There is a ‘deepening new build crisis’ in London property as tax hikes push investors away

London Central Portfolio highlights Tower Hamlets and Battersea-Nine Elms ‘mega clusters’ as areas of concern

By Shane Croucher/ International Business Times

There is a “deepening new build crisis” in the London property market as investor demand shrinks, supply growth accelerates, and asking prices fall in the most saturated areas, according to research. London Central Portfolio (LCP), a fund manager which invests in the city’s prime property, said there are 106,208 new units with planning permission in inner London, up 20% since 2013 and primarily in the “mega cluster” areas around Tower Hamlets and Battersea-to-Nine Elms.

New applications were 27% higher over the same period at 17,494, which includes 111 towers, 90% of which are in the mega clusters. But just 1,491 new units have sold so far in inner London in 2016, down 43% over the year. And the price per square foot around Battersea and Nine Elms is down 8% from its peak in 2014. LCP based its analysis on data from Land Registry and the London Residential Market Analysis (Lorema).

“In light of the plethora of tax hits over the last few years, possibly exacerbated by the uncertainty of Brexit, it appears foreign investors, the majority buyer of new developments, may finally be turning away,” said Naomi Heaton, chief executive of LCP.

“These properties typically sell at a significant premium, averaging 25%, over older stock. History demonstrates that a saturation of over-priced commodity-style property leads to softening prices, particularly during times of economic uncertainty.”

Over the past couple of years, the Treasury has increased stamp duty on expensive and additional homes, cut tax reliefs for landlords, and increased taxation on homes owned by offshore entities. “With 51,904 new units slated for Tower Hamlets and Wandsworth alone, this will take a heavy toll on these areas where there is already extensive oversupply and the buying pool is shrinking thanks to ever more tax hikes,” Heaton said.

On the whole, London is not building enough homes to meet demand. Around half of the 50,000 new units needed across the capital is currently being achieved. Many of those are towards the top end of the market and targeted at foreign investors looking for rental returns. But as investor demand cools, some luxury new builds are struggling to justify their asking prices.

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