New-build homes in London are increasingly being purchased by investment funds and corporations, with British individual buyers now accounting for only 21% of sales, according to property data company Molior. In the quarter ending June, UK residents bought just 589 new homes in the capital out of a total of 2,792 sold. This marks a significant drop from the same period last year, when UK buyers purchased 826 homes, representing 49% of the 1,674 properties sold.
While the proportion of sales to foreign individual buyers has also decreased, from 23% to 10% over the same period, sales to companies have surged dramatically. These corporate purchases rose from 28% in the previous year to 69% in the most recent quarter, indicating a strategic shift by developers to target institutional investors.
The traditional role of individual buy-to-let investors in financing new developments has diminished. These investors previously provided developers with crucial pre-sales needed to secure construction finance. However, a combination of factors including higher taxes, stricter regulations, and increased borrowing costs has reduced profit margins for landlords. Many are now selling properties acquired years ago, often at prices significantly below comparable new-builds.
This shift is particularly evident in areas like Canary Wharf, where approximately 1,000 second-hand new-build flats are currently on the market, a situation that property experts say is suppressing prices and discouraging new development. Residents have noted a change in the market, with some flats remaining empty due to high prices, and an increase in short-term rentals.
"They are building lots of flats but the price point is very boujee. They are still not dropping the price for local people," said Bernard Chia, a resident of a new-build flat in Canary Wharf. He added that the area feels more like a "financial business district" than a residential community, leading him and his partner to consider moving to a more suburban location.
Experts point to policy changes initiated a decade ago as significant factors influencing this market transformation. Former Chancellor George Osborne's reforms in 2016, which included curbing mortgage interest relief for landlords and introducing a 3% surcharge on stamp duty for buy-to-let and second homes, are cited as key reasons for the decline in buy-to-let investment. The stamp duty surcharge was later increased, and recent renter protection legislation is also thought to have impacted the buy-to-let business model.
Molior reports that 33,000 private homes are currently under construction in London. However, the firm also noted that work has halted at one in five construction projects, totaling 56 sites with 3,913 partially-built homes, largely due to rising construction costs. Currently, there are 4,629 completed but unsold homes in London, the highest number on record, with an additional 13,770 homes under construction but unsold. The company suggests that demand issues, particularly the reduction in buy-to-let activity, are hindering the ability to fund new developments, leading to a significant slowdown in construction.