RE: FOXT PROFIT WARNING........12 Mar 2015 09:13
SUPPLY ISSUES>>>>>>
<b>The train crash waiting to happen in new-build property</b>
By: Dominic Frisby
29/01/2015 updated 17/02/2015
I read a stat in the FT yesterday that absolutely blew my mind.
There are now 54,000 homes planned or under construction “in the priciest areas of the capital”. Most will cost “close to or above the £1m mark” and most are two-bed flats.
Here’s the mind-blowing bit: in the same areas last year, just 3,900 homes were sold for more than £1m.
<b>That would put potential supply at almost 14 times annual demand.</b>
Welcome to the train crash about to happen that is high-end, new-build property in London…
Who’s going to buy these flats?
I should say, not all of the 54,000 properties planned will necessarily be built, and not all will come to market in 2015. (The statistic comes from data company Lonres, researchers Dataloft and buying agents PropertyVision, by the way.)
<b>But there is still a surfeit of supply. What’s more, many of the 3,900 places that sold in 2014 for £1m or more were houses or had more than three bedrooms. What’s coming to market are two-bed flats.</b>
I’ve been wrong on London property before. In 2007, I thought it would take a much bigger hit than it did. So I’m cautious when it comes to making bearish pronouncements.
<b>But as I said in my New Year predictions piece, “high-end, new-build flats in London” – and I stress new builds, I’m not talking period properties – “have got bubble and pop written all over them.”
In fact, I can see so many things going wrong here that keeping my thoughts organised made this Money Morning one of the most difficult I’ve ever had to write.</b>
Who is going to buy these properties, and who is going to live in them?
<b>Families don’t want two-bed flats. ‘Normal’ people can’t afford £1m-plus properties. Even buy-to-let won’t work – factoring in service charges, you’d have to be taking in £40,000 a year in rent to make a £1m property worthwhile. That’s a lot for a two-bedder.
So you’re left with very successful, upwardly mobile young people in their 20s or 30s. But will that sort of person want to buy some bland new build that feels like living in a hotel? Of course not. He or she will want somewhere groovy in Shoreditch.</b>
And like most British people, Londoners prefer period properties. They’ll buy new builds if the price is right. But it isn’t. In many areas, new builds are at least as expensive as period homes per square foot – and they come with higher service charges.
There’s only so much naive ‘foreign’ money to be had
So who’s buying? Well, as Charlie Ellingworth of Property Vision puts it,
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