More offers made on desirable residences

Buyers who have registered an interest in million-pound properties are now starting to make formal offers – believing this to be an opportune time to secure a good deal, even though prices are forecast to fall further.

A number of estate agents have reported a sharp rise in the number of offers being made on houses in desirable areas of London and the south in the past few
weeks. Most are 20-25 per cent lower than the peak price of 12-18 months ago.

Agents say potential buyers are concerned that the supply of property in the market could dry up in coming months and so are deciding to act quickly. Some agents already have 20-40 per cent fewer properties on their books than a year ago, as the drop in interest rates has enabled some reluctant vendors to delay their sales.

At the same time, low interest rates are persuading cash-rich buyers to return to property as an asset class, as there are few other investment options, and the weaker pound is giving international buyers the added incentive of a favourable exchange rate.

Agents have reported increased buyer interest since the new year, but only recently has this translated into actual offers.

Hamptons International, for example, took six times the number of offers on properties last week than in the quiet weeks of last year.

But this increased activity is confined to certain areas of the market, typically expensive parts of London and popular second home markets, such as Cornwall.

Knight Frank says more buyers have come through its Chelsea office in the past six weeks than in the four months previously. It has received offers on a number of properties in Chelsea, one of which was above the sale price achieved at the peak of the market in July 2007. Savills’ Knightsbridge office has had 50 per cent more offers this month compared with the past few months, while Winkworth, another agent, had five buyers competing for the same property in Notting Hill.

Agents emphasise that not all offers are leading to sales and it is still too early to call any meaningful recovery in the market.

Even so, for some vendors who have been struggling to sell their properties, prospects could be improving.

“Buyers don’t seem to be afraid to offer at the moment,” says Phil Tennant at Hamptons. “The number of offers isn’t directly correlated to the number of sales as, in several cases, there is still a gap between buyers’ and sellers’ expectations. But there is at least more confidence to get to the point of offer.”

Agents say buyers are largely existing homeowners looking to trade up or purchase a second home, or investors, particularly those from overseas.

First-time buyers, who are constrained by a lack of mortgage finance, are still absent from the market.

Tennant says two or three-bedroom properties for up to £1m are attracting greater interest than more expensive homes. “Areas that have noticeably come back are those that noticeably fell away,” he says.

Other agents are handling transactions for up to £3m-£5m, but very few above that. Deals are being done where vendors have significant equity in their home and so can afford to price their properties realistically.

Knight Frank has sold one property – a house in Clareville Street in Chelsea – at
a slightly higher price than the owner paid in 2007. The house, which had been
refurbished, attracted two bidders and sold for just £500,000 under the £3.1m asking price. Other properties in the area have attracted multiple bids and some buyers have even seen their offers topped at the last minute.

James Pace, head of Knight Frank’s Chelsea office, says instances of gazumping are isolated but can happen if properties are desirable and realistically priced.

Agents generally believe that a realistic price is around 25 per cent lower than the top of the market, and vendors who are unwilling to sell at this level are likely to struggle. They also report surges of interest immediately after a property is reduced in price, and again when a property goes under offer.