Thursday 19 July 2018

New London Luxury Homes Bought Cheap By Corporate Bulk Investors

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Corporate landlords and specialist investors have swooped on London’s luxury new homes market, buying properties in bulk at a discount amid a decline in interest among individual buyers.

In the latest evidence of the pressure on the capital’s high-end property market, almost four in every ten sales of newly built homes in London in the three months to the end of June were to bulk corporate buyers, according to research by Molior London.

Almost 40 per cent of London new-build sales in the second quarter of 2018 were to bulk buyers, who generally purchase at a steep discount with the aim of setting up portfolios of rented homes for large-scale investors. 

Such purchases are masking continued drops in individual sales of new apartments, many of which are in central London high-rise schemes approaching completion, said researchers at Molior London, which monitors housing developments. 

Some 2,008 new-build homes — or 39 per cent of sales in the quarter — were bought in bulk in the three months to June, while private sales declined by a third to 3,142. 

Discounts to asking prices “from 10 to 15 per cent were becoming quite normal, while those between 20 and 30 per cent are rare but possible on selected schemes”, Molior said. 

An analyst in the sector, who asked not to be named, said bulk discount sales can create a “snowball effect”. “As more of this comes through, it becomes obvious to the rest of the market and triggers further sales among those who had been hoping to ride out [the tough market],” he said. 

Many bulk sales are driven by lenders seeking to protect loans to developers, he added. 

Most bulk purchases during the quarter were made by so-called “build-to-rent” providers, including the US group Greystar, the housing association L & Q, the fund managers M&G, and Quintain, owned by the private equity investors Lone Star. 

The chief executive of Crest Nicholson, Patrick Bergin, said last month the housebuilder had sold 69 homes at the Dylon Works development in south London to a housing association. 

“We did this [sale] because we knew we would otherwise have [unsold] built stock,” he said. 

“With the discount, compared with the costs of holding stock and the costs of marketing, we generally find a bulk sale can be achieved at a level that makes a contribution to ebit [earnings before interest and tax] even if not at the gross margin we had anticipated.” 

Developers in the Nine Elms area south of the Thames made a series of bulk sales in 2017 to landlords including Residential Land and Greystar. 

Molior said individual sales this year have mostly been supported by the Help to Buy scheme, which provides state-backed loans enabling people to buy London homes costing up to £600,000 with deposits of only 5 per cent.

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