Source: Heron International Ltd. via Bloomberg

London’s Empty Luxury Homes Draw Election Penalty Vow

Peter Rees’s attempts to form a residents association after moving into the City of London’s Heron apartment tower were hampered by one major obstacle: he couldn’t find many of his neighbors.

“We discovered just how difficult it was to trace owners who hadn’t been near their flats,” said Rees, the former City of London planning officer who owns an apartment in the 284-home tower that was completed in September 2013. “They were either unknown or uncontactable.”

The phenomenon known as buy-to-leave, with some investors not even bothering to pick up keys to properties, is now becoming an issue in the May 7 national election as more than 460,000 U.K. homes lie vacant. Tessa Jowell, a former Labour lawmaker and bookmaker’s favorite to replace Conservative Mayor Boris Johnson when he steps down in 2016, is making penalties for leaving homes empty a principal part of her campaign.

Johnson urged London councils to “whack up” tax on owners who allow their homes to stand empty for more than a year during an LBC Radio interview last year.

“Wealthy foreign investors are buying up London homes to leave empty as assets to appreciate rather than homes in which to live, whilst hundreds of thousands of Londoners are stranded in temporary housing, or stuck on housing waiting lists,” said Jowell, who represented a district in the capital for 23 years. “We urgently need to give councils tough powers to penalize those who leave homes empty.”

Charlotte Palmer, a spokeswoman for Heron, said all but one apartment owner have picked up the keys to their apartments.

Overseas Buyers

About 44 percent of all buyers of existing homes in prime central London in the fourth quarter of last year were originally from overseas, according to broker Strutt & Parker LLP. Almost 700 homes were sold in the period, a fall of almost a third from a year earlier, the broker said.

Developers are seeking to appeal to foreign buyers, who favor apartments, with high-rise, high-volume projects, particularly in east London. At Greenwich Peninsula on the south bank of the Thames opposite Canary Wharf, builders have approval for more than 13,000 properties, according to Knight Frank LLP. Across London there are 192 buildings of 20 or more storys planned or under construction.

The U.K. government this month introduced a capital-gains tax on future gains from apartments and houses owned by investors based overseas.

Political Furor

The political furor over foreign buyers prompted builders including Barratt Developments Plc, Taylor Wimpey Plc and Telford Homes Plc to agree to stop giving international investors the first chance to acquire new property in London in December 2013.

While most local authorities apply standard levies on empty homes, some of London’s most expensive boroughs have had enough. Kensington & Chelsea this month added a 50 percent premium to annual council tax fees for properties that have been left unfurnished and occupied for more than two years. The new levy will affect 660 homes in the borough, the council said by e-mail.

Islington, the most densely populated area in the U.K., is consulting on plans to make it a legal requirement that owners use or lease apartments. It would be an offense to leave them empty for three consecutive months or more.

Bezier Project

“We would encourage local authorities who are concerned about empty units in their area to focus on attracting investment into a large-scale, professionally managed build-to-rent sector,” said Melanie Leech, chief executive of the British Property Federation lobby group. “Fewer homes in the capital are being bought by foreign investors than was the case and more by owner-occupiers.”

Islington started its consultation after it found almost half of the 127 full-priced homes at the Bezier project overlooking Old Street roundabout were empty without explanation. Less than a mile away, at the Worcester Point apartment development, it was 33 percent.

“I don’t mind where the money comes from, but I do resent a waste of good land which is in short supply in London to create buildings that are only there for investment purposes,” said Rees. “They are empty boxes on the skyline.”

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