Brexit hits London luxury property prices as Capital & Counties cut £200m off Earls Court land value

The developer said the valuation of the site stands at £1.2 billion, down from £1.4 billion in December 2015

Zlata Rodionova

Tuesday 26 July 2016 15:29 BST

Peel Hunt analysts said the central London residential market remains under pressure

Capital & Counties, the London listed property company, has cut the value of its Earls Court development by 14 per cent in a further sign that the value of central London luxury property is falling following UK’s vote to leave the EU.

The developer said the valuation of the site stands at £1.2 billion, down from £1.4 billion in December 2015. This means that Brexit has wiped as much as £200 million off the development’s value.

“At Earls Court, the downward move in property valuations reflects the valuers’ assessment of the weakened sentiment in the central London residential market following the EU referendum,“ the company said in its interim results.

However Capital & Counties (Capco) sought to reassure shareholders saying the business is in a strong financial position.

“At Earls Court, we continue to make positive progress on site. Whilst it is too early to make firm predictions following the result of the EU referendum, we remain confident in our estates and current conditions in our estates and current conditions on the ground remain positive,” Ian Hawksworth, chief executive of Capco, said.

The company added that it upgraded the property value of its Covent garden by 3 per cent.

Capco shares fell 5 per cent following the news. Capco was still down 4.08 per cent at 284.10 at 2pm in London.

Peel Hunt analysts said the central London residential market remains under pressure.

“With Capco’s sales rate still slow, we still expect to see a reduction in prices and a further hit to the valuation. We also expect expect Covent Garden’s stellar growth to slow,” a morning note by Peel Hunt analysts said.

The news follows a similar move by property company St Mowden.

The company cut the value of its Nine Elms site, where 3,000 homes are planned, from £127 million to £106 million, earlier in July.

The vote triggered a wave of discounts as nervous owners slashed their asking prices following the surprise victory of the Leave campaign, according to figures from London Res, a property research firms.

The number of cuts to asking prices surged by 163 per cent in the 12 days following the referendum, compared to the 12 days ahead of the vote, the research found.

But the post-Brexit discounts have failed to encourage people to buy.

A downward trend in house sales is expected to continue through the summer as buyers put off their plans amid uncertainty, according to the Royal Institution of Chartered Surveyors.

6 ways Britain leaving the EU will affect you

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1/66 ways Britain leaving the EU will affect you

6 ways Britain leaving the EU will affect you

More expensive foreign holidays

The first practical effect of a vote to Leave is that the pound will be worth less abroad, meaning foreign holidays will cost us more

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6 ways Britain leaving the EU will affect you

No immediate change in immigration status

The Prime Minister will have to address other immediate concerns. He is likely to reassure nationals of other EU countries living in the UK that their status is unchanged. That is what the Leave campaign has said, so, even after the Brexit negotiations are complete, those who are already in the UK would be allowed to stay

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6 ways Britain leaving the EU will affect you

Higher inflation

A lower pound means that imports would become more expensive. This is likely to mean the return of inflation – a phenomenon with which many of us are unfamiliar because prices have been stable for so long, rising at no more than about 2 per cent a year. The effect may probably not be particularly noticeable in the first few months. At first price rises would be confined to imported goods – food and clothes being the most obvious – but inflation has a tendency to spread and to gain its own momentum

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6 ways Britain leaving the EU will affect you

Interest rates might rise

The trouble with inflation is that the Bank of England has a legal obligation to keep it as close to 2 per cent a year as possible. If a fall in the pound threatens to push prices up faster than this, the Bank will raise interest rates. This acts against inflation in three ways. First, it makes the pound more attractive, because deposits in pounds will earn higher interest. Second, it reduces demand by putting up the cost of borrowing, and especially by taking larger mortgage payments out of the economy. Third, it makes it more expensive for businesses to borrow to expand output

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6 ways Britain leaving the EU will affect you

Did somebody say recession?

Mr Carney, the Treasury and a range of international economists have warned about this. Many Leave voters appear not to have believed them, or to think that they are exaggerating small, long-term effects. But there is no doubt that the Leave vote is a negative shock to the economy. This is because it changes expectations about the economy’s future performance. Even though Britain is not actually be leaving the EU for at least two years, companies and investors will start to move money out of Britain, or to scale back plans for expansion, because they are less confident about what would happen after 2018

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6 ways Britain leaving the EU will affect you

And we wouldn’t even get our money back

All this will be happening while the Prime Minister, whoever he or she is, is negotiating the terms of our future access to the EU single market. In the meantime, our trade with the EU would be unaffected, except that companies elsewhere in the EU may be less interested in buying from us or selling to us, expecting tariff barriers to go up in two years’ time. Whoever the Chancellor is, he or she may feel the need to bring in a new Budget

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Surveyors said house sales were down in June and are expected to drop another 26 per cent over the next three months in the most negative reading since 1998.

However, amid reports property prices are falling there seems to be an exception to the rule.

A luxury flat in London’s historic Admiralty Arch, which overlooks Buckingham Palace, could sell for up to £150 million.

If sold for that price, the 15,000 sq ft apartment will become London's most expensive flat, topping One Hyde Park, a flat which sold for £140 million in 2014.

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