Central London market reaches post-crisis peak

LONDON: Activity in the central London development market has reached a post-crisis peak as it enters a new era of recovery spurred by confidence from developers, according to the latest residential report by Jones Lang LaSalle (JLL).

Unit sales increased 63% between 2012 and 2013 to 12,000 units while prices accelerated to 12.1% in 2013.

With better conditions amid a recovering market, developers are coming back with new housing starts. New units soared 97% between 2012 and 2013 with over 13,500 units in 2013, and there are now over 20,700 units under construction in central London.

According to Neil Chegwidden, JLL director of residential research, what is important is that the resurgence is balanced.

“We continue to see international purchasers looking to buy UK real estate and adding to this are increasing numbers of UK-based purchasers, including investors that are creating an unprecedented depth of demand in the central London development market,” he said.

JLL noted that central London prices have increased significantly in recent years and new benchmarks have been set right across the London market.

According to Chegwidden, many submarkets are seeing an average pricing of above £1,000 (RM5,454) per sq ft (psf) while prices have exceeded £3,000 psf in five of London’s top areas such as central west, west end, central river, the city and central south.

One of the markets that has its highest level of activity in London is Canary Wharf where new unit sales increased from 400 in 2012 to 1,050 in 2013, pushing values up to an average of £750 psf with some of the best units commanding even £1,100 psf.

Chegwidden said annual price growth has accelerated to 14.4%, which is notably higher than the 12.1% average seen in the whole of central London.

Max Wilkinson, JLL director of city and east London development, said Canary Wharf has proven to be a robust residential market over the last five years. However, only recently it emerged from a pure commercial district into a truly mixed-use environment with a real sense of vibrancy and community feel.

“Already benefiting from excellent transport links, the addition of Crossrail in 2018 will enhance residential values further,” said Wilkinson.

Crossrail is a 118km railway line serving London and other areas in the UK. It aims to provide a high-frequency commuter service linking parts of Berkshire and Buckinghamshire via central London to Essex and southeast London.

While development in central London market may experience some bumps along the way, JLL expects it to remain fundamentally strong.

Government intervention such as “Help to Buy”, capital gains tax (CGT) levied on international purchasers and the uncertainty surrounding the 2015 general election are all likely factors to impact the market. The most pressing of them is how government intervention in stamp duty and CGT will influence the number of schemes coming to the market.

“Help to Buy” is a scheme aimed at helping people buy new-build or existing homes priced up to £600,000.

However, the feedback to date from developers has been benign; although unwelcome, they do not believe the CGT will dramatically affect supply in the long term.

This article first appeared in The Edge Financial Daily, on April 18, 2014.

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