Research compiled by data and networking fixer Molior London shows that a whopping 4 in 10 new residential properties built in London were bought in bulk as investment properties by corporate landlords over the second quarter. The report specifically mentions properties in London’s ‘luxury’ segment, such as the £15 billion Nine Elms regeneration project between Battersea and Vauxhall, where flats are priced at between £750,000 and £1.5 million.
Molior says that the bulk buying of investment properties in this way by companies such as asset managers M&G, U.S. group Greystar and specialist investors such as family offices currently comes with discounts of between 10% and 15% on the asking prices advertised by developers. This can, on occasion, rise to as high as 30% for bigger deals.
Significant ‘build-to-rent’ portfolios of high-end London investment properties are being assembled by major investment groups taking advantage of the recent slowdown in sales to secure attractive prices. The strategy of some is to manage and rent them long term while others are building a portfolio to then sell on, often after tenants, and cash flow, are already in place.
While Molior’s data shows overall sales in this segment of the London property market remained stable between the first and second quarters, the breakdown of buyers shows a more complicated picture. Transactions involving regular buyers, either those purchasing a primary residence or traditional buy-to-let investors, dropped by third over the period with the shortfall made up by corporate buyers buying in bulk at a discount.
The current situation can be interpreted in two ways. As Molior’s report states, the simultaneous increase in the pipeline of new properties currently coming onto the market means “the number of unsold new homes in London continues to rise beyond previous records”.
This shows that affordability issues, changes to the buy-to-let tax regime and waning demand from wealthy foreigners is currently biting in the capital. On the other hand, the fact that corporate landlords are snapping up the shortfall as investment properties and discounts are relatively modest, demonstrates strong faith in the underlying London market.
Four consecutive months of price drops in London, with May’s figure a slide of 0.4%, shows the capital’s property market has already hit its temporary peak. However, what is obviously a necessary cooling off period for the market while wage growth and post-Brexit confidence catches up with ten years of strong gains, seems very unlikely to turn into anything resembling a more serious market correction or crash.