The 10-year development pipeline stood at 15,000 a year earlier, EC Harris said today in a statement. There’s been a 55 percent increase in the number of homes planned for the lower end of the luxury market, mainly on the edges of neighborhoods like Mayfair and Knightsbridge.
South Asian buyers account for two-thirds of new London homes sold before completion, according to Land Securities Group Plc (LAND), the largest U.K. real estate investment trust. There is a risk that those investors will grow weary of repeated sales exhibitions promoting London property, Mark Farmer, head of residential at EC Harris, said in the report.
“Pre-sales are happening in a much more crowded market and there are increasing challenges for developers and investors which are resulting from this,” Farmer said. “We are seeing a critical juncture in the market, especially at the lower end of the prime range where it can no longer be a given that you should spend more to make more,” he added.
Luxury-home values in central London rose 6.8 percent in October from a year earlier, the slowest in about four years, according to London-based broker Knight Frank LLP.
Developers now expect to construct London homes worth more than 50 billion pounds ($81 billion) over the decade, EC Harris said. Oversupply is unlikely in the luxury market because construction rarely happens if companies don’t achieve their pre-sales targets. However, profit margins may be squeezed by rising building costs, the firm said.
EC Harris, based in London, defines luxury homes as those that will sell for 1,250 pounds a square foot or more. That’s up from 1,100 pounds last year.
Wealthy prospective buyers may be deterred by talk of higher taxes, Farmer wrote in the report. Chancellor of the Exchequer George Osborne is considering a capital-gains tax on the second homes of foreign owners of U.K. property, Sky News reported Oct. 31.
“This issue is fast becoming the biggest cloud gathering on the horizon of London prime residential,” Farmer said.
To contact the editor responsible for this story: Andrew Blackman at email@example.com