New build apartment market in inner and central London takes a hit
The number of new build apartments being sold in the prime central and inner London markets has slowed considerably, according to a new analysis of land registry figures.
While 2016 started well with 44% of all the new flat sales for the year taking place in the first quarter, much of this growth was due to a rush to beat the deadline for the extra 3% stamp duty rate for additional homes.
While it was the higher number of new build sales recorded in a quarter, the analysis from property adviser London Central Portfolio (LCP) shows that completed sales of new build flats were down 41.4% by the end of 2016, compared to the previous year.
Such has been the decline that even iconic developments like Battersea Power Station are not reaching sales expectations amid fears that there is a saturation of overpriced new build apartments with investors and buyers put off by higher stamp duty charges and Brexit uncertainty.
Average prices for new builds also fell, down 8.7% to £1.9 million. Unlike new build flats, the prime central London market as a whole also saw a 3.75% rise in average prices.
The figures show that the luxury end of the market at £5 million plus was worst affected with an annual fall in new build sales of 57%. In contrast, this compared with a fall in sales for the prime central London market as a whole of all properties of 29%.
In the nine inner London boroughs outside the central zone completed sales of new build flats were down 3.9% by the end of 2016, compared to the previous year with 29% of this happening in the fourth quarter.
As with the central area, it was the top end of the market that saw the biggest slump with a 51% fall in new build sales. In inner London there was also a significant 34.6% fall in the fourth quarter in new build sales under £1 million, a sector that represents 88% of all new builds in the area.
Overall, completed sales of new flats were down 41.4% in the fourth quarter of 2016 compared with the previous year, whilst average prices also fell 8.7% over the same period to £1.9 million.
‘Whilst the story for new builds in prime central London, particularly luxury property, looks grim, these represent a very small proportion of the market due to the lack of development possibilities,’ said Naomi Heaton, LCP chief executive officer.
She pointed out that there were only 867 new build sales in 2016, representing just 14.6% of total property sales and although sales volumes in as a whole were at their lowest level on record, average prices saw a 3.75% rise over the year.
‘The distorting effect of the Government’s tax changes is clearly evident. With buyers rushing to beat 2016’s deadline for the new additional rate stamp duty on second properties in April some 44% of all new build sales took place in the first quarter. This represented a 91% increase over the previous year and the highest number of new build sales recorded in any previous quarter,’ Heaton explained.
She also pointed out that the iconic developments at Battersea power station and Nine Elms saw large reductions in new build completions at the end of 2016. Average prices of new flats also stalled with a fall of 2.1% to £721,355. Recorded completions in the fourth quarter of 2016 were at their lowest level since the beginning of 2015 when high value sales were adversely affected by the change in stamp duty.
‘The struggling performance of the new build market in inner London will certainly be beginning to worry developers. It has already been reported that Battersea Power Station has reached a critical stage and has written down its projected investment returns from 20% to 8.23%,’ Heaton said.
‘As is now being seen, in areas such as Battersea-Nine Elms, there is a saturation of overpriced, over supplied, commodity style’ property which leads to a softening market, particularly during times of instability,’ she explained.
‘With high value sales to international buyers typically off-setting the cost of providing more modest housing and essential cash flow to reinvest into new development, the Government may well struggle to deliver upon its affordable housing targets if this trend continues. Battersea Power Station has already reported financial viability issues in delivering its affordable housing targets,’ she added.
‘The large fall observed in the fourth quarter of 2016 for new flats under £1 million, targeting the domestic market, is also concerning. Alongside negative sentiment affecting purchasing decisions, with more economic uncertainty ahead, the fall was also be due to new caps on mortgage lending, restricting borrowing to 4.5 times salaries. This is hampering domestic buyers’ ability to get onto the housing ladder or trade up,’ she concluded.
