Why fears of a property bubble in London are exaggerated

Why fears of a property bubble in London are exaggerated

The London property market has been hot for the last couple of years, and resistant to the conditions that damaged the sector further north in England, this much is obvious to anyone buying, selling or renting in the capital.

However, years such as that experienced in 2013, wherein prices rose by 13.2 in the city compared to 5.3 per cent nationwide, often lead to speculation that the market is headed towards bubble conditions, which could cause prices to nosedive when it bursts.

In reality, though, London is far short of reaching another property bubble. While prices in the capital, as well as in the south-east, may be above previous peaks experienced in January 2008, there are plenty of reasons to be positive that growth at the moment is indicative of a market in which the future is bright.

For example, at the moment, buyer conditions are improving. The government has extended Help to Buy until 2020 as of the Budget announcement of last week, which means there will be an increased number of buyers for at least the next six years.

In addition to this, there is the fact that people are starting to feel better about their finances, which means a greater number will be looking to buy homes. The economy has been growing since the third quarter of 2013, and is expected to grow by almost three per cent this year, while unemployment is dropping all the time and heading towards the magic number of seven per cent.

This positivity is a sentiment shared by one of the capital's largest investment groups, Songbird, which owns Canary Wharf.

Its chairman and chief executive Sir George Iacobescu said that profits for investment collectives rose considerably in 2013, and he believes that more once homes are built, prices will start to mature. 

He said that at the moment, there are some 30,000 homes built per year in the capital, when it actually needs 50,000, which inflates prices in line with the increased competition. 

But with the government having pledged half a billion pounds to small builders to get them working, and the potential for greater institutional investment in new build properties for the rental market, it is an issue that should be addressed moving forward.

For the latter group, more investment at the moment, makes real financial sense. As well as there now being more government fund through the Build to Rent scheme, the simple fact is that the city is hot property for investment groups.

David Pritchard, the chairman of Songbird, said: “Improving market conditions resulted in a sharp rise in the valuation of the investment and development portfolio."

The market, according to the Evening Standard, is now going through its biggest boom in history, but it could just be the start of something great.