The London new build sales market has rocketed since the start of the economic downturn in the prime property sector with developers benefitting from demand, particularly from overseas buyers, a new report reveals.
There were around 7,600 sales in the 12 months to June 2010 but over the last three years that annual figure has increased to over 16,000, the analysis from property firm Savills shows.
It says that the majority of these homes are in inner London boroughs where the strength of the markets has given comfort to developers, in particular in the more prime locations, where they are taking advantage of a seemingly foolproof market.
The report points out that in prime central London this strong demand has increased the capacity for new supply. ‘Bank debt requires significant forward funding and developers have been able to achieve this through securing sales off plan,’ the report explains.
It points out that higher levels of development have meant that the size of the prime markets has grown so that what was considered prime five years ago is now considered super prime. In terms of new build, we now refer to the prime market as over £1,000 per square foot and the super prime market as over £2,000 per square foot.
The analysis also explains how new build property is pushing the boundaries of these prime London markets into new locations. For example, in the last two years, sales in developments such as The Lancasters have opened up markets in Bayswater to a new buyer profile.
Similarly, there has been an expansion of the eastern boundary of the super prime market, as Midtown and South Bank have been experiencing super prime sales of larger units.
It also explains how super prime London property is a discretionary purchase and buyers will often not surface until the right property becomes available. This might be the traditional elegant home in one of the best addresses, such as Eaton Square, or a brand new luxury apartment with hotel style facilities.
Though the supply of prime new build stock is currently limited, there is a large pipeline of units due to be delivered into the markets in the next five years, the report says. ‘Our analysis suggests that future supply now exceeds the previous peak delivery, meaning that the pipeline of prime schemes across London is entering uncharted territory. New developments in prime markets are selling well, with evidence showing schemes selling out up to two years off plan, achieved through a combination of overseas and UK based launches,’ it adds.
The size of the super prime market is much larger than it was before 2007, the analysis shows and the new build market has been increasing its share of this market, meeting demand from an expanding pool of ultra high net worth individuals.
‘Looking forward, while entering uncharted territory is unnerving for some developers, others take comfort that sentiment in the prime market is still positive. Current evidence from both UK and overseas sales in the first half of this year indicates that the market remains strong and schemes are still selling well,’ the report says.
But it warns that the need to keep an eye on what is transacting in relation to specification, location and target market is becoming ever more evident in order to optimise development return and control risk.
‘The extent of market capacity will ultimately be dictated by the quantity, quality and location of the stock brought to market and the perception of London as a store of wealth relative to other global locations over the next five years,’ the report adds.
It also says that buyers of prime new build property are mostly international, and where they come from is largely a function of where developments have been marketed. Buyers from China and Asia Pacific are dominant within the new build central London market. However, purchasers of exclusive super prime property are often from Russia or the Middle East.
‘The majority of overseas buyers of new build property in prime London are investors, therefore it is important to look at the prime rental market to understand market capacity. When a new scheme comes to market one of the key advantages is the ability for units to be tailored towards the needs of high net worth overseas buyers, especially those buying early in the stage of construction,’ the report says.
‘In particular, we have seen an increase in the number of big budget purchasers in super prime locations wishing to combine multiple units to create one large property, typically over 10,000 square feet on the higher floors that take advantage of views. This reflects limited opportunities to acquire comparable stock in the second hand market,’ it points out.
- Foreign investors snapping up majority of London’s prime new housing (millgatehomes.wordpress.com)
- The Rise of Prime: Charting the expansion of London’s prime resi market (primeresi.com)
- Buying a new-build property: developer ‘freebies’ (telegraph.co.uk)