RESURGENCE OF LONDON RESIDENTIAL - MAY 2010
With the election now over and the prospect of stability it is encouraging to see that well established and successful developers are starting to realise that there will be a shortage in supply in quality central London residential schemes over the next few years. For example, Heron have just launched The Heron, its 284-apartment tower in the heart of the City of London which will be the first major residential development in the City of London for over 30 years.
Although the problem of raising development finance to fund projects is still an issue, for the right schemes debt finance is increasingly available but significant hurdles to borrowing still need to be overcome and often the terms are not acceptable to developers. Overseas banks have identified that the London residential market is a good long term risk and in our experience they are starting to make funds available.
The issue of lack of supply verses demand is only going to worsen. Accordingly to the recent Drivers Jonas Deloitte’s Crane Survey there is going to be a 40% reduction in new development starts in 2011 and 2012. Of which around 50% will be affordable housing schemes and 2/3rd will be in East and South East London. This is expected to push prices up for residential property in areas such as central London where there is a significant lack of supply.
Pre sales are also still strong for quality good location schemes. For example at the Native Land/Grosvenor scheme at Neo Bankside they have forward sold around £80m of apartments in the first phase of 87 units and prices equating to £1200 psf. Also foreign buyers are still very keen to invest in central London with according to Native Land, 50% of the units being purchased by overseas buyers, particularly from the Far East and Russia. This is explained because of a weak currency and low returns at home combined with a perception that now is a good point in the buying cycle and the “diversification play” which London represents.