Lloyds Banker Sees Big Losses Ahead for London Luxury HomesNeil Callanan
Lloyds Banking Group Plc plans to avoid funding the development of projects in London’s luxury-home market, where it sees losses ahead for investors, according to the lender’s head of corporate real estate.
“I’m worried about high-end residential, which is where I think people will next lose significant amounts of money,” John Feeney said in an interview. “A lot of people are buying into the ‘London can only go one way’ story and that fills me with grave concern. So, I feel like the market needs a correction.”
London luxury residences have been the best-performing U.K. properties since 2009 as investors, particularly from overseas, snapped up houses and apartments in the capital to shield wealth from political and economic instability. Annual home-price gains in the U.K. beat increases in the best parts of London for the first time since 2009 last month, signaling a shift may be afoot, according to broker Knight Frank LLP.
A recovery in the wider housing market, boosted by government-backed lending, has stoked building. Registrations of new homes in London last year rose to the highest in 26 years. Developers plan to build more than 20,000 luxury homes, valued at 1,250 pounds a square foot or more, in London over the next decade, ramping up construction despite slowing price gains, consulting firm EC Harris LLP said in November.
“There is an air of unreality that sits over that sector and a belief that delivering 4,000 pounds a square foot to 5,000 pounds a square foot product is straightforward,” Feeney said in the March 12 interview at the MIPIM real estate conference in Cannes, France. “It’s predicated on an unknown population of super-high-net-worth individuals continuing to see London as a safe haven.
‘‘The higher the sales price envisaged per square foot, the more uncomfortable I ultimately get,’’ he said. ‘‘When you get past 2,500 pounds’’ a square foot, ‘‘it’s very challenging.’’
Wetherell, a broker that sells luxury homes in the affluent Mayfair district, is offering a refurbished home on Grosvenor Square for 5,130 pounds a square foot. If the property sells for that price, it would would be a record for an apartment in the neighborhood, according to the broker.
Still, some investors say the slowing price gains for luxury homes are ‘‘a buying opportunity’’ because there’s typically a ‘‘significant ‘bounce back’’’ in values after U.K. general elections, according to London Central Portfolio Ltd., which is seeking equity for a new fund to invest in high-end apartments. Britain’s next general election will be in 2015.
Lloyds, Britain’s biggest mortgage lender, is seeking ‘‘development risk” and plans more lending to homebuilders and other developers, Feeney said. It’s looking to fund U.K. projects where homes have been pre-sold or office buildings where a tenant has agreed to lease the building prior to completion.
Risk is acceptable “as long as it’s a tested developer and the product has been proven through pre-sales or pre-lets,” Feeney, 37, said. Loans of as much as 60 percent of construction cost are available in London and he prefers to see “domestic demand underpinning foreign demand.”