New-build crisis exposed in research

New-build crisis exposed in research

Buyers generally pay a significant premium for new units, in large part due to the significant marketing campaigns which surround new developments. LCP's research has found that in PCL this amounts to 20%, where the average square foot price for a new build stands at £1,701, compared with £1,418 for an older property.

Iconic developments such as One Hyde Park break new ground in price, but even Fitzrovia Apartments, in the now very much “up and coming” Fitzrovia in East Marylebone W1, is posting prices of £4,400 per square foot for its penthouses.

However, the number of new units available to buy in PCL remains very restricted due to the limited land development potential in the very centre of the Capital and the conservation of its architectural heritage. In 2015, only 467 new units were brought to market and on average, this runs at 300 new units each year, protecting the area from any problems of oversupply.

It is a different story elsewhere in Inner London, made up of the remaining nine most central boroughs* and encompassing the new build heartlands of Tower Hamlets and the Battersea to Nine Elms stretch. These boroughs have achieved an even greater new build premium amounting to 25%, where the average price stands at £659,459 compared with £525,307 for older property. In 2015, there were £2.89bn worth of new build sales.

In a market which is heavily saturated with new developments, with 75,229 in the pipeline, there is a risk to buyers of a substantial oversupply of such units, both to buy and to rent, suppressing yields and prices. Units in new builds can also suffer limited re-sale potential once they are no longer new and buyers have moved on to the next marketing phenomenon.

LCP have tracked the erosion of “new build premiums” over time. Taking one particularly well known development launched in 2003, LCP's research demonstrates the significant suppression in price growth, resulting from the initial sale premium. Price growth lags 26% behind the rest of the market, increasing just 7.3% a year since 2003, compared with the PCL average of 9.3% p.a.


New developments also suffer from far more price volatility. LCP’s research has shown than in 2009, during the global financial crisis, prices in the case study development fell right back to their 2004 level. This compared with the rest of the market, where prices fell just 10% that year and remained 44% higher than their 2004 average.

Naomi Heaton, CEO of LCP comments: “Investors are paying a heavy premium for newness which, by implication, has built in 'obsolescence'. At re-sale, units in big schemes which are essentially 'commodities' can only compete on price. They are also unlikely to appeal to the international buyer, the driver of the 'new build' market, once they are second hand. These factors make them far less resilient to market pressures such as a global financial crisis. Shrewd investors should consider buying at the stage in a development’s life-cycle when the premium has been eroded and a downward overcorrection in prices often takes place. They should also consider older property in London’s classic buildings which see much more stable price appreciation. These might need refurbishment, but undertaking this offers the benefit of an immediate uplift in value, rather than paying a premium to a developer.

In LCP’s opinion, the new build effect in Inner London is likely to take a heavy toll on areas like Battersea to Nine Elms where there is extensive oversupply of new property. With over 22,000 units being built there, a significant softening of prices is likely in the foreseeable future, until the new build premium is eroded and prices come back in line with market averages. Tower Hamlets, home to Canary Wharf, already sets a precedent. With the enormous number of new builds developed there over the last decade, prices are up just 37% since 2008, compared to PCL which has seen price growth of 68%.”

The premium pricing of the new build market which tends to get eroded over time also causes major concerns for London’s first time buyers, being assisted into the market through the new London Help to Buy scheme. The marked lag in price growth could result in a bottleneck of first time buyers, unable to trade up, in the coming years. Not only could this have detrimental knock-on effects for normal churn in the property market but it may also impact the Exchequer’s balance sheet, as Government struggle to recoup their 40% loan on sale.”

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Spencer Fortag
Spencer Fortag 25 Aug 2016

The funny thing is, I mentioned the brick issue in my blog back in April: http://medwayproperty.blogspot.co.uk/2016/04/the-medway-property-market-and-lack-of.html

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SecomTech
SecomTech 19 Aug 2016

Firstly, I either lodge with DPS or do not take a deposit...secondly, If a tenant has not received a confirmation their deposit is secured with either a scheme or in an insured account with an agent/landlord,...

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jasonevans
jasonevans 19 Aug 2016

Belvoir has over 15 years of experience in property lettings, buying and renting and is one of the best agencies I know about. I have heard that they revived an award for the hard work. Really amazing...

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jasonevans
jasonevans 19 Aug 2016

Usually these areas are least affected when it comes to unexpected economical collapse.

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TheWaspNestRemover
TheWaspNestRemover 11 Aug 2016

You agree to pay for the treatment needed to get rid of fleas, ants, mice, wasps nests and other pests unless you can prove that these are a result of us not meeting our repairing responsibilities or these...

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madisonwelch80
madisonwelch80 02 Aug 2016

16% is quite a raise. Let's hope this tendency won't continue for long.

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madisonwelch80
madisonwelch80 02 Aug 2016

?66,963 is a serious price drop However buying a property it a serious investment only small percentage of the UK population could afford.

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madisonwelch80
madisonwelch80 02 Aug 2016

Wow, it kind of surprised me. I mean counting on mom and dad's bank even after retirement is too much. That's the moment in life when one should have ensured themselves. I am shocked.

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AbbieP.
AbbieP. 22 Jul 2016

"While house prices in the most expensive eleven boroughs have declined values in the cheapest eleven boroughs continue to rise" - not a nice way to even out the price range. London is overrated as it

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AbbieP.
AbbieP. 21 Jul 2016

And try to profit from your decisions, I may add

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CommercialTrust
CommercialTrust 19 Jul 2016

Retirement investment has always been one of the biggest draws of buy to let. And the buy-to-let demographic is, on balance, older. (Over a third of our applicants are over 50 at the time of application.) It...

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Forrest Wheatey
Forrest Wheatey 11 Jul 2016

I find the time perfect for ever home-owner wannabe. Prices should slowly, but steadily drop, at least for the inner buyer. Making it harder for outsiders to buy properties (the whole Brexit thing means...

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