Developers could recalibrate their business models to deliver smaller, more affordable homes in future, according to experts at London and international estate agency Chestertons, responding to new figures showing off-plan sales of new-build London homes slowed down over the past nine months, and were down by a third in the first months of 2016 on the first quarter of last year.
Off-plan sales for the first quarter of 2016 were down by around 33% on the same period of 2015, according to the latest figures from Molior, in large part owing to investors trying to get deals done to avoid the extra 3% stamp duty surcharge on second homes and not willing to risk a new-build property that may not have completed in time to allow them to exchange and beat the deadline.
Nick Barnes, Head of Research at Chestertons, comments: "While the figures for the first three months of this year may look disappointing, it should be pointed out that the same period last year really was stellar, so any year-on-year comparison is likely to seem gloomier than it is in reality."It should also be noted that 2016's first-quarter sales were 10% higher than in the previous quarter and that 64% of units under construction at the end of the quarter were sold – the same as at the end of the previous quarter, and only slightly below the 67% figure at the end of Q1 2015. Last year as a whole off-plan sales were up overall by almost a fifth (19%) on the year before, and demand and prices are still rising for new-build homes."
Robert Pearce, Director of Residential Development and Investment at Chestertons, adds: "As a result of this seeming slowdown, developers will be taking into account new legislative and tax measures and possibly 'recalibrating' their product offering.
"While it may seem counter-intuitive, changes in investor sentiment and developers' responses to this in terms of the products they are delivering could very well be good news for London's housing market in the medium to long term," Pearce continues. "Any changes in strategy that mean more suitable homes for first and second-time buyers, as well as homes for young professionals in locations offering infrastructure and transport improvement must be good news."
"Some pundits have pointed to cut-price deals being offered in some development schemes or 'bulk discounts' being offered to larger investors as being symptomatic of a looming crash, but that's a bit sensationalist in my view. It's a fact that some developers have been a little slow to react to market movements, but it isn't easy to suddenly switch marketing strategy on larger, multi-phase schemes. Also, the new stamp duty surcharge for investors was only announced at the end of November, and came into effect inside four months, which even had resale markets scrambling to catch-up.
"Global factors have also played a part, with currency swings, commodities and stock market falls pulling the rug out from under some overseas investors. However, rather than leaving the market altogether, investors are now seeking better value and harder-working buys as opposed to 'trophy assets' Buyers of off plan and new-build property are now far more likely to look for better returns by scrutinising what they are buying, where, and trying to predict market demand both in terms of rental income and future resale value, which possibly weren't so important for some wealthy overseas buyers in the past," Pearce adds.
"Also it is worth remembering that Sterling has reached medium term lows against both the Euro and Dollar, meaning Dollar based investors can more than offset the extra 3% stamp duty implemented at the beginning of April. These recent lows are expected to continue until at least after the EU referendum on 23 June, so the next three months could be a great opportunity for overseas buyers to capitalise – especially with the right investment advice.
"In addition, we are continuing to see increased investment appetite from emerging overseas markets such as Kuwait and Iran, and this should also be a boost to developers looking to reinvest to build more of the types of London homes the market demands," Pearce concludes.