Have London property prices finally peaked?

Middle Eastern buyers have been prominent in a rush to buy high-end property in London after the UK general election result removed the threat of higher real estate taxes, in particular a so-called mansion tax.

But with global interest rates poised to rise imminently, this could well be the final spike in deals that usually marks the top of any bull market.

From where will the next round of willing buyers to take prices higher come from, overseas? If you have not got your money out of crumbling emerging markets by now then heaven help you when they all come tumbling down.

What about money from a recovering Europe or the United States? Dream on. Europe is as flat as a pancake and both the US and European stock and bond markets are supported by ultra-low interest rates that appear to have reached the end of the road.

The Fed is building up the courage to raise rates sometime soon while the European bond markets are already doing it with a vengeance. The ‘Taper tantrum’ of two years ago when Ben Bernanke first flagged up the idea of increased rates is going to be nothing in comparison to the reaction in financial markets when this finally happens.

Imagine that you have just rushed out to buy a multi-million dollar London home with a massive mortgage and not bothered to hedge the interest rate risk. You will be toast. No buyer will be able to raise finance on previous terms so there will be less of them, and prices will have to come down sharply.

Supply and demand is not going to work in your favour either. Last year, around 1,000 homes were sold for more than a million pounds in the UK, almost all of them in London, while 40,000 of these units will be delivered over the next year. Yikes. That is real bubble trouble: huge oversupply just as the buyers vanish.

This is called a property cycle. It’s driven upwards by cheaper and cheaper money attracting more and more buyers, and even more supply, and when it reverses? Things go in the opposite direction. Where are we now? Look who’s voting with their feet.

The Agnellis, who founded Italian carmaker Fiat, have just made a $720m gain on their 2007 investment in Londonestate agents Cushman & Wakefield by selling out to rival DTZ, who clearly think they know property cycles better.

Is this is a classic market top mega- merger? Remember CNN-Time Warner in 2000? This latest deal creates a number three ‘super-agent’ alongside global giants CBRE and JLL, with 43,000 staff and 250 offices around the world. They are already joint agents on the new ‘Cheesegrater’ building in the City.

The newly combined entity will have revenues of more than $5bn, still some way behind industry leader CBRE but breathing down the necks of second- placed JLL.

The mega-merger with Cushman comes just a year after a consortium led by private-equity giants TPG acquired DTZ from its Australian owner UGL. Exor, the Agnellis’ investment vehicle, put Cushman on the market at the beginning of 2015. Who has got their market timing right on this one?

Clearly the two parties are voting in opposite directions. The Agnellis are not hanging around to see if the London property market can be stretched to even higher valuations.

For a bubble as big as high-end property in London, the collapse could be momentous and catastrophic. That would be the time to rush in and buy if you have the cash, not now.

After almost two decades of price rises, only interrupted briefly by a correction in the global financial crisis, London property is overdue a downturn.

Indeed it has not seen a major fall in prices since the tough recession of the early 1990s. Those hoping the election of a majority conservative administration would keep this show on the road for a while longer may be disappointed, when the current rush to buy is over and a reality check begins in earnest. To use a Latin phrase for let the buyer beware – caveat emptor.