The pipeline for prime homes in London has increased by 40% in the last year, just as luxury home buyers are pulling in their horns.
Research by consultants Arcadis has identified 35,055 “prime” properties in the development pipeline, for potential delivery over the next decade. The figure is up from 25,000 the previous year, they calculate.
But the rising scale of the pipeline comes as demand from buyers weakens, and there is already evidence that developers are cutting prices. And the report suggests more schemes will be redesigned for other uses, as previously reported in London Planning Analyst (LINK)
The news of the gathering pipeline comes as evidence gathers that the prime housing market in London is not only stalling, but starting to fall away. While concerns were raised about Nine Elms and Battersea several months ago, there are now reports of price reductions of up to 30% in new residential developments in Canary Wharf. JR Capital, which buys on behalf of Middle Eastern investors, told the Standard at the beginning of April: “We have been offered discounts of up to 20% if we buy flats in bulk off plan for investors, and for some individual homes costing £7 million and above we have seen 30% come off the asking price.” And, in the same report, BNP Paribas Real Estate head of residential, Adrian Owen, commented: “Property developers are allowing agents to put more incentives in place to seal deals, such as agreeing to cover stamp-duty taxes or being more accepting of price negotiations.”
Among the more pessimistic views was that expressed by Trevor Abrhamsohn of Glentree International, who added: “I know of a handful of residential developers in London who have not sold even one of their new-build flats over the last six months.”
Agent Knight Frank, in its latest view on the London residential market, notes: ” There is a growing recognition on the part of vendors that the prime central London property market is no longer on the upwards trajectory it was in the years following the financial crisis.” It said annual price growth slowed to 0.8%, its lowest for more than six years.
Such news will not be welcomed by those clutching one of the many planning approvals for high end developments. Taken together, the homes will occupy over 40 million sq ft, says Arcadis. And, if all sold, the properties on the 196 sites identified across the capital could realise a development value of over £77 billion.
Notes the report: “Rising construction costs and growing land values have seen input costs rise, while a softening in demand due to successive stamp duty reform combined with economic slowdown in countries such as China has seen buyer interest ease. As a consequence, some investors may eventually reposition these assets away from ‘prime’ housing and into premium office space, mixed use or even a greater number of smaller homes as they look to markets that offer a greater margin.”
Chelsea and Fulham is the district with the greatest exposure to the booming pipeline, with close to 11,000 homes planned. In second place is the South Bank, reports Arcadis, where the pipeline is at 8,863. Third comes the City and fringe area, with 5,898 homes planned.
Victoria & Pimlico, Midtown and Docklands all feature more than 1,600 units. In contrast, traditional high end housing area Mayfair has just 589 units in the pipeline.
Mark Cleverly, head of commercial development at Arcadis, commented: “What is interesting, though, is the continuous geographical spread we are seeing. Prime housing is springing up around regeneration areas and on the outskirts of the financial district, suggesting the days of the West End dominating the high-end property market may be over.”
LPA Perspective: There have already been some analysts who have called the top of the market for high end London homes, and this latest research would tend to suggest that what we have now is evidence of just that. Too many developers have rushed into a space that looked highly attractive, for a short while.
A combination of higher government taxation, from stamp duty on transactions to lower perks for buy to let investors, has come along with a reduction in interest from international buyers. Increasingly, those who have bought as an investment will realise they cannot get a rent that delivers a good return, while those who placed a deposit hoping to flip for a profit have found the market receding around them – and a liability to pay full price for flats that others will now demand a discount on.
Where does that leave the planning system? No one who wins an approval is obliged to build it out. So those with deep pockets may sit and wait, while others may consider replanning their permissions. Perhaps a dense groundscraper, rather than a slender tower, containing more affordable homes? Those who wish for fewer towers on the London skyline may yet have their way.