House prices in some parts of the capital have seen falls of more than a fifth in just six months, according to a new report.
In Westminster, prices fell 22% between the peak in November and the end of May, and in nearby Kensington and Chelsea they were down 16%. The question is whether we are about to see the bottom fall out of the property market in the most expensive parts of London.
The report, from property services group LSL, said the price drops were in response to the new stamp duty regime, which means that the tax bills on more expensive properties have soared. It pointed out that assuming you bought the average property in Chelsea, you faced spending £118,000 on tax.
Compare mortgage rates
The Centre for Economics and Business research has been predicting this effect since the stamp duty changes were announced. It said in the spring that prices overall in London were likely to be down 3.6%. This compares to a predicted rise of 1.5% across the rest of the UK.
Is a collapse coming?
Dramatic falls in the prime central London market are certainly not to be sniffed at. There will be those who will wonder whether this could finally take the heat out of the London property market, and mean an end to the incredible prices we have seen in recent months.
Those with a close eye on the Westminster, Kensington and Chelsea markets, meanwhile, know what a strange place it is to buy and sell property. Anyone asking for a valuation from estate agents in the area will get wildly differing answers, which means you can get two similar properties side by side, on sale for very different prices.
In a booming market, the cheaper one is sold overnight, while the more expensive option hangs around for a few weeks before the sellers accept a marginally lower offer. In a difficult market, the expensive one simply doesn't sell, so the price is lowered to something similar to the cheaper one - at which point it sells. You could argue that this is a price drop, or you could argue that it was enormously overpriced in the first place.
Compare mortgage rates
Unsurprisingly, the experts don't expect a collapse. Savills says the setback in prime central London will be over by next year, where it will grow roughly 7% (outstripping the rest of the market), before settling down to around 5% growth each year for the next three years. It means they expect prices to be up a fifth over five years.
The CEBR, meanwhile, expects property prices to rise 2.7% next year (faster than the rest of the UK), then 6% the year after that. Economist Scott Corfe, pointed out that there are structural reasons why prices will continue to rise. He says: "We are still not building enough houses to keep pace with population growth so, as long as we have a shortage of supply, prices will keep rising. House prices will continue to grow faster than inflation."
But what do you think? Can exorbitant London house prices really continue to rise? Let us know in the comments.
Property stories on AOL
Incredible triangular apartment for rent
The world's most expensive flat goes on the market
House prices nudge 2007 highs: what can we expect?