Have London’s new homes lost their lustre?

Bargain hunters have arrived in London’s luxury new-build property market in the wake of the coronavirus pandemic. Camilla Dell, a London-based buying agent, has just taken on a client with £250m to spend. But instead of a single trophy home, they are investing in a few hundred one and two-bedroom newly built flats. This type of new home tends not to sell to owner-occupiers, according to Tim Craine, head of research at Molior London, which monitors the property market. “Twenty years ago, if someone was building a development scheme they would be really happy to sell one a week to a couple with a baby,” he says. Nowadays, “the notion [that] it’s a normal market selling to normal people doesn’t exist.”

Instead, he says, many brand-new homes — particularly those at the higher end of the market — are sold in bulk to investors and end up on the rental market. Dell’s client, an overseas investor, is one of them. They are hoping to buy about 250 apartments for roughly £1m each from developers who are keen to shift them quickly and are likely to do so at knockdown prices.

But while the pandemic has created opportunities for investors to buy new luxury flats, agents say it has driven away those wanting to live in them. So what is the outlook for London’s new-build homes?

Luxury flats are selling slowly –

The capital’s luxury new-build apartment market has cooled in the past five years, partly because of tax hikes on second homes and partly because of uncertainty surrounding Brexit. In Zone 1, where the most expensive properties are clustered, flats are selling at the slowest rate since 2011, according to Molior. At the current rate — 566 sales across all price brackets in the first three months of the year — it would take three years to sell all the completed flats in central London. Coronavirus threatens to cool the market further. Confidence has been shaken by the pandemic and, post-lockdown, data from property portals show that buyers are increasingly searching for homes in suburbia or further afield. “It was once a plus having the shared gym, spa, swimming pool and concierge,” says Dell. “In a world with a pandemic they might think twice and want to buy the freehold on a newly refurbished Mayfair town house instead.” Andrew Griffith, managing director of MyLondonHome estate agents, says one of his customers is pulling out of the purchase of a new-build flat to buy a house in Hampstead instead — cutting their losses and leaving a £110,000 deposit behind. “A number of buyers no longer want to complete [on new-builds] and just want shot,” he says.

Overseas buyers looking for homes for their children studying in London are another group he sees pulling back. Individuals from overseas accounted for about 6 per cent of total sales in the first quarter of the year, according to Molior. On a per-square-foot basis, new-build homes tend to be significantly more expensive than older properties in the same area, no matter how grand the latter. MyLondonHome is selling a three-bedroom apartment at Marylebone Square, a new development in central London. The property is 1,938 sq ft and costs £6.2m. A short walk away, on Upper Montagu Street, Knight Frank is selling a four-bedroom Georgian town house that has been newly refurbished and measures 2,623 sq ft for £4m.

A tough assignment –

Griffith’s company specialises in selling new flats for people who have committed to buying them from a developer, but have decided to pull out. The process is known as assignment, because it involves assigning the right to complete a purchase from one buyer to another. The original buyer will typically have made an offer on a property before it was built, having seen a brochure. When prices rise fast, as they did in London from 2009 to 2014, speculative investors put down deposits on unbuilt homes and, with luck, sell for a profit before the dust settles at the building site. But with London’s priciest homes having lost more than 20 per cent of their value since 2014, according to Savills data, the speculators are gone. Now the process has reversed, with contracts often being reassigned for a loss. A substantial portion of sales now are to corporate landlords who will put them on the rental market, or “flats sold halfway through [construction] to a fund”, says Craine.

According to Molior, of the 6,000 or so new-build homes sold across the whole of the capital in the first three months of this year, more than a third were sold to so-called build-to-rent operators — corporate landlords who rent out the flats to private tenants. There are some individuals who are still keen to invest in London property, however. “There is good interest from Hong Kong,” says Griffith. “[Buyers] want to get money out and London is the obvious choice — they tend to be in the market for new homes.” The Asian financial hub has long been a staging post on developers’ global sales tours.

A favourable Hong Kong dollar exchange rate and a fall in London prices mean the UK capital looks attractive for these buyers. Many want to move money out of a city on which China has recently tightened its grip with the imposition of a national security law, say agents. “Some overseas buyers are buying at a 40 per cent price drop [from the 2014 peak], ” says Rory Penn, head of Knight Frank’s private office. While the market has generally been slow, what interest he has seen has come predominantly from Asia. “If you’re buying from £10m-£100m and you can get 40 per cent off, it’s pretty compelling,” he says.

Is it the time to negotiate hard?

Some buyers will be compelled to buy new-build properties if they think they can secure a good discount. Whether there will be enough to soak up the supply is another question. In 2014, demand for new-builds was so strong that just 139 completed apartments were unsold across London. Last year, that figure was 3,829, according to Molior. Developers have pulled back in response. Work started on more than 15,000 new inner London homes in 2015, and on just 6,000 last year. But there are pockets of the capital where the supply taps have not been turned off. According to Buildington, a database of London developments, there are close to 1,000 projects in the pipeline, more than 200 of which are expected to complete this year. Some of the priciest are in Canary Wharf. The 239-metre-tall Landmark Pinnacle alone will bring more than 750 apartments to market this year, with a starting price of £425,000.

There are still thousands of new homes in the works at Nine Elms, on the south bank of the Thames, one of London’s biggest development hotspots. At some London schemes, lenders have put pressure on developers to sell, according to Charles McDowell, a central London estate agent. That may mean opportunities for buyers looking to negotiate hard. But anyone trying their luck will be competing with investors such as Dell’s client, buying now in the hope they can draw rental income at a later stage. “There are opportunities out there,” says Griffith. “People are expecting to see prices go down — the only question is by how much they will come down — not if.”