Not enough homebuyers are investing in country houses to stop prices sliding in that sector, says a new report.
The surge in prices in the capital has yet to reach homes in the country, says the Knight Frank Prime Country House Index for the second quarter.
But they could be stabilised in the later part of 2011 as buyers from Eastern Europe and China, are beginning to look outside the capital.
Overall, prices of prime country houses fell by 0.7 per cent in second quarter, says the survey, and this latest decline pushed the annual growth rate into negative territory (-1.4 per cent) for the first time since the final quarter of 2009.
The strongest market remains the £1m to £3m sector in southeast and southwest England, which has seen price growth of ten per cent since the post-Lehman Brothers low in mid-2009.
But activity in the sector remains far behind the central London market, which has seen a 20 per cent year-on-year growth in buyer registrations in June.
There was a 34 per cent growth in prices for the capital’s best addresses over the last year.
Over 2011 as a whole, Knight Frank, expects two per cent growth in prices for properties worth less than £1m and more than £5m. Prices for houses between £1m and £5m are expected to remain flat.
Liam Bailey, Knight Frank head of residential research, says: “The latest results from our Prime Country House Index confirm the market outside of London is still struggling to build momentum.
“Prices have now slipped by 1.4 per cent over the past year, having previously bounced back in late 2009 and early 2010.
“The London effect, 34 per cent price growth in barely two years, has so far not had a huge impact on the country house market.
“Only the £1m to £3m price bracket in southern England has seen double digit growth (ten per cent) from the market nadir in June 2009, with the wider country house market only rising by 6.4 per cent over this period.
“Despite this performance, there are indications that the market is seeing some improved performance. More realistic pricing by vendors has seen the asking-to-achieved price ratio rise from 92 per cent in January to 97 per cent in June. A more realistic stance from vendors has cut the average time taken to sell a prime country house by 23 per cent over the past year.
“Supply has risen, with stock volumes 33 per cent higher in June compared with the same time a year earlier, and new instructions from vendors are up by around 27 per cent over the same period. Demand has risen with a 20 per cent year-on-year rise in new buyer registrations in June.
“Our view is that prices are likely to stabilise at current levels, with scope for limited price growth across the sector in the second half of 2011.
“This means that prices would be one per cent higher overall in 2011, with a two per cent rise in values sub-£1m and above £5m, but with values unchanged in the £1m to £5m sector.”
Rupert Sweeting, Knight Frank’s head of country house sales, says: “Our experience is that the ripple effect from London is just beginning to reach the Home Counties where, after a slow start to the year, sales activity is rising.
“A notable change is the beginning of international interest in the £3m to £5m sector, especially from Eastern European buyers. Buyers from China are also starting to look at investing in this region.
“Another area of strong activity is the waterfront market in the West Country, where there have been a number of sales to buyers seeking holiday homes. This suggests the ‘discretionary buyer’, who views a holiday home as not only an asset/investment, but as somewhere to enjoy, is back.
“Generally, the market is still particularly price sensitive: if the price is right, a house will sell within six weeks of coming to the market.”