Sales of new homes in London fell by a fifth over the last three months of 2017 compared with the previous quarter with luxury apartments not selling well, new research has found.
New starts on site also fell by a fifth, but starts still out paced sales so the number of unsold units continues to grow, according to a report from property data firm Molior London.
Overall there were 22,000 new homes sold in London during 2017, which has only been beaten by the 26,000 sales achieved in 2015 but 27,000 units started construction during the year and this continues a long running trend. Indeed, since 2014 some 18,000 more units have started construction than have sold.
The report says 30,000 units under construction have yet to be sold and there are also 1,500 ‘stock’ units, which are complete but unsold.
But it is at the more expensive end of the market that sales are falling the most. Developers started work last year on 1,900 apartments priced at more than £1,500 per square feet but only 900 sold and there are an extra 14,000 unsold apartments on the market for between £1,000 and £1,500 per square feet.
The report suggests that many developers face a ‘gloomy picture of falling sales’ and are ‘perhaps starting to become uncomfortable with the emerging situation’.
Molior says it could take at least three years to sell the glut of luxury flats if sales continue at their current rate and if no further new builds are started but there are a further 420 residential towers, each at least 20 storeys high, in the pipeline, according to New London Architecture and GL Hearn.
The report explains that the number of investors who would previously sustain a sales operation for the duration of a lengthy build programme is now much depleted. Currently buyers are all seeking best value, whether they are investors or owner occupiers and so sales velocities are highly price sensitive.
But it also says that it is important to take a step back and look at 2017 as a whole, rather than just the fourth quarter. Sales across the whole of 2017 have only been beaten in 2014 and 2015.
‘For experienced developers behind the most exclusive projects this probably makes little difference. They tend to have planned for the long haul anyway and any reduction in price will simply erode their brand. Similarly, those who regularly build entry level developments are well practiced at delivering the right balance of price and quality. They are also currently supported by a couple of Government interventions,’ the report explains.
‘However, developers operating in the middle of these two extremes may now find themselves off pitch in terms of the location/quality/price equation,’ it says. Developers may have a Plan B such as some form of bulk sale or renting. But it adds that the combination of various marketing routes currently being used by the industry is working, just not enough to offset construction starts.
‘Given the amount of money and effort that has been invested into a growing pile of unimplemented permissions, 2018 may not be the year during which the industry reins back on new construction starts enough to correct the imbalance with sales,’ the report says.