Property sellers unwilling to accept agent advice on prices

Current housing market attention may be focussed on falling prices, but the housing downturn has had a far more dramatic effect on the number of homes being sold, according to Knight Frank’s latest London residential review.

Sales volumes are between 50% and 60% lower than average in many of the capital’s most desirable postcodes. However, while the lack of mortgage finance is undoubtedly a factor, the review suggests that part of the reason is a continuing lack of realism among vendors.

Despite growing awareness of price falls, it remains difficult to reconcile vendor and buyer expectations. There are a growing number of rejected offers for properties, with some as much as 30% below asking price – a reflection of where many buyers expect prices to fall to.

Liam Bailey, head of residential research at Knight Frank, said: “After over a decade of rising prices in the capital, it is difficult for many homeowners to accept that their homes may be worth as much as 20% less than a year ago.

“ As a result, they are unwilling to accept agent advice on appropriate asking prices or offers. However, as many have high levels of equity in their property and relatively secure jobs, they do not yet have to sell. Consequently, many properties are withdrawn from the market or remain unsold for long periods of time – producing an unprecedentedly low number of transactions.”

“Unless their properties are absolutely outstanding, it is even more essential than ever that London’s vendors adopt a realistic attitude and listen to their advisors if they want to achieve a sale.”

The review predicts further falls in prices throughout 2009, with the bulk of price falls in place by March next year. The structural undersupply of housing in London will prevent a more dramatic fall from occurring. As a result, transactions may fall even lower, perhaps reaching a low of as little as 30% of historic trends.

Even the super-prime sector, comprised of properties valued at over £10m, which until recently seemed immune from the downturn, is beginning to be affected. However, continuing interest from international buyers and a severe lack of supply suggests that price falls will be moderate and transaction levels will remain relatively high.

Many frustrated vendors have chosen to rent out their properties instead. However, this has dramatically increased the supply and quality in the rental market and, as a consequence, rents have fallen over the past few months, and at certain price points there is now a glut of homes for rent.

However, there is a great deal of activity in the rental sector and, with many buyers opting to put off a purchase until the market stabilises, this should intensify over the next year. Rents should rise throughout 2008, and with prices falling, investment yields will rise. Although buy-to-let investors with highly geared portfolios may find the next year very stressful, it will be a more benign climate for new entrants.

Bailey added: “Rising yields will make it far more attractive to buy property for rental income rather than capital gains. With yields expected to rise to as much as 6% in some cases over the next year, we expect to see more investors entering the market. There is already evidence that institutions, individuals and funds are watching the market and waiting for a window of opportunity, although that may not emerge until late next year.”

For further information, visit knightfrank.com