Demand for London homes slumps

Houses in the Kensington and Chelsea borough. Sentiment was hurt when the stamp duty for luxury homes was raised in December.
Houses in the Kensington and Chelsea borough. Sentiment was hurt when the stamp duty for luxury homes was raised in December.PHOTO: BLOOMBERG

LONDON • Demand for London homes under construction slumped 27 per cent in the second quarter as high prices and a sales tax increase damped demand.

Presales fell to 5,109 from 7,046 in the same period last year, broker Chestertons said, citing data compiled by Molior London.

Sentiment was hurt when the stamp duty for luxury homes was raised in December, while demand has also been dented by affordability tests and loan-to-income restrictions by lenders.

The slump is worrying developers because they use downpayment income from off- plan transactions to help secure construction finance.

"There's definitely some nervousness" among developers because of the stamp-duty changes, said Mr Mark Farmer, head of the residential team at consulting firm EC Harris LLP. "There's also an overall sense perhaps that London is just expensive at the moment."

NERVY ABOUT PRICEY LONDON

There's definitely some nervousness... There's also an overall sense, perhaps, that London is just expensive at the moment.

MR MARK FARMER, head of the residential team at consulting firm EC Harris LLP

Developers are focusing on the most expensive areas including Kensington and Chelsea, which had pushed the average sale price of brand-new properties in London past £1,000 (S$2,127) per square foot (psf) for the first time, according to data compiled by property magazine Estates Gazette earlier this month.

Demand remains high for homes in Canary Wharf, East London's financial district, and in other neighbourhoods in the boroughs of Tower Hamlets and Newham, said Mr Nick Barnes, head of research at Chestertons.

"The pace may be slowing, but off-plan sales in London are still very healthy, and in certain parts of the capital demand is still exceptional," Mr Barnes said.

Most buyers based in London cannot afford or do not want apartments that cost more than £1,000 psf, said JPMorgan Chase analyst Tim Leckie.

Campaigning before the British national election in May hurt sales at the Battersea Power Station project, the largest in London, in the three months ended April 30, venture partner SP Setia said in a filing.

"The uncertainty leading up to the election did result in buyers holding off purchasing until they knew what the fiscal climate would be," Battersea Power Station Development said by e-mail.

"Following the election of a stable, majority government, interest has certainly increased."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 29, 2015, with the headline 'Demand for London homes slumps'. Print Edition | Subscribe