Property Supply Dries Up

London property purchasers are pulling on their hardhats and settling in for the long-term.

It’s manic out there. There is so little to buy that whenever anything comes on the market, it is snapped up by the quickest and richest out of a scrum of buyers. People are having their offers accepted on property only to see those offers turned down because the sellers have nowhere to move. And all the time, prices are rising and rising.

The prime central London residential market is remarkably buoyant, says estate agent Knight Frank driven in large part by exceptional financial services wealth generation and by the ongoing influx of overseas “high net worth individuals”.

Large family homes in the £800,000+ price bracket and luxury one- to two-bedroom flats are likely to be snapped up as workers from the Square Mile look to invest their 2006 bonuses.

Haart says it has recorded a 25 per cent increase in registered buyers in prime areas of the capital and expects these registrations to be translated into sales in the first quarter of 2007. Buy-to-let hotspots in Canary Wharf and the Olympic Village, and family houses in Chiswick and Fulham are likely to be the most popular.”

Foreign buyers are an established and increasingly important source of demand for UK residential property. Within the prime central London market, foreign buyers currently account for around one third of all transactions – this figure rises to 75 per cent for properties with a value of more than £5 million.

Knight Frank says that the super-prime market (£4 million+) is significantly out-performing the overall London market, with 25 per cent capital growth in 2006 alone. This boom is forecast to continue in to 2007, with year-end bonuses for London’s financial elite estimated to increase by an annual 20 per cent to £9 billion.

This wealth creation has generated exponential growth in residential demand in central London. Affluent foreign purchasers comprised over 60 per cent of all super-prime sales during 2006. London’s emergence as a global financial centre is the key, supplemented by a comparatively benign tax regime, world class leisure and retail facilities, residential provision and the draw of a UK education.

Alongside rapid demand growth, prime central London is experiencing a supply-side squeeze. The difficulty of providing new residential stock in a densely developed city, allied to planning policy constraints and a dearth of vendors has reduced available supply.

Estate agent Chesterton is predicting a bumper year for new homes developers in 2007. Julian Sedgewick, director for new homes at Chesterton Global comments: “The 2006 new homes market saw fantastic prices achieved across the country. In certain areas of London record prices per square foot were repeatedly broken. Regeneration areas such as Hackney, Elephant and Castle, Kings Cross and areas of East London have particularly benefited.

“2007 will see the market for new homes grow steadily as more and more people move towards the option of purchasing a new build. While other property professionals are predicting that the sector will grow between 5 and 7 percent, I predict that this year will see a rise of up to 8 or 9 percent. Several factors will contribute to this rapid growth.”

Philip Davies, chief executive of Linden Homes, reckons the new homes market will see price rises of 2 – 3 per cent nationally. “I expect to see price rises in the region of 3 per cent nationally in 2007,” he says, “driven by the continued shortage of new homes in the UK and underpinned by stable interest rates. Current levels of house building will increase moderately as local authorities begin to respond to PPS3 and formulate plans for the release of land for development. If the Government’s new planning policy PPS3, announced recently, is successful in increasing the number of new family homes, we are likely to see an increase in townhouses as land remains in short supply.

First-time buyers made a brief showing in the London market at the end of last year. They had some 27 per cent of the market share in December, according to estate agent Haart. This is despite a nearly 10 per cent rise in property prices last year throughout the capital. However, Haart says their confidence dropped dramatically following the Bank of England’s decision to raise the base rate a further 0.25 per cent to 5.25 per cent in January. This rate rise knocked the confidence of the group once again as they struggled to afford a property.

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