A Park Lane street sign sits on the wall of a Foxtons Ltd estate agents in the Westminster district in London. The new homes were acquired by overseas and UK buyers before or during construction, meaning many are only being completed now and others have yet to be built. That has led to concern about an oversupply in the rental market.
Bloomberg/London
Overseas investors are buying new tower apartments in London’s Battersea Park district just as existing home values there begin to fall. The area, which includes the Nine Elms neighbourhood, was the worst performer in “emerging prime” London last year, broker Douglas & Gordon Ltd said.
Existing home values in Battersea Park, which includes the area around Battersea Power Station and the new US embassy, fell 2% after they led gains in 2013. That compares with an average increase of 5.4% in the 10 districts of London that the broker classes as emerging upscale neighbourhoods because wealthy English people priced out of central London typically buy there.
Central London’s six-year property rally is waning as prices deter even the rich. In areas where luxury homes are increasing along the River Thames such as Battersea, foreign investors continue to snap up apartments in high-profile developments marketed extensively abroad even as the value of existing homes begin to dip and signs grow of an oversupply of homes to rent.
“I do have big concerns about new buyers attempting quick re-sales as the re-sale will almost certainly be at a discount to purchase cost,” Michael Lister, a lecturer at the University of Westminster and a former head of UK property lending at Bank of Ireland Plc, said by e-mail. “If such sales were to lead to bad press, this ought to have the impact of forcing developer prices down.”
The new homes were acquired by overseas and UK buyers before or during construction, meaning many are only being completed now and others have yet to be built. That’s led to concern about an oversupply in the rental market.
“The pool of buyers may extend to the whole of China, but the pool of tenants is pretty static,” Property Vision Ltd, a broker that advises prime homebuyers, wrote in a January 26 report. “When this supply comes on, most of it is going to be surrounded by building sites and tenants are only going to be tempted by a real steal. If you take the Battersea Power Station site, for example, the sound of jackhammers is going to be ringing in the ears for many years.”
A spokeswoman for Battersea Power Station Development Co declined to comment.
The volume of apartments under construction may have a short-term impact on rents when they are offered to lease in the next two to three years, Ed Mead, executive director at Douglas & Gordon, said by phone.
For now, existing apartments still outperformed house prices in Battersea Park last year and the district was the best performer in 2013, Andrew Monteath, head of research at Douglas & Gordon’s asset-management unit, said by phone. Even so, the premium charged for new homes in London is eroding amid a surge in building.
Average sale prices of new apartments in London’s most expensive districts exceeded those of older flats by 43% at the end of the first quarter in 2014, down from 68% in 2012, according to a September report by London-based broker Huntly Hooper Ltd. The gap may have narrowed further since then, Oliver Hooper, director of Huntly Hooper, said in an interview.
In Battersea, new properties can sell for more than £2,000 ($3,000) a square foot, though the average is about £1,400, according to London-based broker Chestertons. That compares with £800 to £1,000 for existing homes, the broker said.
Buyers of homes in the district also face higher stamp-duty sales taxes after Chancellor of the Exchequer George Osborne increased the levy for the most expensive homes in December. A four-bedroom home at Battersea Power Station priced at £3.2mn now has a levy of £297,750, an increase of about £74,000.
Overseas demand for prime London homes is cooling, and some upscale projects being marketed “have gone over to Asia and probably haven’t done as well as they would have” in early 2014, Jack Simmons, head of UK residential development and investment at broker Cushman & Wakefield Inc, said by e-mail.
The homes under construction along the River Thames have transformed a previously industrial district. The sale of apartments at St George Wharf tower helped raise the average value of a home in the borough of Lambeth by 40% in April from a year earlier, according to researcher Acadata Ltd. That was the biggest gain for any borough.
Some developers are now refocusing on homes locals can afford, rather than luxury properties that appeal to wealthy overseas buyers, Simmons said.
“We are targeting areas outside of prime central London where the right property, at the right price and in the right location will be highly sought after by domestic purchasers,” said Jon Di-Stefano, chief executive officer of developer Telford Homes, which focuses on building in north and east London.
Others say the investment in infrastructure in Battersea and the surrounding area could reverse the dip in home values.
“The longer-term outlook is positive with all of the regeneration going on, on the back of the American embassy, the Northern Line extension and its surrounding area,” Robert Bartlett, CEO of Chestertons, said by phone. “That whole part of London is going to be becoming more and more gentrified.”
Prices in emerging prime London fell 2% in the final quarter of 2014, according to Douglas & Gordon, which compiled the index for the first time. The best-performing district there last year was East Putney, where values rose 19%, according to the report.
Traditionally, “it wasn’t considered as groovy as Battersea,” Mead said. “The growth last year for flats was about 30%.”
The other districts included in Douglas & Gordon’s new index are Hammersmith and Shepherd’s Bush, Pimlico and Westminster, West Putney, Fulham, Battersea, Clapham, Southfields and Earlsfield and Balham.
