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August 3, 2013 12:00 am
Most new homes in central London are being sold at overseas events before being advertised to UK buyers, helping to fuel a boom that threatens to freeze out domestic purchasers.
Foreign buyers accounted for nearly three-quarters of new home purchases in central London in 2012 compared with 27 per cent for UK buyers, according to data from Knight Frank, the property group. More than half of the homes were sold to buyers from Singapore, Hong Kong, China and Malaysia.
Although the problem of UK buyers being priced out of London’s high-end housing market is well established, the new figures show there are also far fewer mid-market homes available to domestic buyers than official statistics suggest.
The swing away from the UK buyers, who traditionally dominate the high-volume housing market, casts doubt on government claims to be making the capital more affordable for the domestic labour force.
“We have seen a sea-change over the past year in terms of the kind of price point foreign buyers are chasing, whether it’s a studio apartment in Clerkenwell or a one-bed flat in King’s Cross,” said Tom Rundall, an associate in Knight Frank’s international residential team. “This is not the jet-set but rather the working middle classes expanding into the world, often for the first time”.
The high rate of overseas sales underscores the growing use of off-plan sales, where housebuilders sell sites before properties are built to fund a new development. Selling off-plan, which typically rewards the buyer with a slight discount to the price of the finished house, is well established in Asia.
Knight Frank is one of many UK-based estate agencies offering London homes for sale at off-plan sales exhibitions in Hong Kong, Kuala Lumpur and Singapore. Developers often spend up to £150,000 putting on an event for a weekend, although the outlay is frequently justified; well-attended events can lead to scores of homes being sold in 48 hours, compared to the low single-digit weekly sale rates in the UK.
The number of homes being sold overseas has drawn criticism from politicians including Simon Hughes, the deputy leader of the Liberal Democrats, who worry that it will distort the market and drive up prices for domestic buyers. But developers argue that many housing projects would never break ground were it not for pre-building commitments from foreign buyers.
“For a lot of developers, if you can’t show that you can pre-sell enough to cover the construction costs, the banks simply won’t finance you. It would be suicide to put £100m of your own money into the ground without forward sales”, said Rob Perrins, chief executive of Berkeley Homes, the UK’s largest housebuilder by market value..
There were 18,000 homes built in London last year, about 15 per cent of the UK total. Mr Perrins suggests that figure would fall by up to 40 per cent if housebuilders were restricted from selling overseas.
“The idea that London houses are expensive because we are selling lots overseas in rubbish: property here is expensive because we are not building enough,” he said. “It is also so hypocritical from a government that is literally going around the world asking for foreign investment in London to complain about overseas home buyers.”
A surge of housing developments in London has also helped reinvigorate the country’s building industry. Construction activity in the UK hit three-year highs in July, with housebuilding the best performing sub-sector, according to the purchasing managers’ index for building, published on Friday.
Figures from Nationwide, the UK’s biggest building society, indicated that house prices rose 3.9 per cent in the year to July – the highest rate since August 2010. The average house price in the UK is now £170,825, Nationwide said.
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