London’s Luxury Homes Won’t Sell, So Now They’re on AirbnbBy and
As homes languish on market, owners look to generate cash
Mayor pushing to enforce rules limiting length of stay
Frustrated after searching for a buyer for two years, the owner of a luxury apartment overlooking London’s Hyde Park decided to rent it out for 1,500 pounds ($1,868) a night.
“It was a very lofty valuation and I think they’ve always been chasing the market,” said Hasan Hasan, the co-founder of property broker Xenyos, which is handling the rental. Now the landlord, a developer trying to sell the property at a reduced price of 8.65 million pounds after a refurbishment, will at least recover some of his investment while he waits for a buyer, he said.
Luxury-home owners in London are turning to companies such as Airbnb Inc. and brokers like Xenyos to secure income as their properties languish on the market. Others are trying to boost leasing income with shorter contracts after long-term rents in the most expensive districts fell 5.1 percent in the year through February. For overseas landlords, the devaluation of the pound is also hurting their returns and prompting them to look for ways to generate revenue.
The number of London properties listed on Airbnb almost doubled in a year to 50,000 at the end of 2016, according to data compiled by broker Jones Lang LaSalle Inc. London Mayor Sadiq Khan warned the city’s lawmakers this month that the rise of short-term rentals risks making fewer homes available for permanent residents.
A record 35,000 new high-end London properties -- enough to cover Hyde Park twice -- are planned in the coming decade, 40 percent more than in 2014, consulting firm Arcadis NV said in April. Sales of London homes under construction in 2016 dropped to their lowest in four years, leaving developers with a record inventory of unsold properties, after tax increases dented demand for high-end homes.
Some sellers are offering properties for rent while they wait for price growth to recover, according to Knight Frank LLP associate Tom Bill. The number of properties available to rent in London’s best districts rose 20 percent in the six months through February, according to research published by the broker Wednesday.
“Demand in the long-let market has not been very strong after the Brexit vote, but property owners need to maintain their profit,” Gao Xiang, president of JC International Property, a broker that specializes in Chinese and Japanese investors in London, said in an interview. “The price-to-rent ratio is far less than investors expect.”
Landlords will see cuts in tax breaks for mortgage-interest payments starting next month. The growing pressure on returns has sparked interest in short-term leasing, according to Hasan, whose company has recently taken on properties in the South Kensington and Notting Hill districts that had previously been long-term rentals.
“The tax changes for smaller investors have had a real effect -- in some cases they are looking at loss-making properties,” he said in an interview at a luxury apartment his company manages in London’s Maida Vale district.
Many landlords are unaware that there is a 90-day limit on short-term rentals for entire homes, or deliberately seek to subvert it. That prompted Airbnb to announce in December that it would bar London listings for longer than the permitted period unless they have the correct approvals. Previously, almost a quarter of the homes listed for rent in their entirety on the website had exceeded that limit, researcher IPPR said in a Dec. 1 report sponsored by Airbnb.
Airbnb has introduced new automated hosting limits in London to help ensure responsible and sustainable growth in housing, a company spokesman said by email. Current London luxury listings on the site include a seven-bedroom home in Hampstead for 2,200 pounds a night, a 1,500 pounds-a-night penthouse in Chelsea, a four-bedroom Kensington home and an apartment in the Gothic Revival clock tower above St. Pancras railway station for 1,000 pounds a night.
The London mayor wrote to six other short-term letting agents this month, including One Fine Stay, Wimdu and Booking.com, urging them to adopt the same restrictions as Airbnb. Homes must have the same planning approvals as hotels to be eligible for year-round short-stays, meaning many properties are ineligible.
Councils are increasingly taking action against home owners found to be breaking the rules. The City of London Corporation, which manages London’s main financial district, took steps to prevent the owners of two apartments in a development next to the Tower of London from offering short-term rentals, according to a March 21 filing.
Overseas buyers, who make-up 41 percent of home purchases in London’s best districts, have another incentive to seek higher returns from short-term rentals. The pound has fallen about 16 percent against the dollar since the U.K. voted to leave the European Union on June 23. That means that pounds paid in rent will not go as far in servicing mortgage payments.
“My biggest concern is the scale, cost and currency of overseas mortgage debt secured against new build homes, particularly by Asian buyers,” real estate researcher Neal Hudson, who recently paid 126 pounds through Airbnb to stay in a room overlooking the Thames, said in an email. “Anecdotal evidence suggests that many of these buyers have been using local mortgages to fund their purchases.”
Among Xenyos’ current short-term rental listings are several apartments in Chelsea Bridge Wharf, an apartment block in the Nine Elms districts developed by Berkeley Group Holdings Plc. One of those homes is financed with a mortgage from a Saudi bank, Hasan said, underlining the owners’ desire to maximize returns.
“The central London housing sales and rental markets have been weak in recent years and this has put pressure on developer and investor returns,” Hudson said in an email. “With a large number of new homes expected to complete this year, prices in both sales and rental markets could come under further downward pressure due to increases in supply.”