After a slump in 2008 during the global financial crisis, the sector recovered, first tentatively and then at full pelt, with average prices this year reaching 54 per cent higher than their pre-crisis peak.
The growth was fuelled by population pressure, a desire by Britain’s wealthier classes to put their savings into bricks and mortar, and the decision by magnates from the Gulf and Russia that London property was a safe place to park their fortunes.
But cracks were already starting to appear before Britain’s shock vote on June 23 to leave the European Union, and these are now being magnified by fears of the economic fallout and uncertainty that follows.
“Housing market activity and prices now look to be at very serious risk of an extended, marked downturn following the UK’s vote to leave the EU,” said Howard Archer, chief UK and European economist at IHS Global Insight.
The process of Britain’s exit remains unclear, but Archer said the vote was likely to weigh down economic activity and consumer confidence. He also warned unemployment may rise in the coming months.
Given these factors, IHS predicts that British property prices will fall by five per cent in the second half of the year, and by another five to seven per cent in 2017.
Other analysts are more cautious, saying that the extent of any economic slowdown has yet to become clear, making it too early to predict the impact on the property market.
Monica Malik, chief economist at Abu Dhabi Commercial bank, said that with so much invested it would take more than the Brexit vote to shake Gulf confidence in the London property market.
“In the near term, there will be a sentiment of cautiousness but we do not expect a marked selloff,” she said.
“A knee-jerk reaction or panic is unlikely,” she said.
“Property in the UK is very attractive and has been a well-performing asset class. The underlying foreign demand is expected to remain strong once the uncertainties subside.”
‘One less bathroom’
But some property professionals in London have already seen buyers hesitate in the stifling atmosphere that descended following the June 23 referendum.
“People are cautious to say the least. They will take more time, the market will be much quieter,” said Ibby Aziz, a partner at Unsworth Rose solicitors in the upmarket area of Primrose Hill, near Regent’s Park.
He has seen deals that had been agreed in principle before the referendum, only for the buyers to demand a 20 per cent reduction in price afterwards. Many sellers would be unlikely to proceed in those circumstances, he told AFP.
Emphasising the uncertainty, a top Singapore bank, United Overseas Bank (UOB), said Thursday that it has suspended loans to anyone wanting to buy property in London.
“As the aftermath of the UK referendum is still unfolding and given the uncertainties, we need to ensure our customers are cautious with their London property investments,” it said.
Property development, notably the construction of so-called “iceberg” basements that add several new floors below traditional Victorian homes, is expected to be an early casualty of the market’s new fragility.
John Foldes has been planning a large extension on his house in Clapham, in southwest London, but said he was reconsidering his plans after the Brexit vote.
“We may decide to make one less bathroom and make the setting a little bit simpler,” he told AFP, adding that he was trying to reduce the budget by 20 per cent.
Mr Foldes, who rents out the property, had been planning to increase the amount he charges following the works, but is now lowering his expectations.
In a sign of wider investors’ concerns, leading estate agents Foxton issued a profits warning and shares in major construction firms collapsed by 20 to 30 per cent over the past week.