London’s housing market is rocketing – is this good or bad news?

Are we headed for a recovery or a bubble in the capital?

It’s a well known fact that London is streets ahead of the rest of the UK when it comes to property (and land) values. However, since the turn of the year and thanks to the recent massive injection of impetuous into the market via various “help to buy” schemes, London’s property market has gone nuts.

Prices are on a steep climb and property is being snapped up like a bargain crazed gang of shoppers at a Black Friday sale in Walmart. You could say we’ve all lost our minds. So what is going on?

Whether we like it or not, the UK has always had a great lust for property investment and the market in London’s more desirable boroughs is growing at a fast pace. Flat viewings in particular are swamped. It’s actually become the norm to see a single property have over 75 people viewings in a single showing. And they’re not just bored window shoppers; they’re serious buyers as properties are shifting fast!

For many prospective investors, it’s now the standard to have to put in an offer the same day as a viewing to avoid disappointment. You simply cannot rest on your laurels otherwise you will miss out.

Prices are well above their pre-crash levels with some of the most bog standard basement flats selling at a staggering 60-70% higher than values seen just eight years ago in 2006. And why is this happening? Because there’s a major shift on the negotiation stage.

In years past when an asking price was seen as a ceiling price that the vendor was hoping to achieve, prices are now becoming an “offers over” base price point, meaning if you want to get the property, you had better be ready for a bidding war, over and above the asking figure. So what do these signs indicate?

Asking price chart

The property market is on a steep climb

The market is without question on a recovering. What may be more alarming to some is the trajectory. It’s steep, it’s fast and in some places, pretty scary.

One significant sign that we might be headed for a bubble is the fact that the gap between asking prices and agreed prices has practically disappeared.

In years gone by, it’s a well-known fact that estate agents used the basis of high valuations to convince vendors to market their property with them, believing the gains will be greater. Buyers are well aware this goes on everywhere so the tendency was always to submit an initial low-ball offer to see what the reaction will be. In most cases, the end sale figure would be somewhere as a halfway house between the asking and offer price. All pretty standard stuff.

However, that seems to be changing. According to property website Hometrack.co.uk, the gap has reduced to 2%. Buyers have become so hungry to grab property that they want to guarantee the purchase and thus, are forgoing the negotiation stage and submitting close to and at times, above asking price offers. The signs are there that prices are rising so fast that estate agents simply can’t keep up.

But looking close at their data which goes back as far as 2001 also suggest that, housing prices may be about to peak.

Time on market chart

Is this a buyers or sellers market?

The question is an interesting one. Buyers can’t get properties fast enough whilst sellers are getting at times, above asking price offers. So who wins and who loses?

Clearly we are at a crossroads and it is incredible to think that we are at this stage still in the first quarter of 2014, considering the stagnation we had experienced for so long since the post-crash period which dragged on for an age. The sheer pace and acceleration of this recovering is the big worry and to a seasoned investor, appears to be a short run that will run out of steam very soon.

Very few would disagree that UK property prices, and in particular London prices, are way above where they should be. All the stimulus packages introduced this past year have only gone on to exacerbate that problem and the fact is, it doesn’t look like it is going to go away. So smart investors need to see when opportunities arise and take advantage quickly.

This appears to be the case now in London and no doubt, this wave of enthusiasm in property will spread outwards en masse once the property market has matured and the commuter belt areas get their turn of this huge property run.

As a land or property owner, you need to also see the signs when the time is right to sell. The markets are simply different to what they used to be and opportunities have narrowed and time frames are squeezed. It wouldn’t be a surprise to see a slow down or more accurately, a plateau of the property market towards the end of 2014.

When spring and summer kick fully into gear this year, buyers will be cranking up their desire to buy. So this is surely the best time to sell as higher yields will be obtained and if you’re smart, you will sell at the peak of the market.

With a recovery and possible bubble forming at such a rate, you cannot sit back and wait for an opportunity to arise as it may come and go with the blink of an eye. It’s a scary time in the market because anyone holding land or property wants to get the best return they can but with markets rising at such a rate, one never knows where or when that peak will hit. All we can say is; evaluate your situation, know your original purchase value when you had the land and see what your return will be in 2014.

If the gains are good, perhaps your time has finally come to sell and get that long overdue pay back.