Sales of London homes under construction rose as developers lowered asking prices for the first time since 2010.
About 6,900 of the properties were sold in the first quarter of 2018, the most in three years, with about 30 percent snapped up by institutional investors betting on rental properties, according to a study by Molior London.
Londoners are increasingly choosing to rent after years of surging values made it harder to buy a home. Invesco Ltd., LendLease Group, Greystar Real Estate Partners LLC, and the Canada Pension Plan Investment Board are among investors buying or building rental properties in the city to capitalize on the demand.
“Without the build-to-rent sector, it is likely that weeds would still be growing on a number of the sites concerned,” Molior analysts stated in the report, as quoted by Bloomberg. “Perhaps in the easier times, when most of these projects were conceived, a better margin was envisaged. But at this point in time, the priority is presumably to make a sustainable living and keep projects moving through the pipeline.”
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Of the 66,000 properties under construction in London, 44% remain unsold, down from 46% at the end of 2017, according to the Molior report. Based on current sales rates, it will take 1.1 years to clear the excess supply, down from 1.4 years at the end of last year, the report added.
While the sales figures are encouraging, however, London’s housing market is not out of the doldrums yet and values are set to fall further.
“Excess starts have built up over a number of years and there remain plenty of developments with relatively stagnant sales positions that will eventually have to be sold,” Molior said. “This will often involve some form of price concession and may uncover a few instances where initial development appraisals were overly optimistic.”