The popularity of inner London new builds seems to be waning, hit by falling demand and a glut of supply but prime central London property is shielded from this by being in an area where there is little scope for new builds, according to new research.
London Central Portfolio (LCP) which analyses Land Registry data found a big increase in new build stock in London but a fall in demand with sales down 43% on last year.
Prime property in London reached record high prices in 2015 when foreign and institutional investors bought London property ahead of the stamp duty changes in April 2016, with the capital seen as a safe haven for investors.
This caused a rush of new applications by developers and builders to develop inner London property sites to sell to this market. The research shows inner London’s planning pipeline is up by 20% since 2013, with 106,208 new units approved for development.
Data shows that there has also been a 27% rise in new applications, with 17,494 put forward, including 111 for high-rise towers, 90% of which are in Tower Hamlets and Battersea-Nine Elms with 33,239 and 18,665 new units planned respectively. Average prices for new developments are £914,532.
There are concerns about demand for these new developments, because the ‘mega cluster’ areas around Tower Hamlets and south of the river in Battersea-Nine Elms, are already home to many new developments.
They normally sell for a 25% premium compared to older stock but with demand falling and new homes still going up, LCP says history points to falling prices for “over-priced commodity-style property.”
According to LCP’s analysis of the Government’s Land Registry data, only 1,491 new units have been sold so far this year, a 43% fall compared to 12 months ago.
By contrast, sales of older properties have remained static compared with last year, at just over 13,000.
Naomi Heaton, CEO of LCP, said: “In light of the plethora of tax hits over the last few years, possibly exacerbated by the uncertainty of Brexit, it appears foreign investors, the majority buyer of new developments, may finally be turning away.”
LCP cited the example of Tower Hamlets, where a programme of building new homes before the 2008 financial crisis saw price peaks take six years to return to pre-recession levels, compared to two years for prime central London where new builds are rare because of conservation of architectural heritage.
“Whilst no concrete evidence of post-Brexit market dynamics has yet been published, we expect prime central London real estate to respond in a broadly similar way as it did during the global financial crisis when the market out-performed almost all other asset classes,” said Heaton.
The data shows demand has begun to slow and this is impacting on square foot prices for new properties, down 8% in Battersea-Nine Elms from their 2014 high point, compared to a 23% increase for London as a whole.
In prime central London, which includes the two most central boroughs of Kensington & Chelsea and the City of Westminster, sales activity has been relatively normal in the first half of 2016, because there is limited scope for new build developments, with just 271 new build sales recorded in the first half of 2016.
For the majority of inner London, however, a drop in sales coupled with over supply is causing major concern about an increasing imbalance between supply and demand which could have a knock-on effect on the general housing market.
However, other data suggests confidence will return to the housing market over the medium term.
Last week, RICS reported that although house price growth continued to slow in July, “The rebound in the key twelve month indicators in the July survey suggests that confidence remains more resilient than might have been anticipated,” said RICS chief economist Simon Rubinsohn.