London’s Luxury Home Market Has Been Dragging for Years. These Sellers Are Diving in Anyway.

Lesley and Johan Denekamp are keenly aware that now isn’t a great time to be selling real estate in central London. Nonetheless, in September, they went ahead and listed their 3,800-square-foot townhouse with Knight Frank, for $5 million.

Why now? The couple are sick of waiting, having already sat out Brexit and the pandemic. “We don’t think we are going to live forever, and four million pounds is a lot of money to have tied up in a house we don’t really need,” said Johan Denekamp.

The couple bought their house in St Katharine Docks, a former dockyard now an upscale marina lined with apartment buildings and houses, in 1997 for an amount they declined to disclose.

Both had jobs in London. Johan Denekamp, 64, was in advertising. Lesley Denekamp, 62, worked for insurers Lloyd’s of London. She could walk to work since the docks are less than a mile from the City, London’s historic financial district.

About 10 years ago the couple, both now retired, built themselves a country home in the county of Wiltshire. Unfortunately, driving through London’s traffic to make the 100-mile trip made their journey unnecessarily long. They decided to relocate to west London and in 2018 moved into a new-build apartment in the Brentford neighbourhood.

The couple then listed their townhouse for $6.56 million. But during 2018, the property market was hit by Brexit-related jitters and they failed to find a buyer. They decided to wait, rented the house out and sat out Brexit. Then came the pandemic and they had to sit out that, too. They have now had enough of waiting and are trying again, despite a new challenge to the market: rising interest rates.

Between November 2021 and August 2023, the Bank of England hiked rates from 0.1% to 5.25%, although it did agree to hold rates steady at its most recent meetings in September and November. Data shows that the upper end of London’s housing market appears to be bearing up well against rising mortgage costs.

According to Savills, average sale prices during the third quarter of 2023 in Prime Central London (PCL—defined as the neighbourhoods encircling Hyde Park) dropped just 1.2% compared with the third quarter of 2022. They are 0.9% higher than in March 2020.

Across prime London, a wider area incorporating most central neighbourhoods plus particularly affluent suburbs, such as St John’s Wood and Hampstead, average sale prices during the third quarter of this year dropped 2.1% compared with the same period last year, said Savills. Prices are 3% higher than in March 2020.

But, just like in major U.S. markets, while prices are holding up reasonably well in central London, the number of deals being done is down.

Stuart Bailey, head of prime sales London at Knight Frank, said transaction levels in October 2023 were 15% down compared with the same month last year.

The reason is that buyers are out to bag a bargain, while many sellers are holding out for a great offer, said buying agent Jo Eccles, managing director of Eccord. “PCL is really resilient, a lot of people don’t have any borrowing, and owners can afford to wait,” she said. Buyers, meanwhile, want a good discount. “London is not a compelling investment at the moment,” said Eccles.

Bailey said the performance of London’s prime market can be split into three categories. The first is homes priced at $3.75 million or less, a needs-based market of mainly domestic buyers. The second is the $12.5 million-plus super-prime market, dominated by globally wealthy and risk-averse investor buyers. These two sectors, Bailey said, are still trading well.

The market between $3.75 million and $12.5 million is flagging. “This is a highly discretionary sector, and it is the bit which is being squeezed,” he said.

Whatever the price bracket, Camilla Dell, managing partner of buying agency Black Brick, said that homes she describes as “best in class” still attract multiple bidders. These, she said, are properties on sought after streets and garden squares, in immaculate condition, with great views and good light. “They are properties which are without compromise,” she said. “They rarely come up for sale and are always competitive.”

Will Pitt, senior director at U.K. Sotheby’s International Realty, has seen the same trend, with American buyers in particular eager to take advantage of the weak pound. “Favourable exchange rates have enhanced London’s appeal for overseas investors,” he said.

Turnkey homes are in particular demand among time-poor buyers, said Pitt. “This marks a change from pre pandemic trends, likely driven by soaring construction costs and labor shortages,” he said. “We expect this focus on minimising renovation costs to intensify moving into 2024.”

Sophia Lucie-Smith, 36, believes the fully refurbished four-bedroom, four-bathroom townhouse in the Chelsea neighborhood that she bought in 2020 (she declined to disclose the purchase price) and shares with her 8-year-old daughter, Petra, meets the best-in-class criteria.

She has decided to sell the property so she can spend some time living in California, where her mother lives. In November, she listed the property for $9.9 million with Sotheby’s International Realty.

“I am conscious about the market but I think this is a really special house,” said Lucie-Smith, a nutritionist. “There is not a huge amount of good stuff on the market.”

The other homes that trade well are those that look like good value for money. “Buyers want a discount,” said Eccles. “To sell a home which is not so special you have to be bold on pricing, and if you are, then you will get interest and buyers may then bid the price back up.”

Sensible pricing is the Denekamps’ strategy. Their home’s asking price breaks down as $1,315 per square foot. Denekamp said he has seen other homes around the docks achieve $1,749 to $1,875 per square foot in recent months.

“I think it is at the cheap end of sensible,” said Denekamp. “We don’t want to sit and wait and talk about the five million pounds we could have got for it five years ago. We don’t have any children to leave it to, and we could wait 10 years for the market to change.”

For decades, Australia has leaned into its reputation as the lucky country. But luck, as it turns out, is not an economic strategy.

What once looked like resilience now appears increasingly fragile. Beneath the surface of rising property values and steady headline growth, the Australian economy is showing signs of strain that can no longer be ignored.

Recent data paints a sobering picture. Australia has recorded one of the largest declines in real household disposable income per capita among advanced economies.

Wages have failed to keep pace with inflation, meaning many Australians are working harder for less. On a per capita basis, income growth has stalled and, at times, reversed.

And yet, on paper, things still look relatively solid. GDP is growing. Unemployment remains low. But that growth is increasingly being driven by population expansion rather than productivity.

More people are contributing to output, but not necessarily improving living standards.

That distinction matters.

For years, Australia’s economic success rested on a powerful combination: a once-in-a-generation mining boom, a credit-fuelled housing market, strong migration and a property sector that rarely faltered. Between 1991 and 2020, the country avoided recession entirely, building enormous wealth in the process.

But much of that wealth is tied to property. Around two-thirds of household wealth sits in real estate, inflated by leverage and sustained by demand. It has worked, until now.

The problem is the supply side of the economy has not kept up.

Housing supply is falling behind population growth. Rental vacancies are near record lows.

Construction firms are collapsing at an elevated rate. At the same time, massive infrastructure pipelines are competing with residential projects for labour and materials, pushing costs higher and delaying delivery.

The result is a system under pressure from all angles.

Despite near full employment, productivity growth has stagnated for years. In simple terms, Australians are putting in more hours without generating more output per hour. The economy is running faster, butgoing nowhere.

Meanwhile, government spending continues to expand. Public debt is approaching $1 trillion, with spending now accounting for a record share of GDP.

The gap between spending and revenue has been filled by borrowing for decades, adding further pressure to an already stretched system.

This is where the uncomfortable question emerges.

Has Australia become too reliant on a model driven by rising property values, expanding credit and population growth?

As asset prices rise, households feel wealthier and borrow more. Banks lend more. Governments collect more revenue. Migration fuels demand. The cycle reinforces itself.

But when productivity stalls and debt outpaces real income, the system begins to depend on constant expansion just to stay stable.

It is not a collapse scenario. But it is not particularly stable either.

Nowhere is this more evident than in housing.

The National Housing Accord targets 1.2 million new homes over five years, yet current completion rates are well below that pace. With approvals falling and construction costs rising, the gap between supply and demand is widening, not narrowing.

Housing is also one of the largest contributors to inflation, with costs rising sharply across rents, construction and utilities. Yet the private sector, from small investors to major developers, is struggling to make projects stack up in the current environment.

This brings the policy debate into sharper focus.

Tax settings such as negative gearing and capital gains concessions have undoubtedly boosted demand over the past two decades. But they have also supported supply. Removing them may ease prices briefly, but risks deepening the supply shortage over time.

That is the paradox.

Policies designed to make housing more affordable can, in practice, make the shortage worse if they discourage development. The optics may appeal, but the economics are far less forgiving.

It is also worth remembering that most property investors are not institutional players. The majority own just one investment property. They are, in many cases, ordinary Australians using real estate as their primary wealth-building tool.

Undermining that system without replacing it with a viable alternative risks unintended consequences, from reduced supply to higher rents and increased inflation.

So where does that leave Australia?

At a crossroads.

The country can continue to rely on population growth and rising asset prices to drive economic activity. Or it can shift towards a model built on productivity, innovation and sustainable growth.

The latter is harder. It requires structural reform, long-term thinking and political discipline.

But it is also the only path that leads to genuine, lasting prosperity.

The question is no longer whether Australia has been lucky.

It is whether it can evolve before that luck runs out.

Paul Miron is the Co-Founder & Fund Manager of Msquared Capital.

London’s Luxury Home Market Has Been Dragging for Years. These Sellers Are Diving in Anyway.

Despite a drop in deal volume, prices remain steady in Prime Central London—and some are taking the leap

As housing drives wealth and policy debate, the real risk is an economy hooked on growth without productivity to sustain it.