Qatari Diar, DAMAC, Greenland (China); Dalian Wanda (China), Ballymore (Ireland), ECOWorld (Malaysia) S P Setia (Malaysia): These are some of the big global developers behind the regeneration of swathes of London that have long suffered from a lack of investment.
Talk of foreign money swamping London, pushing up prices and creating rich only enclaves needs in the view of Adam Challis, UK head of residential research, JLL, to be balanced with a recognition of the revitalising impact of the large scale developments. This comes in the form of new housing, including provision for affordable homes, associated commercial opportunities and jobs. There is also the ‘boost’ factor in seeing older, run-down areas taking on a new sense of purpose and losing the ‘hard times’ shabbiness that can drag down morale.
When taking on big projects, developers are putting their money on the line, he pointed out. From the initial step of acquiring a site, through the detailed planning approval phase, to the point of delivery, a developer of a major site can expect to be committed for well over a decade. Given the scale of resources required, they need to operate in a climate where policy is not too changeable with regard to planning and tax laws.
Developments such as Nine Elms in Battersea, for example, will be producing their promised housing stock of some 20,000 units over a period of up to fifteen years. Within this time frame, Challis pointed out, they can expect to face some ups and downs in the property market. “Inevitably, there will be property cycles within this time frame – but I don’t see the risk being systemic or long term,” he said.
The Brexit fallout and recent hikes in stamp duty are the latest ‘drags’ on sentiment but, he says, the fundamentals remain strong.
The big picture, in his view, is that London stands head and shoulders above all other European cities in terms of what it has to offer to investors. Stability, security, a vibrant business environment, educational and cultural riches and a market that still offers a good return.
“The reality is that London tops the global hierarchy of cities. It attracts a disproportionate share of real estate investors – some 30% of the total investment going into Europe across all sectors,” he said.
Speaking of Qatari Diar’s developments in London which include the 2012 Olympics’ legacy development East Village, Chelsea Barracks and Southbank Place, a mixed-use 5.25 acre site incorporating the iconic Shell Centre, Challis said, “Each of the sites that Qatari Diar holds are in the sort of locations that will be in perennial demand.”
UK Trade & Investment, jointly operated by the Foreign Office and the Department of Trade and Industry, and London & Partners, the official promotional company for London, have a major role in attracting investors to London.
Boris Johnson, the newly appointed Secretary of State for Foreign and Commonwealth Affairs, who served two terms as Mayor of London from 2008 to May 2016, spoke about housing issues in 2013 report published by the Greater London Authority. To meet that challenge of a growing population, London will need to build in the region of 1mn homes over the next 25 years, he said.
For the current mayor, housing is high on the agenda as many people are priced out of the market. Sadiq Khan has said he is committed to providing more affordable housing in London.
In a press statement made on August 23, Khan said, “Homeownership has been slipping increasingly out of reach for more and more Londoners, and rents have been getting harder and harder to afford. I want to be honest with Londoners from the start that it will take time to turn things around – we’re starting from a position where last year the previous mayor built the lowest number of affordable homes since records began.
“I am determined that Londoners get the same opportunities this great city gave me. That is why I am setting up my Homes for Londoners team to speed up homebuilding and to move towards 50% of new homes in London being genuinely affordable to rent and buy.”
The question of what percentage of a development must be allocated to affordable housing remains contentious. Developers want a reasonable balance to ensure a return but the shortage of affordable housing is a major problem in the capital.
Challis highlighted some further fundamental challenges that need to be addressed if house building targets are to be met.
“There is a skills and materials deficit right across the industry. It is one of main inhibitors affecting supply; it creates build cost pressures. Also, volatility in policy makes it difficult to retain a high capacity workforce. We lost 30% of our skilled construction workers in the global recession. It takes a long time to build that back up. Some skilled workers moved into other industries and many business descaled in 2009 in order to survive and that has had a real impact on output,” he said.