets were less affected.  Values effectively stood still in the last quarter due to a much quieter market.  The  headline figure of a -0.2% movement in values during this period owed something to a continued growth in the prime Scottish market, which has a tendency to lag London by up to a year or, occasionally, buck downward trends completely.  In the South East, values fell by -0.5%, still much less than in prime central London.

In both London and the regions, the very top end of the prime markets performed best.  Values of properties above £5 million in London grew by 2.4% in the quarter and 30% in the year. Outside of London property above £4 million showed growth of 1.6% and 14.3% in the last quarter and for the year respectively.

Demand in this sector comes from a broad range of high net worth individuals and is consequently less reliant on City money.  In the last big downturn of1989, the super prime market continued to be active until 1991 so it may well continue to ignore the gloom prevalent further down the property ladder. Constrained supply might also be expected to support markets, resulting in further, but reduced, growth in2008. 
Prime central London growth is expected to occur mostly in the second half of the year, if the global credit crisis eases and confidence is restored. Reduced City bonuses will temper demand in the £1 to£3 million brackets. 

Read the full  Savills article below: 

Residential Property Focus - Feb 2008 PDF

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