LONDON • Developers in central London are offering institutional investors discounts of up to 20 per cent on bulk purchases of luxury apartments as demand from international buyers slumps amid higher taxes and low commodity prices.
Concessions of that magnitude are being offered to investors willing to take 100 homes or more, said Mr Killian Hurley, chief executive officer of London developer Mount Anvil.
Broker CBRE is negotiating discounts of as much as 15 per cent for bulk purchases on the fringes of the capital's best districts, said Mr Chris Lacey, the company's head of UK residential investment.
A record number of high-end homes are planned in London districts such as Nine Elms and Earls Court even as demand wanes. Sales of properties under construction in London slumped 19 per cent in the fourth quarter of last year, according to researcher Molior London, while the percentage of overseas buyers fell to 20 per cent from about 33 per cent a year earlier, data from broker Hamptons International shows.
"We will see distress in prime central London and in Nine Elms, where there has been a lot of international investment," said Mr Andrew Stanford, UK residential fund manager at LaSalle Investment Management. "There have been a number of house builders who have approached us directly with schemes as a direct result of off-plan sales falling."
Bulk buyers may be hard to find because the apartments being built are not designed for the rental market, lacking features such as equal-sized bedrooms, said Mr Stanford, whose company has invested more than £325 million (S$619 million) in UK multi-family housing on behalf of clients.
Many developers travelled to Asia to sell homes in advance of construction and to secure cheaper development loans because the down payments made projects less risky.
The imposition of higher purchase taxes has now reduced the appeal of the costliest properties, leaving developers wondering how they will secure funding, said Mr Dominic Grace, head of London residential development at broker Savills.
"It is a question everyone is asking, and the truth is no one really knows," Mr Grace said.
Land values in London's most expensive districts fell 1.1 per cent in the fourth quarter of 2015, compared with a 6.4 per cent gain a year earlier.
Pension funds and asset managers plan to invest up to £30 billion in multi-family housing, according to a 2015 Savills survey, and Mr Grace forecast that significantly more portfolio sales in the future will help developers finance larger projects on the fringes of prime London.
"If they don't, we have got a problem," he said.
BLOOMBERG
