A new analysis of LOREMA and Land Registry data by London Central Portfolio (LCP) suggests that while planning applications have soared interest has waned.
The number of new developments approved for construction has surged again this year, with a substantial 20% increase in the planning pipeline since 2013, representing 106,208 new units. This pipeline is largely made up of projects in the ‘mega cluster’ areas around Tower Hamlets and south of the river in the now infamous Battersea-Nine Elms stretch, where there is already a proliferation of new developments. This year, a further 33,239 and 18,665 units respectively are now scheduled to be built.
New applications have also sky rocketed. Applications for 17,494 new units including 111 towers (buildings over 20 storeys) have been submitted, a 27% increase on 2013. This is equivalent to one new tower application every three days, of which 90% are located in Tower Hamlets and Wandsworth’s Battersea-Nine Elms development.
Despite the ever increasing number of new developments, however, LCP’s analysis has shown that the attraction of these new properties, where prices now average £914,532, is waning. 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 substantial 43% decrease on this time in 2015.
This compares with older properties in Inner London where transactions have remained static, 13,194 in 2016 compared with 13,190 over the same period last year. Bringing more bad news for developers, square foot prices have also fallen for new properties. Across the Battersea-Nine Elms stretch, prices are down 8% on their 2014 high. This is in stark contrast to London as a whole where prices are up 23%.
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. These properties typically sell at a significant premium, averaging 25%, over older stock. History demonstrates that a saturation of over-priced commodity-style property leads to softening prices, particularly during times of economic uncertainty.
“In Tower Hamlets, for example, which undertook an extensive building program before the Global Financial Crisis (GFC), prices took six years to reach parity with their pre-recession level. In contrast in Prime Central London (PCL), where there is very limited new build due to the conservation of its architectural heritage, prices had bounced back by 2010. In a similar fashion, we are again seeing today ‘business as usual’ for older stock.”
For the rest of Inner London, however, falling sales volumes in new developments and the exponentially increasing number of such schemes is causing major concern. This new analysis creates an increasingly worrying picture for areas with a high concentration of new builds, highlighting the ever growing imbalance of supply and demand and a very real concern that falling new build prices will have a knock on effect on the general housing market.
Heaton said, “With 51,904 new units slated for Tower Hamlets and Wandsworth alone, this will take a heavy toll on these areas where there is already extensive oversupply and the buying pool is shrinking thanks to ever more tax hikes. In the cluster areas, this could have a detrimental knock-on effect for existing home owners, adversely impacting the value of their own homes as well as the economy as a whole, if the Exchequer’s tax take in all likelihood diminishes.”
PHOTO CREDIT: Thomas Nugent