London set for more than 35,000 new luxury homes in next decade

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Powered by Guardian.co.ukThis article titled “London set for more than 35,000 new luxury homes in next decade” was written by Hilary Osborne, for The Guardian on Monday 11th April 2016 16.02 UTC

More than 35,000 luxury homes are set to be built in London over the next decade, but changes in market conditions could force some developers to change residential blocks to offices, a property consultancy has said.

An analysis of plans for sites across the capital by the property firm Arcadis found a large pipeline of projects priced at £1,350 per square foot or more, and aimed at wealthy buyers.

In 2011, when the UK was still in the grip of the financial crisis, 9,119 homes were in the pipeline, Arcadis said, and the number has increased each year since. By the end of 2015, 35,005 properties were either planned or being built. Around half of these are set to be delivered by 2018, the firm said.

The research showed that developers are building properties over a total of 40m square feet and with a combined sales price of £77bn on 196 sites across the capital.

In Chelsea and Fulham, 10,914 properties are in the pipeline with sales set to total £20bn, followed by the Southbank where 8,863 are due to be built with sales prices totalling £14.2bn. The Chelsea properties include the redevelopment of Earls Court, while the Nine Elms development at Battersea is included in the Southbank numbers.

Arcadis said, however, that rising construction costs and land prices had seen the cost of building increase, and that stamp duty reforms and the economic slowdown in countries such as China had eased buyers’ interest.

“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,” it said.

Alarm bells have sounded at the top of the London property market, with changes to stamp duty cited as a factor behind a slowdown in sales. Buyers were subject to a stamp duty increase in December 2014, and investors have just seen a new surcharge introduced, raising the cost of buying a second property.

In February the developer behind luxury flats in Earls Court in west London spoke of “challenging conditions” resulting from an greater supply of properties and tax changes.

A month later, the property investment firm LCP said an oversupply of new homes in some parts of London was likely to bring down prices.

Several developers who had planned to convert office buildings into luxury homes have also shelved plans in recent months.

Mark Cleverly, the head of commercial development at Arcadis, said: “Since around 2009, the value of prime residential property in central London has seen dramatic rises, making it one of the hottest markets in recent memory. So, it is hardly surprising that we have seen ongoing interest from investors all over the world.”

He said, however, that “things are changing”, and rising costs could persuade investors to target the office and commercial markets, where supply is short and rents are still rising.

Cleverly said some developers were “going back to the drawing board” with schemes, and that others would change the mix of properties they were building.

“In the longer term we may see some schemes coming through with less prime and more affordable housing, or maybe a gradient of different properties,” he said.

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