The sharp rise in prices in Central London’s prime residential market has kicked off a development boom, with £21 billion worth of schemes planned during the next nine years.
Research out today from EC Harris, the building consultancy, shows that thousands of development units in London are either under construction or planned for delivery before 2020.
The consultancy said that £8 billion of new development could come to market in 2014-15 alone, comprising more than 4,000 units. This figure only counts the “top slice by value” of the best development sites in Central London locations and excludes the value of existing properties, meaning the total supply of prime development in London could be even higher than £21 billion in 2020.
EC Harris said that demand for London properties was “significant”, with foreign buyers to the fore. It added that the residential market had benefited from sterling’s depreciation against key currencies, as well as the upheaval in the Middle East and North Africa, which led to increased investment in “safe havens”. The findings confirmed research on Friday from the estate agents Knight Frank showing that the values of Central London properties are at a record high as foreign money floods into the market and City bonuses recover.
Knight Frank lifted its forecast for house price growth in the area this year to 9 per cent from 3 per cent, after values gained 8.3 per cent in the 12 months ended June EC Harris warned, though, that these conditions were volatile and susceptible to rapid change. It said that the risk factors that could affect demand included changes in international monetary policy and further turmoil in the global economy. It said: “Further UK government banking sector regulation could also impact sentiment for London’s role as a world financial sector, albeit this is unlikely to dampen the overall desirability of London as a place to live.”
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The consultancy said that companies must guard against a surfeit of development as there was “clear evidence of a feeding frenzy ... which has led to a spate of land deals failing to complete ... due to a fundamental misalignment of land prices and achievable sales value”.
Mark Farmer, head of private residential development at EC Harris, said that London developers must have a “robust and realistic” business plan. “They should consider very carefully whether the properties being developed have real attraction. They also need to understand the unique challenges of developing in Central London, such as the complex planning and affordable-housing system.”
Mr Farmer said that he expected the growth in sales values to return to a healthy 6 to 8 per cent a year beyond 2012. “London will continue to offer opportunities for appropriately organised and experienced developers and those new entrants who seek to adopt a considered approach. Those that try to simply jump on the bandwagon thinking there are guaranteed returns to be had may get burnt,” he said.
Liam Bailey, head of residential research at Knight Frank, said that values were 2 per cent above their previous peak set in March 2008.
“If demand has risen marginally, supply has risen more rapidly — much to the relief of buyers who have faced thin choice in the market for the last 18 months,” he said.