Thousands of unbuilt flats and apartments could come back on to the London property market over the next two years as foreign investors seek to cut their losses, according to a new study.
In their latest report on the residential market, researchers at estate agent Cluttons said a large volume of newbuild stock was flowing on to the off-plan resales market, “as buyers, particularly those of an international flavour, try to exit the market as currency advantages, especially for those from emerging markets, fade”.
Cluttons’ head of research, Faisal Durrani, said he had seen figures suggesting 60,000 residential properties were due to be finished in London during 2016 and 2017, and said that about half of these were likely to be owned by overseas investors who would return them to the market.
As the pound has strengthened against other currencies, London property has started to look much less attractive to overseas investors. Durrani said that since the last market peak in the summer of 2007, the cost of a London property has increased by almost a third for Malaysian investors and two-thirds for investors buying into the market from India. Overseas investors in some countries have also been hit by falling oil and commodity prices, which have reduced the amount they have to spend.
Related: What next for buy-to-let landlords struggling to make ends meet?
A year ago the Guardian reported on an unfinished apartment in Battersea power station being sold on at a huge profit, while during 2015 the number of properties being “flipped” seems to have picked up. A search on property website Zoopla shows more than 400 properties specifically listed with the term “resale”, including a three-bedroom apartment within One Blackfriars due to be completed in spring 2018 on for just under £3m, and a one-bedroom flat in Kensington for £1.7m which will not be built until summer 2016.
However, Durrani said he did not think that the homes were being sold to cash in but to break even. “[In particular it’s] developments that are not yet out of the ground and are still a year or two from completion. There’s no income stream yet and breaking even is probably the best they could hope for.”
He said a lot of newbuild properties were flowing on to the buy-to-let market in the capital, which meant competition for rents was fierce. “For the first 11 months of the year the total number of renewals we saw was 25% higher than last year – because rents are remaining unchanged tenants are staying put.”
Property price growth in London’s most expensive neighbourhoods has slowed over the past year, and the latest index from another estate agent, Knight Frank, showed a 0.3% drop in October, bringing the annual rate of growth down to just 0.9%.
Investors were hit by stamp duty changes in 2014’s autumn statement which added to the upfront cost of buying a property costing more than £937,400. From April 2016, buyers of second homes will face an additional charge, which will add a three percentage point surcharge to tax bills. Durrani said this would be seen as an “irritant rather than a deterrent” by potential buyers determined to secure a London residential investment asset. The Cluttons report suggests a bigger risk to the top end of the property market lies in the EU referendum in 2017.
“Should the UK vote to leave the EU, the impact on GDP growth and the value of sterling is likely to be quite substantial, with both likely to come under significant downward pressure,” it said. “Furthermore, the ending of free labour movement from the EU may curb demand in both the sales and lettings markets as the rate of household creation is likely to dip.”
In their latest monthly report, researchers at Knight Frank said they believed the latest changes to stamp duty would not have a big impact on the market. London “was in the middle of the pack compared to other major global cities in relation to prime property tax and holding costs”, it said, and the changes “appear unlikely to alter this position materially”.
However, Ed Mead, executive director of estate agency Douglas & Gordon, said investors had been pulling out since the latest stamp duty announcement. “Sadly many who invest in newbuilds will rightly feel that they are being unfairly targeted and will withdraw from sales,” he said. “Currency is an issue but this is one step too far.”
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