City job losses will hit London property prices, thinktank warns

City job losses and decreasing bonuses will put extra pressure on a "stagnant" London property market, experts warn.

House prices in the capital have outperformed the rest of the country over recent years after being buoyed by City earnings, overseas buyers and a limited supply of housing. However, with the London's financial district predicted to shed jobs for the second consecutive year and bonuses also projected to fall, even optimistic property analysts are pencilling in almost no growth in the city's housing market for 2012.

Shehan Mohamed, a housing economist at thinktank the Centre for Economics and Business Research (CEBR), said: "City traders have tended to put their bonuses into property, either as an investment or via residential. There is now a dual effect. Bonuses are falling and jobs are going. Obviously job losses are more powerful as they put people in an untenable situation. Bonuses tended to be used as a down payment. Less bonuses mean less potential new buyers bidding up each property."

The CEBR estimates that the number of City jobs fell by 8.5% and bonuses by 8% last year. It predicts a further drop in the number of jobs in 2012 and "almost stagnation" in London property prices with growth of around 1.9%.

Job losses appear the more significant factor, as there is a tighter correlation between London property prices and the growth or contraction of City employment, than there is with bonuses (see chart). City workers are among the highest earners, meaning they buy the most expensive properties that in turn skew the overall London figures.

High-end estate agent Savills said that areas associated with UK bankers ? such as Clapham, Wandsworth, Richmond and Wimbledon ? have seen lower levels of growth in the second half of the year, as "sources of [City] income have become less certain".

However, as the City prop to prices is removed, overseas buyers have also been credited with sustaining London's boom.

Adrian Overington, director of the Richmond branch Jackson-Stops & Staff, said: "I don't think I've sold to a banker for the last six months. We're being completely fuelled by foreign investment: the Italian, Spanish, Greek super-rich are heading to invest in a safer economy. The eurozone crisis has had a very positive effect for London [house prices]."

International buyers accounted for about 55% of prime central London sales in 2011, up from 52% in 2010, according to Savills, with European buyers rising from 13.2% of sales in 2010 to 19.5% on the back of the eurozone crisis. However, some economists warn that the eurozone crisis may be double-edged, and European demand is another piece of support that could quickly fade.

Richard Donnell, director of research at house price analysts Hometrack, said: "Over the second half of 2011, demand in London slowed more than elsewhere [14.7% fall in London versus a 10% fall outside] as the impacts of the eurozone crisis saw a stronger reversal in demand. It was August and September when demand fell by 10% in the capital as the interest rate on Spanish and Italian bonds rose rapidly and there were fears the debt crisis would spread from the periphery of Europe."

The supply of housing is also thought to be sustaining the London market. The Federation of Master Builders, a trade body, says that housebuilding in London has fallen by 22% since the start of the recession, while the number of private dwellings in London grew by just 0.6% in 2011 and 0.9% in 2010, according to the Department for Communities and Local Government.

Source: http://c.moreover.com/click/here.pl?r5698959322

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