London’s Luxury-Home Boom May Be Ending, Grosvenor Says

Grosvenor Group Ltd., the real estate company owned by the Duke of Westminster’s family trusts, said it’s looking to buy rental properties for middle-income tenants as London’s five-year luxury-home boom may be ending.

Grosvenor will target rental-home purchases because the value of luxury properties may climb at a slower rate, Chief Executive Officer Mark Preston said in a telephone interview today. The London-based company may partner with pension funds in the investments, he said.

Central London luxury home prices increased by 19 percent in the five years through last month, according to Knight Frank LLP. Prices rose 8.4 percent in February from a year earlier, the biggest gain in 10 months. The U.K. capital’s most expensive homes, which increased in value by 6.9 percent last year, will outperform the rest of the U.K. residential real estate market in 2013, according to the London-based broker.

Grosvenor will develop the homes mostly in London, where its holdings include 300 acres in the affluent Mayfair and Belgravia neighborhoods, and look further afield to Cambridge, Oxford, Edinburgh and parts of North America, Preston said.

“Middle-income professionals” who typically seek to buy homes are “finding the pricing and availability of finance is much more difficult and are therefore turning to renting,” Preston said. The growth rate in luxury-home values “is probably not sustainable,” he said.

Housing Shortage

London is facing a housing shortage and policy makers have sought to ease barriers for development. The U.K. government increased funding for newly built rental homes to 1 billion pounds ($1.5 billion) from 200 million pounds in March to encourage institutional investors to become landlords. Efforts to boost the rental market come amid a lack of mortgage lending and higher barriers for borrowers, making renting necessary for more families.

“Most of the supply of rental residential property is individuals with one or two flats that they rent out, rather than companies or institutions focused on that area,” Preston said. “It’s still a relatively young sector and we have a number of projects in mind that will provide more in that area.”

Prupim, M&G Investments’ real estate unit, agreed to buy a group of rental homes in London and southeast England from Berkeley Group Holdings Plc for 105.4 million pounds this month, citing favorable returns.

To contact the reporter on this story: Patrick Gower in London at pgower@bloomberg.net

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

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