London: Developers rushing to build top-quality London homes to cash in on strong overseas demand are in danger of being stung by a price crash as they flood the market, property consultancy EC Harris said.
Over 15,000 homes in developments worth more than 38 billion pounds ($60 billion) are due for completion in London’s most expensive neighbourhoods in the next ten years, a 70 per cent jump on last year, according to their report.
The total floor area covers almost 20 million square feet - equivalent to the size of the London Olympic park - and includes properties in upmarket Mayfair, the City of London financial district and the south bank of the river Thames. “Developers are racing to get first to site because they don’t want to miss out on the boom that’s happening,” said Mark Farmer, head of residential at EC Harris. “There is a danger that if all these schemes happen that you’ll have a massive oversupply.”
Prices for luxury homes have surged in recent years after economic turmoil in Europe and political uprisings across North Africa drove investors to the relative safety of central London property. Signs of a slowdown appeared after the UK government said in March it would clamp down on tax avoidance by overseas buyers of homes costing more than £2 million.
Prices for the best central London homes rose 1.8 per cent in the three months to August, the weakest quarterly growth since November 2010, property consultant Knight Frank said. About 4,000 high-end homes are scheduled to be built in 2016 alone, an eight-fold increase on the average number built in London each year. The risk of over-building may be tempered by a tight supply in development finance, Farmer said.
Recent entrants to the market include offices and shops developer British Land, which said in July it would redevelop a block in Mayfair into luxury flats, and Malaysian developers SP Setia and Sime Darby, who plan to build over 3,000 homes at Battersea Power Station.
Such developers have been described as “late to the party” by some residential players. A May report from Development Securities warned that London luxury home prices could halve if the euro zone broke up.
Other risks include further devaluation of the euro, which would make London property look more expensive, and changes to the UK planning system that make it easier to convert offices to homes and add to the pipeline, EC Harris said.
“The reality is that no one knows what the conditions will be in five or ten years,” he said.