Far Eastern investors wade back into London’s residential market

KUALA LUMPUR: Far Eastern buyers, especially those from Hong Kong, Singapore and Malaysia have been back in force in the London residential property market over the past 12 months, according to London-based Knight Frank LLP head of residential research Liam Bailey in a statement on March 10.

“The opportunity for overseas investors as a result of the weak pound cannot be underestimated. Far Eastern buyers, especially those from Hong Kong, Singapore and Malaysia have been back in force over the past 12 months but they are far more shrewd.

“Armed with Google Map’s Street View and nethouseprice.com for example, these investors have more tools at their disposal to ensure they buy into only the very best schemes. This is good news as it means future development cannot afford to cut back on quality. Hopefully future competition between central London developers will be fought out over quality not simply price,” he said.

According to Knight Frank’s London Residential Development 2010 review, sales of new-build homes in London rose 214% year-on-year (y-o-y) in the fourth quarter last year. The growth was attributed to the ultra-low interest rates, the weak pound, which stimulated international interest, as well as government support schemes that targeted the new-build market and first-time buyer.

It added that the growth is considerably higher than the average increase of 68% for the entire London property market including resales. Investor accounts for a third of buyers, while off-plan sales have returned.

Bailey said the central issue in the new-build market is the lack of available supply, and not an overhang of heavily discounted units.

“The current supply of stock available to buy is down by 20% compared with the first quarter last year. The number of built-complete new homes available for sale across London hit an all time low at just 975 in total in the third quarter of 2009.

“While the recovery in prices in the new-build sector is not quite at the level seen across the central London market as a whole, there has been evidence of price growth on some schemes in recent months, for example Embassy Court in St. John’s Wood. However for developers, the improvement in pricing has been felt more by the evaporation of discounting rather than headline price growth,” he added.

On the plus point, the availability of prime new-build stock is expected to rise during 2010 and 2011, with planned and potential launches of One Hyde Park, Cornwall Terrace, The Lancaster’s and NEO Bankside, the report said.

One of the most notable change in the new build market, the London Residential Development 2010 review said has been the shift in balance of investors to owner occupier numbers buying new homes.  While the ratio used to be 30:70 owner-occupiers to investors, it is now 70:30 owner-occupiers to investors.

“The change is slowly influencing developments as buyers looking for themselves are more interested in property layout and specification. Still, while we would love to think the return of the owner-occupier signifies the emergence of larger flats for buyers outside of the super-prime market, affordability still provides an effective brake on the aspiration of buyers,” Bailey added.

East London has a 55% share of future developments – 72,212 units out of a total 131,414 units, which have yet to start. While these numbers look impressive, the ability of developers to actually deliver these will be constrained by the lack of available finance for new projects, the review noted.

London’s super-prime development market has seen prices surging by over 20% in the 12 months to February 2010 and developers are eyeing this market with renewed interest, said Bailey.

“Since the second half of last year, this specialised market has bounced back. While sales dipped in 2008, the number of purchasers looking to buy super-prime properties barely changed and there remains a good level of demand.

“The London land market has also seen a dramatic turnaround. After sharp falls for 12 months, land values subsequently rose by 9% on average across London in the second half of 2009 as competition for sites stiffened,” he said.

However, Bailey said persuading landowners to sell has been difficult as land values are still substantially lower than they were at the peak, resulting in limited supply. This shortage of available land means that developers have to work with their existing landbank as much as possible and get the best possible outcome out of these.

“Renegotiating planning terms, especially when it comes to affordable housing quotas is the order of the day. Our view is that land prices in London are likely to keep climbing through 2010,” he said.