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US QE-end could burst London property bubble – Fathom

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  • 23/07/2013
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US QE-end could burst London property bubble – Fathom
London property investors could see house prices drop by as much as 40% if the US pulls its quantitative easing programme too sharply, a report has suggested.

In a study of prime central London (PCL) house prices commissioned by Development Securities, Fathom Consulting found that while the gap between actual prices and the prices predicted by its model was almost non-existent in 2011, there was now a 13% difference in prices.

This was due to the fact the London property market was seen as a safe haven for investors, it suggested.

The report said: “We found that only around one half of the further substantial appreciation of PCL property prices through 2012 and into 2013 can be justified by economic fundamentals. On that basis, we find some risk that a modest bubble has started to form in the PCL market.”

While previously the Eurozone crisis had posed the biggest threat to the prime London market, it argued, this had now been replaced by fears of sudden changes to US monetary policy.

It stated: “In our view, the current biggest threat to PCL property prices is that the US Federal Reserve begins to taper its asset purchase programme prematurely, causing the US economy to weaken, sparking off a rapid fall in the price of risky assets, including gold, equities and PCL property.

“This is not our central view, but it is a risk.”

The average prime central London property is now worth over £2m, according to the estate agent Marsh & Parsons’. On average, property in these areas rose in value by 3.4% in the last quarter alone.

However, the 40% rise in transactions across prime London was driven by activity in the outer regions of the city – the volume of transactions in central areas actually fell by 38%.

Marsh & Parsons chief executive Peter Rollings said: “It’s true that the imbalance of supply and demand is pushing property prices higher in Prime London areas. But it’s also creating an excellent time to sell property.

“Helped by the rapidly improving availability of mortgages, buyers are queuing up for the chance to buy a prime London home. Property is changing hands in record time and for close to the asking price, with 98% of the asking price for Prime London property regularly being achieved.”

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