London's New-Build Homes Largely Unbought by British Buyers

Only one in five new-build homes in London are being purchased by British buyers, a significant drop from previous years, according to property data company Molior. Developers are now primarily selling to investment funds as the traditional buy-to-let market wanes.

In the most recent quarter ending in June, UK residents bought 589 new homes in the capital, accounting for 21% of the total 2,792 sales. This is a steep decline from the same quarter last year, when 826 homes were bought by UK buyers, representing nearly half (49%) of the 1,674 total purchases.

While the proportion of sales to foreign buyers has also fallen, it has done so by a lesser margin, decreasing from 23% (384 sales) last year to 10% (284 sales) this year. Concurrently, sales to companies have surged, rising from 28% (463 sales) to 69% (1,919 sales) over the same period, indicating a strategic shift by developers to target corporate entities.

Historically, individual buy-to-let investors played a crucial role in new-build developments by purchasing homes early in the construction phase. These pre-sales were essential for developers to secure financing and initiate construction. However, this dynamic has largely disappeared due to a combination of factors including increased taxes, stricter regulations, and higher borrowing costs, which have reduced profit margins for landlords.

Many landlords who purchased properties five to 15 years ago are now selling, often at prices 20% below comparable new-builds. This trend is particularly evident in areas like Canary Wharf, where approximately 1,000 second-hand new-build flats are currently for sale, impacting property values and discouraging new development.

Residents in areas like Canary Wharf have noted the shift. Bernard Chia, a new-build resident, described the flats as having "lost their value, lost their taste," and pointed out that high prices, such as £1 million for a flat, make them inaccessible to local people. He also observed a prevalence of Airbnb rentals and a lack of community feel, with many residents treating their flats as transient accommodations.

Another resident, Hadar Rosaif, who purchased a flat from a Hong Kong investor, noted that buy-to-let is less popular and that many flats are now being bought up by companies for investment. He suggested that the new Renters' Rights Act might be contributing to investors selling off properties.

Experts attribute the decline of the buy-to-let market to policy changes initiated around a decade ago. Former Chancellor George Osborne's measures, including curbing mortgage interest relief for landlords and introducing a 3% surcharge on stamp duty for buy-to-let properties and second homes, significantly impacted the sector. This stamp duty surcharge was later increased to five percentage points, and the Labour party's Renters' Rights Act has further affected the buy-to-let business model.

Molior reports that 33,000 private homes are currently under construction in London, with significant contributions from developers like Berkeley Group, London Square, and Vistry Group. However, work has halted on one in five construction projects, totaling 56 sites with 3,913 partially-built homes, largely due to rising construction costs. The firm also noted that 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.