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The Evidence That London Property Is On The Decline

Full-year results from Foxtons (LSE: FOXT) released today showed that 2014 was a tale of two halves for the London property market. While the first half of the year saw demand for London property soar, as the UK economy went from strength to strength, the second half was something of a damp squib, with a lack of demand from buyers forcing the company to lay off staff and scale back its growth plans.

And, looking ahead, it expects 2015 to be a continuation of the disappointing half of 2014, rather than a return to form for the London property sector.

The General Election

According to Foxtons, the key reason for the downturn in London property is the General Election. This, it believes, is causing buyers to be wary and it feels that the London property market will only begin to improve once the outlook for the UK (both politically and economically) is much more certain.

This is a valid point. With the prospect of a mansion tax under a Labour-led government, it is of little surprise that buyers in London (where the majority of the tax receipts are set to be generated) are putting off purchases in the short run. However, it seems somewhat naïve to believe that the passing of the General Election will simply be enough to allow London property to resume its upward trajectory, since at the moment the UK is on course for a hung parliament.

In fact, the prospect of two elections in the current year is a very real possibility. As such, it could be many months before there is a new government in place. And, according to the opinion polls, Ed Miliband remains the favourite to occupy 10 Downing Street, and so a mansion tax is probable, rather than possible. This could prove to be disastrous for the London property sector and could cause a severe decline in demand from buyers over the medium to long term.

The Wider Economic Outlook

However, where Foxtons’ results also offer an insight is with regard to the mind-set of buyers at the present time. They are very nervous right now, and not all of this is to do with the General Election. In fact, affordability issues remain a problem in London (and much of the rest of the UK), and this means that, naturally, demand will subside as buyers become simply unable to buy a property in certain postcodes.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.