Londoners `Mine' for Space Under Luxury Homes as Neighbors Fume

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Photographer: Lucy Young/Bloomberg

Caroline Evans' residential property in Astell Street, right, sits next to building work, center, in the Royal Borough of Kensington and Chelsea, in London.

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Photographer: Lucy Young/Bloomberg

Caroline Evans' residential property in Astell Street, right, sits next to building work, center, in the Royal Borough of Kensington and Chelsea, in London. Close

Caroline Evans' residential property in Astell Street, right, sits next to building work, center, in the Royal... Read More

Photographer: Lucy Young/Bloomberg

Caroline Evans poses for a photograph at her home in the Royal Borough of Kensington and Chelsea in London. Close

Caroline Evans poses for a photograph at her home in the Royal Borough of Kensington and Chelsea in London.

Photographer: Lucy Young/Bloomberg

A builder's skip sits outside a property undergoing development in the Royal Borough of Kensington and Chelsea in London. Close

A builder's skip sits outside a property undergoing development in the Royal Borough of Kensington and Chelsea in London.

Photographer: Lucy Young/Bloomberg

A builder's skip sits outside a property in the Royal Borough of Kensington and Chelsea in London. Close

A builder's skip sits outside a property in the Royal Borough of Kensington and Chelsea in London.

Photographer: Jason Alden/Bloomberg

New buyers want to add modern conveniences to the few luxury properties on the market, many of which are more than 100 years old. Close

New buyers want to add modern conveniences to the few luxury properties on the market, many of which are more than 100 years old.

Caroline Evans is fed up with all the noise and aggravation from construction near her home off the King’s Road in Chelsea, southwest London.

Three basements have been created or expanded and one house is adding an extension on her narrow street. In this enclave for bankers, executives and millionaires, where the average home costs almost 900,000 pounds ($1.4 million), builders are doing everything from digging up gardens to demolishing an entire building except for its facade.

“I quite understand why people are doing it -- they are creating a beautiful home -- but immediate neighbors would be happier if they could share in the increase in the value of the house,” said Evans, 72, who has lived on the street for 27 years with her lawyer husband.

The scarcity of luxury houses and apartments on the market in neighborhoods like Belgravia and Knightsbridge has prevented many from trading up to larger properties. Instead, they’re adding the kind of amenities often found in new developments, ranging from wine cellars and home cinemas to swimming pools.

“People are enlarging houses and improving them rather than moving,” said Yolande Barnes, head of residential research at Savills Plc. “You can either pay stamp duty and moving costs or you can add value to your home by spending the money on improvements.”

Modern Conveniences

New buyers want to add modern conveniences to the few luxury properties on the market, many of which are more than 100 years old. Neighbors like Evans are complaining to their local councils and even demanding compensation for the inconvenience, comparing some of the developments to mines.

Basement excavations in the Royal Borough of Kensington & Chelsea almost doubled to 147 last year from 81 in 2006. The figure was up 17 percent from 2009, the municipality said. Grosvenor Group Ltd., the company owned by the family trust of the Duke of Westminster, gave permission for 28 basement excavations last year on its estate, which extends across Mayfair and Belgravia. That compares with just one in 2005.

The financial crisis stifled lending to developers and halted most luxury residential projects. Those that did proceed are now in demand as the weaker pound lures overseas buyers.

One Hyde Park

“The amount of money being made in the rest of the world is astonishing -- confidence is more than just coming back to the London market,” said property entrepreneur Nick Candy, who along with his brother Christian masterminded the One Hyde Park development that opened last month. Six apartments sold there in November and December for record prices of about 6,000 pounds a square foot, he said, without giving their size.

The shortage of homes for sale in London’s seven priciest boroughs last year encouraged more people to renovate and expand their homes, data obtained from the municipalities by Bloomberg News indicate. The number of homes sold in these areas in 2010 was 30 percent below the average of the past decade, Land Registry data show.

The number of permits granted for dumpsters rose 2.8 percent to 12,398 in the first 10 months of 2010 in the boroughs of Camden, Hammersmith & Fulham, Islington, Kensington & Chelsea, Lambeth, Wandsworth and Westminster from a year earlier. That was the first increase since 2007, according to the figures obtained by Bloomberg News under Freedom of Information Act requests.

Dumpsters, known as skips in the U.K., are an early indicator of construction activity.

More Makeovers

“We have noticed a massive increase in the number of people calling us in to revamp their houses,” said Alex Michelin, co-founder of high-end residential developer Finchatton Ltd. Orders from homeowners doubled in the past 12 months, he said.

Conservation rules in many cases prohibit story additions or extensions to older homes, leading owners or developers to look under the property to enlarge it and increase the value.

Underpinning a house, digging and removing the debris is slow, noisy and dangerous. One worker lost his life in December when the ground floor of a house in southwest London collapsed, the local newspaper reported. Residents also complain about increased traffic, reduced parking and vermin.

“It’s like mining -- it’s hell,” said James Wright, chairman of the Belgravia Residents’ Association. He spoke after a Jan. 25 meeting at Chelsea Town Hall attended by about 140 residents, councilors and planning officials to discuss the issue. Latecomers were turned away for lack of space.

Upgrading can be profitable for properties in the right locations, said Richard Barber, a partner at the Knightsbridge- based adviser W.A. Ellis LLP.

Added Value

Barber cited a 1,950 square-foot (181 square-meter) carriage house on the market in Belgravia that has planning consent to add a 650 square-foot basement. Once completed, the project would lift the property’s value by 600,000 pounds to 4.5 million pounds, he estimated. After incurring excavation costs of about 300 pounds a square foot, the owner would make a profit of 400,000 pounds.

The popularity of subterranean development has helped inflate prices, said Andrew Giller, head of London for the Buying Solution, which advises the wealthy on home purchases. In many cases, underground space is being priced at the same rate as more habitable space above ground, he said.

Multistory Basements

Some projects don’t stop at a single basement. Jon Hunt, founder of the Foxtons Ltd. brokerage that he sold in 2007 for 390 million pounds, applied to excavate two more underground stories to his Kensington mansion to house his vintage car collection. The property already has three basement levels.

Hunt’s plans were rejected by Kensington & Chelsea in May 2009 for being “completely out of character” with the 19th- century Italian Renaissance-style mansion.

Planning officials in England are only compelled to consider the merits of a project in its proposed finished form. Issues such as the impact of construction or the number of projects taking place at once aren’t taken into account during the initial application phase, though they may be dealt with later once complaints arise.

“Nobody really thought about subterranean development” when the country’s original planning laws were drawn up, Merrick Cockell, the Conservative elected council leader for Kensington & Chelsea, said during last month’s public meeting. “Many people now understand the planning constraints that all councils operate under.”

Locals Decide

Cockell cited a proposed Localism Bill as a potential solution. The bill, now pending in Parliament, would empower residents and local-interest groups in Britain to set the terms and conditions for development in their area. Developers say it may lead to an excessive amount of NIMBY-ism, the acronym for “not in my backyard.”

“It will be a couple of years before this is implemented or clarity is provided,” Cockell said.

In the meantime, neighbors want greater security for their homes than current legal arrangements provide. That’s as the number of companies doing basement excavations increases, some with varying degrees of expertise. Companies should guarantee their work or the owner of the development should post a bond to cover liabilities, said Gilles Graham, who has lived on a square off King’s Road for 20 years.

Graham said one proposed project in his square would retain the facade while the rest of the property is demolished and a basement excavated.

As the clatter and bang of construction machinery echoes around London’s streets, even developers themselves say they have sympathy for the residents.

“I couldn’t think of anything worse than if my neighbor was doing it,” said Klas Nilsson, chief executive officer of Northacre Plc, a high-end London developer that helped pioneer subterranean development in the early 1990s.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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