Foreign buyers snapping up ‘too dear’ London homes

Peter Bill
20 Nov 2009

Nearly 5500 new flats and houses were sold in London between January and September. Guess who bought 1500 of them: overseas buyers. Guess how many of the 5500 are lived in by their owners: just one third. Two thirds were bought by investors who are renting them out. Guess how many cheap, one-bed flats could have been sold if only developers would build them: about 20,000.

These rather surprising facts emerged from a seminar for those who specialise in the London residential development market held on Tuesday at the Mayfair Conference Centre. The place isn't quite in Mayfair, lying to the west of the Edgware Road. But the 70-odd delegates didn't seem to mind. It was what the speakers had to say that mattered.

Tim Craine of property research group MoliorLondon supplied the sales numbers. They are garnered by flogging round every new development in London and monitoring what gets sold, who is buying and, if possible, at what price. This information is collated and sold to developers, who like to keep an eye on their rivals.

“Overseas buyers are a very important part of the regeneration process,” says Craine. “Their willingness to buy at the early stages of construction enables schemes to go ahead. That allows the affordable housing to be built on the site for those who can't pay the full price.”

The fact that nearly 30% of all new homes in London are sold in places like Hong Kong and Singapore did not surprise the audience of 70 builders and estate agents. Those in the market seem to know perfectly well that teams from agents like King Sturge spend half their lives in humid hotels in Asia.

But this news will come as a bit of a shock to those who fondly imagine a pledge by Boris Johnson in the summer of 2008 to build 50,000 new homes by 2011 will result in 50,000 Londoners becoming owner occupiers.

However, Londoners will get to live in them as tenants. That applies to the one third bought by UK buy-to-let investors this year as well as the 30% sold abroad. The job of these wandering agents is to flog flats in the £300,000 to £400,000 range in places like Docklands and Dalston which locals simply can't afford to buy. 

But developers would not need to send agents abroad if only they would build cheaper flats. That conclusion can be drawn from figures supplied by John Ennis, director in charge of selling new homes at Foxtons.

He said Foxtons now has 12 registered buyers for every property — more than double the ratio last year. “There is huge demand for cheaper flats. We have more than 20,000 applicants waiting for one-bed flats at £200,000. Why is nobody building them? ”

No need for that John. What does get built can be sold abroad.

* To the launch of The Peak last Friday, a brand new office block adjacent to Victoria Station which takes its name from the giant sunshade that protrudes like the nib of a baseball cap over the top floor balcony.

Inside, developer Gerald Ronson of Heron provided a decent lunch for 200 and entertainment in the shape of Boris Johnson. The Mayor said he was “thrilled” ample cycle ranks had been provided by Heron and its partners, Axa and the Co-op, who provided the land.

The trio will be asking between £50 and £60 per square foot for the 98,000 square foot of space, which values a development which cost £40 million to build at a bit more than double that amount once the space is fully let. 

The bad news is that builders Carillion should have finished in March. The good news is that finishing eight months late means letting can take place in a market on its way back to the peak.

Legal eagles take flats plunge

A top 50 law firm is venturing into property investment. The firm in question is Charles Russell.

The properties that a fair number of the 50 or so equity partners will be investing in are flats in London by way of a property fund set up by Richard Crosthwaite, who used to be head of West End sales for Knight Frank until he joined the law firm in 2002 to give property advice to rich clients.

Crosthwaite is hoping to attract up to £300 million from investors to put into the CR Property Fund. The cash will be used to buy flats to rent in Zone Two at up to £800,000 and bigger family-style flats at up to £5 million in Zone One.

Lawyers at the 650-strong partnership have provided equity in kind in the shape of legal advice. Not cheap. It has taken a year to set up the Guernsey-registered fund and get the prospectus printed.

The document, published this week, promises investors a 14.5% per annum return. In return Charles Russell takes an annual management fee of 1.35% on the value of the properties. Helping them out will be property leviathan British Land. The BL subsidiary which manages the Broadgate estate in the City will manage the rented flats for an annual 1.5% fee.

Already £50 million has been invested, which Crosthwaite hopes to start spending early next year. He is now after another £250 million from investors who have to put in at least £100,000 each. The fund will keep the rented properties until 2017 and then sell, one hopes at a profit. You'd think lawyers would be content with just the £500 an hour.

Minerva's defensive assets

London developer Minerva this week rejected a takeover bid of £84.5 million from Nathan Kirsh, a 77-year-old South African who has built up a 29.9% stake in the business — 25% of it between October 2008 and January 2009 when the shares that are 50p today stood at 16p. 

Kirsh is unlikely to want the puzzle of managing a business whose £800 million of assets were overshadowed by £847 million of liabilities in June.

Having made a paper profit of £14 million, why not sell? But who would buy? Those with an eye on a rising market if rumours are true.

Rising prices have probably already wiped out that £47 million deficit. The hope of further price rises and the letting of two huge, almost-complete office blocks in Cannon Street and Aldgate could add another £200 million to Minerva's asset value. That argument lies at the heart of its defence to the bid from Kirsh.

But it is also the reason it may face a bid from other attackers more interested in selling the assets than selling their shares.