The train crash waiting to happen in new-build property

I read a stat in the FT yesterday that absolutely blew my mind.

There are now 54,000 homes planned or under construction "in the priciest areas of the capital". Most will cost "close to or above the £1m mark" and most are two-bed flats.

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Here's the mind-blowing bit: in the same areas last year, just 3,900 homes were sold for more than £1m.

That would put potential supply at almost 14 times annual demand.

Welcome to the train crash about to happen that is high-end, new-build property in London

Who's going to buy these flats?

I should say, not all of the 54,000 properties planned will necessarily be built, and not all will come to market in 2015. (The statistic comes from data company Lonres, researchers Dataloft and buying agents PropertyVision, by the way.)

But there is still a surfeit of supply. What's more, many of the 3,900 places that sold in 2014 for £1m or more were houses or had more than three bedrooms. What's coming to market are two-bed flats.

I've been wrong on London property before. In 2007, I thought it would take a much bigger hit than it did. So I'm cautious when it comes to making bearish pronouncements.

But as I said inmy New Year predictions piece, "high-end, new-build flats in London" and I stress new builds, I'm not talking period properties "have got bubble and pop written all over them."

In fact, I can see so many things going wrong here that keeping my thoughts organised made this Money Morning one of the most difficult I've ever had to write.

Who is going to buy these properties, and who is going to live in them?

Families don't want two-bed flats. Normal' people can't afford £1m-plus properties. Even buy-to-let won't work factoring in service charges, you'd have to be taking in £40,000 a year in rent to make a £1m property worthwhile. That's a lot for a two-bedder.

So you're left with very successful, upwardly mobile young people in their 20s or 30s. But will that sort of person want to buy some bland new build that feels like living in a hotel? Of course not. He or she will want somewhere groovy in Shoreditch.

And like most British people, Londoners prefer period properties. They'll buy new builds if the price is right. But it isn't. In many areas, new builds are at least as expensive as period homes per square foot and they come with higher service charges.

There's only so much naive foreign' money to be had

So who's buying? Well, as Charlie Ellingworth of Property Vision puts it, many new builds are marketed at "unsophisticated" foreign investors.

We all know how estate agents might describe a house as "spacious" (if you happen to be a mouse), or "conveniently located for the area's boutique eateries" (above a kebab shop).

So it is with prime central London' (PCL). What those familiar with the capital see as PCL and what an agent marketing a flat to Asian buyers, who've never been to the UK, sells as PCL, are two very different things.

We're talking about places like Old Oak Common on the Acton-Willesden borders, Vauxhall-Nine Elms and Stratford. These areas may have a lot going for them but they are not PCL. Vauxhall is a convenient area for getting to somewhere else. There are some groovy nightclubs under the railway arches, but it is not a place you go to it is a place you go through.

Yet flats are being marketed (and, in some cases, sold) there for millions and millions of pounds.

Sorry if I've seemed a bit London-centric, but this is really no different to the pre-2008 buy-to-let bubbles we saw in Manchester, Birmingham and Leeds. For the most part, those trendy' city centre tower block flats weren't bought by locals, but from investors elsewhere in the UK.

The same happened in Dubai, Spain and even parts of the US. Locals weren't buying, foreign investors were. They didn't have the sophisticated' knowledge that locals do so they bought the BS. And when the crash came, they paid the price.

Forget Occupy' this is Unoccupied'

I've lived in London most of my life. I can remember Arabs in the 1970s buying huge swathes of South Kensington, Bayswater and Paddington. In the 1980s the Japanese came, in the 1990s the Americans. In the 2000s it was the Russians and then the Chinese.

I don't know who'll be next, but someone will come along. There are a lot of people in the world.

But in most cases, they actually lived in the houses they bought! That's the big disconnect we have today. And it can't last.

Take the recently completed Vauxhall Tower by Vauxhall Bridge. It is Britain's tallest residential building 50 storeys high and it holds 223 flats. But drive past at night and there are absolutely no lights on.

This is becoming a big social problem. London property is already unaffordable for most locals. The average wage in London is just above £40,000. The average London house price is £580,000. Anger about this is mounting every day and it only increases when people see so many flats sitting there unoccupied.

So the idea that 54,000 new-build flats are going to be flogged off to foreigners, then allowed to sit empty is just absurd.

Whoever wins the next election will have to find new ways of increasing the tax take. Some kind of property tax looks inevitable. Mansion tax or no, an easy and politically expedient target will be to tax homes that are left vacant Islington council is already talking about it.

I'm not suggesting foreign buyers in London will disappear. They won't. And the overseas market is affected by all sorts of factors beyond anyone's control the currency markets (think of the rouble), capital controls, capital flight, capital repatriation and so on.

But markets ebb and flow. The equivalent new-build-for-foreigners market in Manhattan is already seeing a marked slowdown. And the main problem is that even by the standards of London property, these flats are hugely overpriced.

The mis-selling scandals, the eventual revelations about poor build quality, the outrage at high service charges and the who's carrying the can?' moments are all coming.

As Monty Python used to say, "Run away!"

As for the knock-on impact new-build was something of a canary in the coalmine, anticipating the wider property crash in 2008. I'm not saying we'll see something similar happen this time. But it can hardly be positive for pricing power or sentiment if thousands of unwanted flats end up hitting the market.