UK: Flipping Battersea

In the never-ending saga that continues with Battersea Power Station, several purchasers are selling their flats that not only remain un-lived in but have not even been built.......

In the never-ending saga that continues with Battersea Power Station, several purchasers are selling their flats that not only remain un-lived in but have not even been built.

Units for the London redevelopment went on sale two years ago and investors eager to take advantage of local home price increases are attempting to sell flats with a markup of almost 40%.

Notable future residents include musician Sting and a marketing event was held in Hollywood to boost sales at the iconic soon-to-be revamped landmark. Other marketing events have taken place in Asia, promoting the luxurious properties to wealthy buyers in London's prime property markets.

Several residential units for re-sale are now being put on the market by London estate agent Chestertons.

Investors 'Flipping' Homes for Profit

The first, a two-bedroom, two-bathroom flat in Faraday House was originally priced at £722,000 and is now being offered for £865,000 and was one of 600 units offered in February 2013. This is followed by a second listing for a flat bought for £711,000 and is also being offered for £865,000.

The Telegraph quoted buyers agents with one saying: "This is not illegal, but at a time of huge pressure for new housing for Londoners and with house price inflation pushing home ownership beyond the reach of many, there must be a question mark over this kind of naked profiteering."

Another agent said: "I saw a round-robin email very recently asking for buyers for a Battersea Power Station flat that was bought by an investor in phase one but who cannot pay the second deposit [she said two 10% payments were to be made for this apartment a year apart]."

Speaking to the Guardian this past November, Chris Innes-Ker, associate at John D Wood & Co, one of the largest estate agents in Battersea, said the new price was credible. "It's an entirely separate market from what's going on in the real world," he said. "It seems to be defying all logic. It's creating a market of its own."

The Malaysian consortium of Sime Darby and SP Setia are transforming the £8bn, 42-acre site into an enormous collection of apartments, shops and offices. Sales have been done in phases with 1,300 homes sold with plans of a total of 3,444 residences with 560 being available as affordable housing.

In 2014 home prices in the borough of Wandsworth, the location of Battersea Power Station, showed in annual increase of 23% while the Land Registry indicated that for the rest of Britain and Wales prices increased by 0.1% per month or 7.7% for the year with an average price of £177,377.

Even if the instances of flipping by investors, particularly foreign, in new developments at this stage are few could it lead to an increase should the London property market stagnate?

The Rise of the Foreign Buyer

In recent years property developments in London have increasingly depended on foreign investment capital, with much of the marketing focus on Asia particularly China, Hong Kong and Malaysia.

In a recent report by Property Week, Dominic Grace, head of London residential development at Savills stated:

"Developers are very rarely able to fund schemes from their own pocket and the banks, having been firmly reprimanded during the crisis for risky lending practices, started wanting more guarantees on their repayments post 2008."

"The big moment in terms of cash flow for any development is what happens when you complete the scheme, how many units you will have sold, and therefore how much money you will have coming in the day after the contractor hands the keys over to you," he added.

Mark Farmer, head of residential at consultancy EC Harris, says the toughened stance of lenders in the years following the market collapse in 2008 coincided with London's rise as a world city and sterling's general decline versus Asian currencies. This made the London property market particularly attractive to Asia's emerging middle classes.'

"That then starts to push the fringes of prime areas, which have become very popular with the mass Asian wealth markets, so Vauxhall, Nine Elms, Battersea, Earls Court, Greenwich, the City fringe, all fit the profile in terms of lot size of investment and also the perception that they are still good value," says Farmer. However he warned that increases in construction costs could interfere with developers' profitability. "It would not surprise me at all if in the next six to nine months one or two significant schemes in London are put on hold as developers assess viability."

Savills reports that 70% of all new properties from £1000 to £2000 per-square-foot price bracket in 2013/2014 were sold to international buyers, 30% to Asian investors. In the £450 to £1000 per-square-foot bracket the number of foreign buyers drops to 50%. The total for all London area property sales of international buyers is at 39%.

Nina Skero of the Centre for Economics Business Research told Property Week that she predicts a 3.35% drop in London prices this year, which she says will be partly due to the knock-on effect of prime residential on the rest of the market.

"London's safe haven status in terms of property investing has had a tough year," she argues, pointing to the stamp duty changes announced in the Autumn Statement and the possibility of a mansion tax being introduced after the election. "We're not saying at all that the bottom is going to fall out of foreign buying in London, but we are expecting a more subdued year than the last few."

Slums of the Future

"We're building a product that is unsuitable for our market and suitable only for investment. We're building the slums of the future. Derelict land is better than what's happening at Battersea because derelict land has potential. Those developments have no potential because they're locked in for 100-year leases to multiple owners" says Peter Rees, former City planning chief and now professor of places and city planning at UCL Bartlett. He is negative about the amount of foreign investment being used for London housing but does not believe a housing 'bubble' or a slowdown in sales is coming due to what seems like in endless amount of demand.

"The amount of money trying to escape from Russia, the Far East and the Middle East is just so great and there are so few top-notch targets like London that unless we do something to stem the flow it won't stop of its own accord," says Rees.

Another observation is by Liberal Democrat councillor Linda Wade. She has been protesting against the future Earls Court scheme, taking the stance that developers are now playing havoc with the planning system and that the huge number of high-end schemes risks creating a "theme-park London."

- Wednesday 04 March 2015

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