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UK Prime London developers face stern test

Property Here - Monday, November 25, 2013

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With the luxury market cooling, developers of prime London homes which have been the UK’s best-performing property segment since 2009 are now faced with the risk of being squeezed by skyrocketing building costs and land prices, media reports said. 

Mark Farmer, Head of Residential at consulting firm EC Harris, said: “The biggest risk for developers is overpaying for a site based on the assumption that sales values in two or three years’ time” will be increasing.

“That's a very dangerous game to play. More importantly, they need to be factoring in construction-price inflation.”

Prices of residential land in prime London areas surged by 14 percent in the year to September as investors bet on the boom to continue, noted Knight Frank LLP. 

However, indications of a slowdown are beginning to emerge as the rising pound has made UK properties more expensive to foreign investors. Even billionaires are beginning to have second thoughts given the high asking prices. 

Notably, values of prime London homes climbed 6.8 percent in the year to October, or the slowest increase recorded over the last four years.

 

Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories email romesh@propertyguru.com.sg