London is a sought-after destination for international clients hoping to invest in residential properties. There is growing demand for luxury projects in prime locations and developers are planning to construct close to 15,000 units over a period of 10 years.
Developers expect to construct homes with sales values reaching up to $60 billion, the report showed.
A significant quantity of projects, approximately 3790 units, is located in Chelsea and Fulham. But securing credit to meet this increasing demands might become a problem, the report stated, adding that developers are finding it difficult to secure both debt and equity funding on the right terms.
According to the report, in the last 12 months, total financing received for development was in the $2.3 billion - $3 billion range. But financing the number of projects in the pipeline alone could consume ten times that amount in land acquisition and construction charges alone.
Also, the number of units that comes in the market has to be increased several fold to meet future demand.
“The number of unit completions achieved during 2011/2012 has been far below the pace of delivery that would be required to deliver the pipeline indicated for future years,” the report stated.
Mark Farmer, head of residential at EC Harris, told the Mortgage Introducer that the size of the pipeline was a reflection of a massive vote of confidence in London and in the UK.
“London prime residential continues to act as a magnet for global investment, and offers clear opportunities for properly organised and funded developers and investors to generate healthy returns,” Farmer told Mortgage Introducer. “There are significant risks to the realisation of the pipeline including the sustainability of the unprecedented levels of international investor and sales demand fuelling the lower end of the prime market, a lack of development funding and a scalability of specialist development skills needed to deliver these opportunities.”
Despite continued financial turmoil, the study shows London will continue its stint as a prime real estate destination primarily because of its reputation as a safe haven for international investors. Currently, the city enjoys continued demand from buyers in Russia, India, France and Italy.
Also, the effects of the Euro crisis is also expected to boost demand for homes in London, a Frank Knight report showed.
“Over the past two years, every time the crisis has threatened to turn to catastrophe the response has been increased demand for London property,” the report said.
Meanwhile, property prices in central London continues to grow, but at a slower rate.
Knight Frank reported that the 0.5 percent rise in prices in August was not a dramatic departure in market performance.
“However, together with the 0.5 percent rise during July, the rate of annual growth has declined from 12 percent at the beginning of this year to 9.9 percent now,” the report said.
