COMMENT
The beneficiaries In London, the key areas set to benefit from these Coalition initiatives will include the boroughs of Camden and Islington, and the City of Westminster. The young ‘Monday-to-Thursday’ city professional is more likely to benefit from an upsurge in new developments because of the industry bonuses paid as year-ends approach within the financial community. Boroughs such as Chiswick will likely see the family-buyers, looking more specifically at three-to-four bedroom houses as part of a trade-up in size but possibly a trade-down in locality. This ‘population drift’ is most marked in London with first flats or houses being bought by married couples with small families. The properties are acquired as close to the West End or City as they can afford on the day. As families grow and improved commuter routes and dynamics are introduced, so these families sell on and move outwards – eventually dropping off the London maps in, say, Wimbledon or Chislehurst for the first ‘country’ home in Hampshire or Kent respectively. But the question still remains as to what
developers do in the meantime in order to complete construction and recoup losses? The issue is finance. The banks and other financial institutions need to open up funding resources to the developer as they are currently only lending on what they calculate the development will be worth. Some argue this is due to the banks
unwillingness to lend on more risky projects. This was backed up by the Governor of the Bank of England, Mervyn King, who said that the “amount of lending by the banking system to non-financial companies is falling. It’s been falling for some while; it’s still falling… particularly problematic for small companies.” These new plans from the Government
are a positive step in the right direction. However these plans will take time to be implemented. Furthermore, land and similar assets can take a considerable amount of time to be released.
The joinT venTure reTurns So what can be done to help the developer in the meantime? Joint ventures are one route that is being considered by several property development companies. In fact, some 30 per cent of these developments are now financed by joint ventures – in partnership sharing the development and construction risks – and professional and marketing expertise on a project-by- project basis. Investec is one such organisation that will consider joint ventures on developments.
LighT aT The end of The TunneL All is not lost. Areas such as Stratford are a hive of
activity during the run up to the Olympic Games; with the regeneration of the area and new developments being constructed. Cross-rail will eventually open up new commuter options and change patterns in the years to come. The recent upsurge in the range of
mortgages that are available; including the 100 per cent LTV mortgage and the return of the buy-to-let mortgage, ensures there is at least some finance available for a number of different buyers. In addition, interest rates remaining at
Margaret Thatcher introduced the Right to Buy. David Cameron follows on.
0.5 per cent since 5th March 2009 (a record for the Bank of England’s base rate) will ensure lending is an attractive option for the buyer. This in turn will keep property values for new builds at a steady level by guaranteeing buyers. Travelling around London, you see
development sites under wraps (rather than under construction) with no evidence of progress – a poor advertisement for the developer, the area and neighbouring development sites. Exciting sales boards up depict the developer’s vision of the completed construction – but there is no sound of drills, no men working. Indeed, a sad and worrying state of
These joint ventures with contractors
and private equity partners are bringing sites out of the ground and permissions implemented the supply is jointly being delivered but in very short supply. One has to question in central London, at least statistically, how many of these are ending up housing us? Hence, solving the housing shortage does not seem to be going anywhere fast. Local authorities and some outer London boroughs are slicing their budgets and selling rather than investing to shorten the housing crisis. Even so, the biggest issue the developers
face is maximising the value of the properties once construction is completed. And what it comes down to is affordable and council housing – the key sectors which have historically kick-started dormant house-markets. Housing in these sectors is much needed. Yet, local councils and the Government must be aware that this housing has the potential to devalue the other units and thus act as a catalyst that can result in a lack of initial funding for the developer. The vicious circle! In Hammersmith and Fulham, 40 per
cent of new residential units must be affordable housing, 25 per cent is the figure relevant to other boroughs.
affairs for the construction and property industries. But, at last, perhaps there is hope on the horizon with the increase of new mortgages and the Government’s new proposed schemes. Winkworth will be watching if these Government plans are put into action quickly and not bogged down in the rigmarole of Government red tape and Whitehall obfuscation and inter- departmental territorial disputes. New build is essential for Central
London for existing, inefficient buildings to be replaced with modern designed schemes, often with more density and better use of space. Foreign buyers are in abundance, spending their capital in the London prime postcodes often buying off- plan as a second home and investment for them, their children in education, and stability in our euro free economy. With space at a premium, specifically
in Prime Central London, the erection of additional new build flats on existing buildings is being explored and entertained by freeholders and developers with air rights maximising values in the penthouse apartment market. This is a market that must be supported.
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www.propertydrum.com/articles/AgaceDec
PROPERTYdrum DECEMBER 2011 39
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