On 2nd September 2012, the Financial Times reported that the development boom in London’s most expensive neighbourhoods has been spurred by demand from both European and Asian buyers viewing real estate in the UK capital as a safe haven from unstable Eurozone economies.
The pipeline of upmarket housing projects in either the planning or construction phase has increased by 70 percent from a year earlier, reaching a sales value of £38 billion. According to a recent Bloomberg article, approximately 3,800 units are expected to be completed in 2016, compared with 500 in 2012. The FT quoted building consultancy EC Harris as observing that, if completed as planned, the homes in development will cover a surface area equivalent to the 2.5 sq km Olympic Park in Stratford. “The pipeline now is pretty unprecedented,” Mark Farmer, head of residential property for EC Harris, said in an interview with Bloomberg. “Follow where the money is and at the moment it’s in London prime.” EC Harris expects sales of £10.2 billion in 2012 and £8.5 billion the following year.
!m(/uploads/story/326/thumbs/pic1_inline.png)EC Harris noted that newly-built luxury properties likely to be sold in 2012 include homes at One Hyde Park as well as The Lancasters site of Northacre Plc (LON:NTA), a city block of renovated 1850s townhouses across from Hyde Park. Real estate agents Knight Frank and Savills Plc define prime real estate as homes in the most expensive central London neighbourhoods such as Belgravia, Kensington and Knightsbridge.
The surge in London property development is a consequence of the strong demand for luxury homes in the UK capital, with overseas investors seeking safe havens away from the turmoil in the financial markets. As noted in the FT article, the London property market continues to outperform those of rival locations in New York, Paris and Hong Kong, which in turn attracts developers and private equity companies as well as wealthy individuals. The FT quoted Tony Pidgley, chairman of Berkley Group, as opining, “It doesn’t matter where you are in the world, as soon as someone becomes successful, getting a second home in London is always near the top of the list of things to do.” Mr Pidgley also pointed out that one of the reasons why foreign investors favour London over other locations is the transparency of property ownership: “It is one of the most straightforward property markets in the world – if you buy something, you own it and no one can take it away from you.”
In terms of prices, figures released by realtor Knight Frank indicate that homes in London’s most expensive areas have increased by 49 percent since March 2009, when a price low point was observed, and are now 14 percent above a previous peak in 2008.
Nevertheless, starting development based on today’s market carries certain risks for the builder, despite the observed demand and price surge. “There’s always the chance you miss the boat and by the time you deliver your scheme things aren’t quite as good as they are now,” notes Mr Farmer, as quoted by Bloomberg.