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New build luxury London homes could have higher discounts than existing properties

A current wave of new developments in London’s most sought after areas could mean they are on the market for longer and sold with higher discounts than existing homes, according to a new analysis.

There is a real risk of oversupply in the new build luxury market, says the latest edition of the Coutts London Prime Property Index (CLPPI which analyses the market for London residential property worth between £1 million and £10 million in the fourth quarter of 2017.

The report says that, with 26,000 new units currently under construction or with planning permission in the 15 areas it covers, about half of all such developments across the capital, central and West and South West London are leading the charge on new developments, with Battersea alone hosting 22% of new buildings under construction.

Over 7,500 new homes are currently under construction, and an additional 19,000 have planning permission to build and the CLPPI also finds that luxury property prices in London are likely to stay flat for the next two years but rise quickly from 2020 as confidence returns to the market.

The top three areas where most new builds are under construction/or with permission granted are Kensington, Notting Hill and Holland Park with 25%, Battersea, Clapham and Wandsworth with 15% and Fulham and Earl’s Court with 9%.

The launch of the Elizabeth line, due to open in December, is also expected to have a positive knock-on effect on central London. The connection of 41 stations from west to east London, across over 60 miles, will transport around 200 million passengers a year which the report suggests is positive news for London’s developers.

The Index also suggests a possible end to the decline in the London prime property market as sales are up 1.1% compared to the previous quarter, although still 9% down compared to the last quarter of 2016.

Whilst discounting on asking price remains with buyers getting an average of 11% off on prime property, this increased from 6.6% to 7.4% for property under the £1 million price tag. As Brexit uncertainty remains, this price correction and more recent slowdown in price falls, could be enough to tempt needs driven buyers back into the market, the report points out.

Experts at Coutts expect prices across prime London markets to remain relatively flat for the next two years as Brexit negotiations continue and the market assimilates the effect of the recent changes in stamp duty.

‘As luxury new developments do come at a premium, can be sensitive to property downturns, and are often concentrated in a few areas, we encourage buyers to remain cautious about this part of the market and to be mindful of the local market prices for existing property in the area,’ said George Toumbev, head of lending propositions at Coutts.

According to Mohammad Kamal Syed, head of global markets at Coutts, for buy to let investors, the environment remains challenging given the unfavourable tax environment, low yields and limited capital growth prospects. ‘We work with our clients to stress the important role in achieving diversification within their investment portfolio,’ he said.