London house prices: more problems in the new-build sector
The London new-build property sector is facing big problems, says Merryn Somerset Webb. We’ll soon be seeing real price falls.
There has been a huge response to my article on London house prices from last week. MoneyWeek readers seems to be genuinely split on this one. Half think that London is so fabulous and so much in demand that prices can't ever fall much or for long. The other half are totally convinced that a crash is on the way.
However, for me the most interesting of the comments on the matter come from those with some knowledge of the new-build sector in London.
I hear constantly that too much is coming on too fast (this round of supply will peak later this year) and that sales (both first and second hand) are running into trouble at a good number of new developments.
Reader John D thinks he sees the same thing: don't forget about all the foreign off-plan purchasers, he says. "When the flats are finished they will have to pay the bulk of the purchase price. With the collapse of emerging currencies that final payment will be much higher than they expected." So they'll be selling up before they have to pay the balance of the price.
Another reader tells us he has already seen that happening with flats in the tower at Saffron Square. The number of off-plan resales he says is already "staggering".
The Sunday Times picked up this story at the weekend. Cross the river from Pimlico to south London, turn on to Nine Elms Lane and you will "find yourself in a mile long building site", says Oliver Shah in the paper. What you won't find is very many people.
Five years ago, Nine Elms or "Singapore on Thames" as Charlie Ellingworth of Property Vision calls it was held up as "the brightest spot in London's construction boom". Now its 18,000 homes and two new tube stations exemplify a "glut of supply and shrinking demand". Selling prices in the area (SW8) fell 7% last year (LonRes) and some 28% of unsold properties have been on the market for over a year. At the same time, the UK's property websites are "awash with unofficial resales in developments including Battersea power station and Embassy Gardens" (find yourfavouritehere).
The good news here, as search agent Henry Pryor always tells us, is that with most bad news comes opportunity. So some developers are already offering to pay buyer stamp duty and others are offering "deals on furniture packs". Perhaps real price falls will follow.