Who buys new market homes in London?

Produced by: London Development Research Ltd 22 Bruton Street London W1J 6QE www.ldr.cc

Written by: Tim Craine Andrew Mason

Produced for: The Greater London Authority with support from the London Development Agency

Delivered: December 2006

London Development Research. 020 7629 6565 1

London Development Research. 020 7629 6565 2 Executive Summary

Investors comprise two thirds of the buyers of new-build private homes in London (66 per cent), with the remaining one third being sold directly to owner-occupiers. This figure was obtained by analysing data from the London Residential Research database; however, a very similar figure of 67 per cent was independently obtained from the consensus views of industry participants.

Following interviews with industry participants, this report considers there to be four main categories of private buyer for new homes in London and a number of sub-categories.

1. Buy to Let investors fall in to three categories: ••• Private individuals who own just one or two properties ••• Private individuals who own larger portfolios ••• Companies and investment funds that own large portfolios

2. Buy to Sell investors look to buy wholesale and sell on, usually to Buy to Let investors but sometimes to owner- occupiers. They can take the form of property clubs, companies, private individuals and syndicates.

3. Build to let investors are developers who chose to retain the stock they build and let it in the private rented sector. These can be both: ••• Private developers ••• RSLs

4. Owner-occupiers , either buying: ••• A first home ••• A second home

The largest market segment comprises private individuals rather than big investment funds. The following summary of Table 1 estimates the level of activity by each sub category. The percentages shown are their respective shares of total new build private sector home sales.

Table 1 summary: Who buys new homes in London? Category Sub-category Percentage Buy to Let Private individuals - 1 or 2 homes 28% Private individuals - larger portfolios 12.5% Investment funds 4.5% Buy to Let total 45% Buy to Sell Buy to Sell total 16% Build to let Developers 6% RSLs 3% Build to let total 9% Owner occupiers First home 27% Second home 3% Owner occupiers total 30% London total 100% Source: London Development Research Ltd

The ‘Buy to Sell’ category sells homes on to the other groups – including owner-occupiers. Once a development has completed construction the owner-occupier percentage rises slightly to 33%.

Half of the Buy to Let investors in the London new homes market are UK nationals and their involvement is the result of a substantial step change in the way people view property as an investment class. Whilst people find it hard to get into commercial property (not to mention other niche asset classes), residential property allows suitable access and lot sizes for those who want direct investment – for those that want to say ‘I own that’. This, coupled with both easier lending and rising tenant demand from employment growth, has expanded the market.

London Development Research. 020 7629 6565 3 A number of concerns have been expressed about high levels of Buy to Let investment in new housing developments. These have been considered in the report and include:

• There is a reduced choice of accommodation offered to owner-occupiers looking to buy in the new homes market. The high demand from investors, and the fact that in general they buy before owner-occupiers, means that the new homes that are on the market at, or close to, construction completion – i.e. when owner-occupiers tend to buy – is reduced. Investors get the first bite at the cherry.

• High rental yields are attractive to investors and this might lead developers to build particular types of property depending upon investor demand. Development sales agents report that investors generally seek smaller units – especially in the less affluent parts of central and inner London – for reasons of affordability. However, owner- occupiers also seek affordable property and the pressure for developers to deliver smaller units is not solely from the investment market.

• The demand from investors for smaller units – the ones that are lowest priced – leads to a lack of available owner-occupied new property at the lower end of the market. The lack of supply pushes up prices for everyone – investors and first time buyers alike. However, without investors many schemes would not start construction, so it does not necessarily follow that fewer investment purchases would lead to more availability for first time buyers.

• The fragmented nature of the lettings market, and the concentration of rented accommodation in new schemes, can lead to neighbour disputes and conflicts in poorly managed blocks. When investment purchasing within a block is piecemeal, and formal block management poor, the neighbourhood can sometimes be adversely affected. Some RSLs are reporting crime and other anti social behaviour issues from neighbouring private sector tenants. This report does not address the extent of such issues.

There are, however, a number of beneficial consequences of investment purchasing that are crucial to the level of housing development activity in London:

• Investor demand leads to more new homes being developed in London, especially in emerging areas where there is not an established residential market. This is because investors allow perceived development risk to be moved from the developer to the purchaser and therefore increases confidence among house builders. This is especially important to enable larger schemes to go ahead, which in turn results in higher levels of S.106 affordable housing provision. Forward buying also helps reduce development interest costs, as investors are willing and able to buy homes ahead of construction completion.

• The expanded private rented sector provides much needed accommodation for those who want to rent, meeting London’s need for a flexible workforce and enabling it to fulfil its role as an international business and financial centre. It also provides accommodation for those who are presently unable to afford to or choose not to buy.

• New homes provide a highly accessible investment vehicle for private individuals, who might otherwise invest in savings products or directly in the stock market. This brings greater investment into the residential sector and provides wider investment choices for individuals.

• The research finds little evidence of empty homes on new developments.

In conclusion, it is acknowledged that there are concerns that investment buying is hindering the ability of first time buyers and other private sector owner-occupiers to access new homes in London. However it is not the case that if the investment market shrank, that owner-occupiers would benefit, rather there is a real danger that total housing development would fall and nobody would benefit.

Therefore, though there are some concerns about investment activity, this report concludes that these are far outweighed by the benefits. Investors should be viewed as would the ‘middle men’ in any other commodity market – they exist because they perform a valuable market function.

London Development Research. 020 7629 6565 4 Contents

1.0 Introduction 6

2.0 How investors are perceived and assessment of how they 8 benefit the development industry

3.0 Buyer and investor types 11

4.0 Investment activity across London and other topics 15

5.0 The effects of investor activity 20

Glossary 26

Appendices 27

Appendix 1 Interviewees Appendix 2 Who buys new homes in London? Appendix 3 Gross rental yields across London Appendix 4 A brief look at local rental markets Appendix 5 The size of homes developed in London Appendix 6 Savills prime central London residential rental value index Appendix 7 The investment market in the London Thames Gateway

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London Development Research. 020 7629 6565 6 1.0 Introduction

1.1 Purpose of the report

The purpose of this research project is to investigate the types of investment buyers in new market homes in London, the overall level of investment and the role of investors in the new homes market. Specifically, we look into:

• who is buying the new market homes being built in London, • where new homes are being bought by investors, what are the types of investors, how many homes do they buy and what are the reasons for their investment, • what effect does the existence of an investment market have in terms of the size, type and price of new homes and the end-use to which those homes are put, • what are the consequences of investors' activity on meeting housing need and demand, creating mixed and sustainable communities and the number of empty homes.

1.2 Context

New build housing adds around one per cent to London’s housing stock each year. It is important to remember that in terms of choice of homes to buy, buyers can choose second hand homes, but new build has particular significance in terms of increasing housing supply and regenerating neighbourhoods.

1.3 Investor Definition

By way of a definition, we consider an investor to be a buyer of a home whose intention is not owner occupation. An investor can be a person or a company.

Second homes that are not let in the private rented sector are treated by this report as owner occupied rather than as investments.

There is a problem in identifying investors: • A developer or sales agent does not always know what the purchaser’s intention is when a home is sold • Sometimes neither does the purchaser • In addition, when buying off plan, a purchaser’s intention may alter between making the purchase decision and taking possession of the home

A distinction needs to be drawn between the investor buying with the intention of long-term rental, and the wholesaler buying with the intention of selling on before the home is occupied.

Most investors buy with the intention to keep the home for rent – their goal is to hold a portfolio of rented stock. A substantial minority of investment sales are to financial speculators aiming to arbitrage the market – either acting as wholesalers or simply buying to sell on a contract for capital gain. Some observers may view these practices in a poor light but the activity is beneficial both in terms of market making and risk bearing.

The report separately addresses the extent of wholesale activity.

1.4 Research Methodology

Systematic data on the market place is held privately by developers and agents and is not in the public domain. To produce this report the authors drew information from two sources – interviews with 34 development industry participants and, separately, the analysis of data on individual development schemes using the database of The Estates Gazette’s London Residential Research.

The interviewees were chosen to represent a cross section of development market activities – development agents, developers, RSLs, lenders and investment firms and lettings agents. In all but two cases, face-to-face interviews were carried out and followed a semi-structured approach. The first half dozen interviews established the structure of the findings of the report, and subsequent interviews were used to focus on particular topics. A list of organisations interviewed is included as Appendix 1 - the agents were interviewed twice.

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The excellent database of London Residential Research, which is owned by The Estates Gazette, was used to access information on new homes sales – the database lists unit prices and physical details such as bedrooms and floor, prices and sales dates. As the time of unit purchase is correlated with whether the buyer is an investor or owner-occupier, one can derive information on the relative level of investment buying between schemes and areas. It also allows an analysis of the type of stock bought by investors.

The data sample used for this report is 50% of all schemes with 10 or more private units completed in the year to June 2006. An analysis of the sample by GLA Economics confirmed that the sample chosen was not skewed. All homes in each sample scheme were included in the analysis – so for a scheme phased over 5 years, all of the homes in that scheme count, not just those completed in the final 12 months.

Please note, whilst London Residential Research has a similar company name to London Development Research (the author of this report) the two firms are not connected.

1.5 Structure of the report

The main body of the report is presented in four sections.

• First, the report considers some common perceptions about investment buyers and examines the various industry participants and their motivations in relation to investment. • Second, the investors are examined - who are the buyers and how active are they? • Third, investment activity across London is considered • Finally, the report considers the effects and economic consequences of investor activity as well as the housing consequences for aspirant owner-occupiers and the wider consequences for sustainable communities.

Sections 2-5 deal with these topics.

London Development Research. 020 7629 6565 8 2.0 How investors are perceived and an assessment of how they benefit the development industry

This section considers the perceptions about investment sales in the general press and in the housing and regeneration press and elsewhere. To obtain a fuller and more balanced picture, however, it considers industry participants’ motivations in order to understand the importance of investment sales. First we consider the characteristics of investor purchasing relative to the behaviour of owner-occupiers. We then consider how these different characteristics impact the financing of development and therefore impact the decisions of developers.

2.1 Some perceptions about investment sales

Reports in the general press and in the housing and regeneration press often focus on concerns about high levels of Buy to Let sales and other private investment buying. The perceptions that some observers have include:

• Investors tend to buy off-plan, in advance of construction completion, whereas first time buyers and other prospective owner-occupiers tend to buy at or soon after completion. This means that investors have first choice of the homes available and a smaller pool of homes is available for those who wish to buy for owner- occupation. • Competition from Buy to Let buyers leads to increased house prices for first time buyers. • A high proportion of sales to investors leads to a high number of small, one and two- bedroom flats being built. This might be seen as a threat to sustainable and mixed communities. • A large number of Buy to Let signs on a new development does not create the impression of a community that is likely to be settled and sustainable and hence might discourage potential owner-occupiers. • The involvement of a high number of Buy to Let buyers on a development may lead to management problems. This results from lack of professional housing management expertise, highly fragmented ownership and management on some developments, and possibly a succession of shorter-term residents renting homes with no stake in the local community. • A high proportion of homes purchased by Buy to Let investors on new developments are left empty – investors are happy to keep the properties for capital growth.

These issues are considered in more detail especially in section 5. Examination of the extent and types of housing management issues on new developments are beyond the scope of this report, but have been mentioned here as they have been raised as concerns in the housing press and by RSLs interviewed for this study.

As a counter to the concerns listed above, the remainder of this section sets out why and how investors play a vital role in housing delivery in London.

2.2 Purchase timing of investors versus owner occupiers

Investors and owner-occupiers tend to buy homes at different points in the development process.

Owner-occupiers, including first time buyers, tend to buy (close to) when they can move in. This means that they usually buy in the period beginning 3-6 months before construction completion. Buying before this period has two consequences for owner-occupiers:

• The need to put down a 10% deposit, and forego interest on the deposit for the period until development completion. • The need to wait before moving in.

Both issues reduce off-plan sales to owner-occupiers. Those owner-occupiers that do buy off-plan tend to be first time buyers; the market’s experience is that families rarely buy off-plan.

This means that sales prior to 3-6 months of construction completion are (usually) investor sales. Almost 50% of all new homes are sold in this time frame, and in total 60-70% of new homes are sold off plan.

London Development Research. 020 7629 6565 9 2.3 The demand for private rented homes

Demand for private rented homes in London is high. The sector has become a popular investment choice in the last decade as an alternative to the volatility of the stock market. There are many factors that have driven this demand including the long run of residential price rises making investment seem a one-way bet, and the expansion of the buy- to-let mortgage market allowing for leveraged capital gains.

New homes development offers a large source of stock for this market, especially when development occurs in areas of high tenant demand such as close to employment locations.

2.4 The cost of property development risk

Property development is risky and this risk is costly to those that build and fund new homes. It should be noted that development sales risk – how many homes can be sold at what price in what time frame – is highest:

• in emerging housing locations which, almost by definition, are where most London housing development occurs, • on larger schemes, ones that are delivering large volumes of on-site affordable housing.

The importance of risk mitigation is demonstrated by the lending requirements of those banks that provide development finance. Banks often demand a forward sales schedule as part of the development loan agreement.

Forward buying activity – whether from owner-occupiers or from investors – provides two types of comfort and so reduces perceived development risk:

• it provides comfort in terms of certainty of sale • it provides comfort in terms of certainty of price.

Therefore forward purchasing reduces the perceived cost of development by reducing perceived development risk.

2.5 The cost of development cash-flow

The interest payments that developers make to their lenders are lower if the lenders’ funds are repaid sooner. The fundamental difference between investors and owner-occupiers, from the perspective of the new homes seller, is that investors are willing and able to buy homes ahead of construction completion. This means that the built homes can be handed over and paid for at development completion, meaning lenders’ funds can be returned at development completion thus minimising interest payments. As one developer told us:

“If a scheme is complete and unsold after completion we are haemorrhaging profit in the form of unnecessary interest payments”

2.6 Why are investment sales appealing to developers?

Forward sales are appealing to developers as they reduce the costs of development in terms of both the cost of uncertainty and the cost of post-completion interest payments. As most forward sales are to investors, investment sales can be said to be appealing because they reduce development costs.

2.7 Not all aspects of investment sales appeal to developers

Alongside the positive aspects of investment buying, there are some disincentives from the perspective of the developer:

• Investors often seek a discount to open market values, especially when buying in wholesale quantities. Developers, naturally, wish to maximise profits and these genuine discounts are given only when there is a genuine pressure to sell – either for reasons of cash flow, lending covenants or financial reporting.

• Wholesale purchasers that sell-on some or all of their homes can become competition for the developer’s later construction phases. Unnecessary competition is something all businesses like to avoid.

London Development Research. 020 7629 6565 10 • Lenders can be wary of the nature of the counterparty to an investment sale – in a worst case scenario the buyer might walk away, lose their deposit but leave the developer with unsold homes. That said, examples of such abandonment are very rare.

• In situations where a development is selling over a long period and early parts of the scheme will be occupied whilst later parts are built, developers are keen that the nature of early occupiers does not harm later sales. The prospect of, say, unruly tenant neighbours is also a consideration for those RSLs who will own affordable housing stock in the same development.

2.8 A summary statement of developer desires

In summary, it can be said that those developing private homes, whether private sector developers or RSLs, would prefer to sell units prior to construction completion, at full market value, to whoever wants to buy them and at a sales rate that provides comfort to both developer and funder. If the developer is involved in the scheme in the long term, then the nature of the buyer becomes important. The more risky the development, and the more restrictive the funding requirements, the more keen the developer will be to seek early sales to investors.

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London Development Research. 020 7629 6565 12 3.0 Buyer and Investor types

The investment buyers of new homes in London tend to be individuals not companies, and the companies are not firms with a high public profile. The market is very fragmented. In fact we consider there to be four categories of private buyer for new London homes:

• Buy to Let investors • Buy to Sell investors • Build to let investors • Owner occupiers

This section first describes each of the categories and their sub-categories. It then considers the level of investment activity in each category across London as a whole.

3.1 Buy to Let investors

Buy to Let investors fall in to three sub categories: ••• Private individuals who own just one or two properties ••• Private individuals who own larger portfolios ••• Companies and investment funds that own large portfolios

3.1.1 Buy to Let – private individuals with small holdings

The biggest buying category is private individuals with small portfolios – usually just one or two homes. They buy close to where they live to make managing the property easier, and their goal is to hold the property for 5-10 years in order to have an asset for their retirement or for their children. They can be bright or very naïve – they can understand the market intricately, or they can simply believe the received wisdom that residential property will always go up in value.

3.1.2 Buy to Let – private individuals with larger holdings

Sometimes these investors ‘get the bug’ and build a larger portfolio, usually carrying on with their jobs and running the property portfolio in parallel. They might work in the City, run a hedge fund, be property professionals, professional sportsmen, solicitors, accountants and so forth. As buyers they are informed and ‘in the market’. Some will carry out a mixture of Buy to Let and Buy to Sell, but the latter activity is done by very few and only then for a good reason, not because they set out to do that when buying.

These investors will typically own 10-50 flats. They buy in three ways: • the whole of smaller (say 14 unit) schemes so they can manage them easily • all flats of a certain type in a scheme (say all 1 beds) so they can control the market for those flats in that scheme • in a diversified manner in order to diversify risk.

3.1.3 Buy to Let – companies and investment funds

In addition to the private individuals in the Buy to Let market; there is a set of buyers that are run more formally – either as companies, investment funds or as part of one of the historic estates.

These organisations make investment-based decisions after a lot of research, though opportunistic buying is not absent. They buy big (40+ homes), seek but do not always get a genuine discount (up to 20% if they can) and they work hard to find the deals. Success at this level is taken very seriously, and the portfolios are managed well. Returns are driven by low voids, being geographically spread and having a good track record/reputation making, developers trust them to complete acquisitions honourably.

Such corporate investors play a small part in the London new homes investment market but there is an interest amongst the big investment funds to be more active. The big pension and insurance firms have put money into some formal investment vehicles, but despite residential funds being around for a good number of years, there is not a large market for institutional investment in new homes at the moment. This is for three reasons:

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• First, the funds need to be persuaded that residential property is an asset class they want to be in. • Second, they need to trust the fund manager to buy the right quality of stock in the right location at the right price AND then manage the stock well avoiding voids. And not run off with the money. • Finally, they need to be reassured that if things do go wrong, the intermediary fund is an adequate barrier between ‘Joe Bloggs’ and the corporate reputation.

3.2 Buy to Sell investors

Buy to Sell investors look to buy from a developer in large quantities and sell on individual homes, usually to Buy to Let investors but sometimes to owner-occupiers. These firms are wholesalers and perform the role that wholesalers do in other industries - acting as an intermediary between producer and end user, though in this case without any transportation of the finished product.

To succeed in Buy to Sell one has to be a knowledgeable player – knowing both who is building and what their financial needs are over time. An understanding of some of the investment tools, such as assignable contracts, is also important. A willingness to bear price and sales rate risk goes without saying.

The business model of Buy to Sell is fairly simple. It is purely a financial analysis – does the deal stack up?

3.2.1 Buy to Sell – speculators

Some of the wholesalers would consider themselves to be speculators. They enter into contracts to buy apartments, aiming to sell on (re-assign) those contracts during the construction period. They make their money by buying at a discount (for quantity and at a time when the developer has a particular need for a bulk sale) and selling after 12-24 months of capital appreciation. It is a risky business but offers rewards for the best decision-making. Many speculators are syndicates led by property professionals such as accountants and solicitors who have given up the day job to run syndicates full time.

3.2.2 Buy to Sell – wholesalers

The best examples of Buy to Sell investors that adhere closest to a traditional wholesaling role include those that come from Ireland. Irish pensions can contain homes to let, and several consortia exist where a well-informed front person/company sources stock to sell on to individuals ‘back home’. In this model, 1 or 2 individuals exchange in one name and then sell homes on to other individuals who have pre-committed to purchase a certain number of homes.

Though we avoid a further sub categorisation, it might be argued that there is a third type of Buy to Sell investor – those that run a longer-term business model aiming to provide longer term services to those investors that they sell on to. Companies such as Imagine Homes, for example, aim to buy large quantities at a discount, sell most of the homes on to individual Buy to Let landlords and then offer the buyers of those homes a full ‘buy-to-let’ service whereby they furnish the flats, find tenants and manage the lettings. At the moment activity in this category is limited but growing.

3.3 Build to let investors

Build to let investors are developers who choose to retain the stock they build and let it in the private rented sector. These can be both private developers and RSLs. The build-to-let developers are funded through the development process in the way any other developer would be funded. After construction completion, a new facility will be arranged for the letting period.

3.3.1 Build to let – private sector

Back in the mid 1990s it was uncommon, but not unheard of, for some developers to retain the homes they were building for their own investment portfolios. In a sense it is an obvious step for a housing developer to avoid passing profits to investors, and to hold homes themselves for investment. This is not an option of course for, say, a publicly

London Development Research. 020 7629 6565 14 quoted house builder (whose shareholders want shares in a builder not an investment firm), but is completely possible for smaller private developers.

A number of developers have been retaining homes for rental for many years, with the practice more common in smaller schemes where a small number of homes offers limited lettings risk. The trend has gained a higher profile recently through the more visible activities of such players as Ability Group. However, despite the profile, companies like Ability, building themselves in order to get the quantity of stock they want, are a rarity and usually the biggest London build-to-let portfolios are in the region of 100s, not 1,000s of homes.

3.3.2 Build to let – RSLs

If it can be an obvious step for a private sector developer to retain homes for rent rather than sell them to investors, it is perhaps an even more obvious step for an organisation whose core ability is residential property management. Developers have external funding partners to appease, and have (especially for the smaller players) quite undiversified development activity – both lead to the need to minimise risk. However larger players – and the RSLs are some of the largest – can afford to bear the idiosyncratic sales risk of a single development in pursuit of the capture of investment profits as well.

Most of the large RSLs are beginning to build private homes for sale in order to both cross subsidise affordable homes and to keep control of mixed-tenure developments. As they do so, the option to build to let can be very appealing. At least one RSL tells us it has a very real intention to become a built-to-let investor and to reach a REIT-able size (see 4.10). In practical terms this means at least £500m gross residential investment value.

The funding that RSLs use to build private sector homes is straightforward in that, if their rules allow, the Associations simply borrow against their existing banking facilities which are available for market development as well as for the affordable sector.

3.4 Owner-occupiers

The final category of private new homes purchaser in London is, of course, the owner-occupier, buying either a first or a second home.

London Development Research. 020 7629 6565 15 3.5 How much does each category buy?

Table 1 is a summary of the table to be found at Appendix 2 – both show the level of purchase activity in London by type of buyer. The Table has been produced following interviews with industry participants, particularly with the specialist investment agents at the large surveying firms.

The second and fourth columns of the Table follow the consensus views of the agents interviewed during the autumn of 2006. The third column has been derived by applying the percentages in the fourth column to the 16,000 total new homes sales that we estimate took place in London in the year to June 2006.

Table 1: Who buys new homes in London? Percentage Buyers in of total Category Sub-category London Purchases in 2005 purchases Buy to Let Private individuals - 1 or 2 homes 3,000 4,500 28% Private individuals - larger 200 2,000 12.5% portfolios Investment funds 15 750 4.5% Buy to Let total 3,215 7,250 45% Buy to Sell Buy to Sell total 50 2,500 16% Build to let Developers 30 1,000 6% RSLs 10 500 3% Build to let total 40 1,500 9% Owner- First home 4,250 4,250 27% occupiers Second home 500 500 3% Owner occupiers total 4,750 4,750 30% London total 8,055 16,000 100% Source: London Development Research Ltd

This does not quite show the level of investment purchasing in London as there is a danger of double counting the Buy to Sell category.

The numbers in Table 1 are for the first sale of a home. On development completion the “Buy to Sell” category no longer owns any new homes having, by definition, sold on their holdings. Assuming 80% of onward sales are to smaller investors, which is what the leading agents estimate, the ultimate purchasing profile of new homes in London is shown in Table 2.

Table 2: Ownership development completion Category Percentage Buy to Let 58% Build to let 9% Owner occupiers 33% London 100% Source: London Development Research Ltd

Therefore based on industry interviews, two thirds of all new private homes developed in London in recent years find their first use in the private rented sector.

3.6 Who are the investors?

Analysis of Land Registry documents illustrates the extreme diversity of investors. It confirms interviewees’ views that investment buyers comprise a fragmented marketplace. A full list of investors has not been provided for reasons of privacy.

London Development Research. 020 7629 6565 16 4.0 Investment activity across London and other topics

This section of the report begins with a consideration of investment activity by area across London, as the levels of investment activity shown in Tables 1 and 2 vary by area across London. In parts, this section relies on estimates of investor activity drawn from the data of the London Residential Research database rather than on interview results, therefore some numbers and percentages may be inconsistent with those found in Section 3.

Following this consideration of geography, the section then addresses a number of the nuances of the investment market such as buyer nationality, holding periods and so forth.

4.1 Investment activity by housing sub region

Table 3 estimates the level of investment activity by housing sub region across London. The point was made in Section 2 that larger developments in emerging locations close to employment centres would tend to result in higher levels of investment purchase. It is therefore no surprise that the East London housing sub-region – undergoing substantial regeneration, with large development sites and close to the expanding jobs market of Canary Wharf – has the highest level of investment activity.

Table 3 shows the level of investor sales in a sample of developments completed in London in the year to June 2006.

Table 3: Investment activity by housing sub region Housing Total Owner Occupied Investment Sub region Number Percent Number Percent East 3,230 959 30% 2,271 70% North 917 364 40% 553 60% South East 1,026 409 40% 617 60% South West 702 263 37% 439 63% West 637 244 38% 393 62% 6,512 2,239 34% 4,273 66% Source: London Residential Research/London Development Research

4.2 Investment activity in the London Thames Gateway

Table 4 uses the data from Table 3 and applies it specifically to the London Thames Gateway region.

Table 4: Investment activity in the London Thames Gateway Total Owner Occupied Investment Number Percent Number Percent LondonThames Gateway 2,312 744 32% 1,568 68% Other Outer London 2,404 942 39% 1,462 61% Other Inner London 1,796 553 31% 1,243 69% 6,512 2,239 34% 4,273 66% Source: London Residential Research/London Development Research

The conclusion is that the London Thames Gateway Region shows the same investment profile as inner London.

For further analysis of the investment market in the London Thames Gateway – see Appendix 7.

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4.3 Investment activity and scheme size

Table 5 uses the data from Table 3 and carries out a cross sectional analysis by scheme size.

Table 5: Investment activity by scheme size Total Owner Occupied Investment Number Percent Number Percent 100+ units 3,470 989 29% 2,481 71% 50 to 99 units 1,110 402 36% 708 64% 15 to 50 units 1,105 461 42% 644 58% 10 to 14 units 827 387 47% 440 53% 6,512 2,239 34% 4,273 66% Source: London Residential Research/London Development Research

The Table reinforces the understanding that larger schemes attract higher levels of investment sales.

4.4 Investors’ nationalities

Where do the buyers come from? Figure 2 has been kindly provided by Hamptons International and shows purchaser nationality for a selection of developments across London. The data covers some 1,000 home sales in recent developments.

Figure 2: Investor nationalities, 2005/2006

Antipodean East European 0.50% Asian 0.17% Unknown 0.66% Far Eastern Irish 11.75% African 3.81% 3.97% West European 2.81% 4.80% Middle Eastern Other 7.62% USA 1.16% 1.66% South African 5.30%

UK 55.79%

Source: Hamptons International

Various foreign nationalities come and go as buyers of new homes: South Africans, Israelis, Hong Kong and the Far Eastern buyers can be the most active market participants at different times from year to year. One agent told us “Buyers come from everywhere except the US”. In mid 2006 the newest influx of buyers is from mid-Africa.

4.5 Why invest in a home in London?

The rationale for buying in London rather than elsewhere can be looked at from two perspectives – that of the overseas investor and that of the UK investor.

The overseas buyers are drawn to the UK for a variety of reasons, the main ones being the security of the political and legal systems and the desire to hold investments in Sterling rather than in, perhaps, more volatile and depreciating

London Development Research. 020 7629 6565 18 local currencies. London is their primary destination, and inner/central London rather than outer London. The buying activity of the overseas investor is led by currency rates to some degree. These buyers can be more interested in long-term gains (so short term speculation is not necessarily their goal), or in a financial benefit that is wider than the features of the property investment (e.g. to hedge currency).

The UK based investors fall into two sub categories – private individuals with a small number of properties and those with larger portfolios, The smaller investors tend to seek homes in an area they understand, which usually means close to where they live. Purchasing close to home also makes management easier. Investors with larger portfolios are not so tied to London. Some large investors cite London’s world city status as underpinning their desire to invest in the capital and not elsewhere. Others are more footloose and will travel across the UK and indeed overseas in search of the best financial propositions.

Buyers from oversees can sometimes ‘adversely’ affect the market and we can give two examples of this:

• The top end of the market is currently rising fast due to interest from Russian buyers – as a result, in prime areas of London, upper end prices have detached as competing buyers bid up the price of the best assets. • In the past, some nationalities seeking a currency hedge have left flats empty – they are making so much money (in their own currency) just through exchange rate adjusted capital growth, that rental seems too much bother. However such instances are isolated and we found no one with recent experience of investment homes staying empty for anything other than short periods.

4.6 Investors professions

The individual buyers purchasing homes in London come from a variety of professions as shown by Figure 3.

Figure 3: Investor Professions, 2005/2006

Construction Civil 2.99% 1.82% Unknown Corporate 22.55% 9.12% Financial Self Employed 13.60% 4.48% IT 1.99% Retail 1.00% Legal 6.30% Property Media Other 19.89% Medical 0.83% 8.96% 6.47%

Source: Hamptons International

4.7 Investors holding periods

Investors’ holding periods are not easy to generalise – they depend on investors’ intentions when buying, market changes post purchase and the individual circumstances of the (fragmented) local market.

As a result we received differing views when interviewing letting agents:

• One letting agent in Docklands said “Off plan purchases in the last 7 years are only really selling now, so it seems there is a 5-10 year holding period, though it is hard to say as I have only been working here 7 years”

London Development Research. 020 7629 6565 19 • Another agent estimated that in her patch 20-30% have sold this year, selling as the hoped for rental returns have not materialised. • Yet another agent reported selling due to factors not associated with the London market – for example the South Africans are selling as their home market is so good.

When investment stock is sold, it tends to be to other investors with tenants in situ.

4.8 Little evidence of empty homes

This report finds that vacancy in investment stock in London is not systematic. Letting is big business, and the days of letting agents winning business by looking for vacant premises are long gone. If investment homes are empty, it generally is not through landlords’ choice. If there is any vacancy it tends to be:

• As voids between lettings – and is greatest when the property is not in a decent order.

• Perhaps in the first year of a development when big schemes offer many homes to the market at once. When first letting a block there is a lot of choice for the tenant and the tenant tends to choose a higher floor BUT not too high if there is a river view. For the first year of a block’s existence there is a trade off – a 300-property scheme might let at 75% of open market value due to localised oversupply & (sometimes) adjoining construction work. There are renters who specifically take advantage of this first year premium. The developers make sure that not all of a big block will hit the market at once – for example at Pan Peninsula there will be floor-by-floor release.

To assess whether there was a high proportion of homes left empty on new housing developments, the issue was raised in interviews with property industry participants (see the list of interviewees at appendix 1). As part of the Study, the GLA contacted empty property officers at all London boroughs as well as the Empty Homes Agency, to check whether they knew of cases where homes were left empty for long periods on new developments. The intention was that London Development Research would look into these cases to examine the reasons. In response, boroughs’ empty property officers and the Empty Homes Agency only raised two examples. On further investigation, these were found to be explained by circumstances specific to the individual schemes rather than indicative of a more general problem.

Two factors reduce empty rental property. First, investors are organised and are ready to have their property let the moment they take possession of it – they often approach a letting agent up to a year before development completion. Second, developers are clued up to the needs of the investment market and do their best to avoid building homes that will not let.

When too many homes of one size hit an area, the effect tends to be a fall in rents (making homes more affordable) rather than an increase in vacancy.

There have been times when London development stock has been left empty – for example there was a period when South African buyers bought London homes as a hedge against the Rand. In this instance the owners’ motives were more driven by the money they might have lost if they had invested at home rather than the foregone income in the UK. These instances are isolated.

4.9 Short lets

We found few short-lets in the data sample – just one scheme in the City developed by Cheval. In the West End it is rumoured that some operators exist below view of the market as some of their homes are without the relevant permission.

Landlords do not like short-lets, due to:

• Greater wear and tear • Greater voids – rents are higher but they just make up for the voids • They have to let homes themselves (as agents’ letting fees are relatively high) • Altogether they need more management input for no extra return

The market for short let accommodation is stronger in the West End than in places such as Docklands. However Galliard has shown that demand can be created for the right product; it is doing very well indeed in Lambeth. It is

London Development Research. 020 7629 6565 20 questionable whether these short-lets are part of the residential market as they act more like a commercial investment.

4.10 The likely impact of Real Estate Investment Trusts (REITs)

The arrival of REITs in 2007 is unlikely to change the way the investment market operates in the short or medium term. This is for two reasons.

• First, whilst some investors and at least one RSL have firm plans to build to a suitable size to become a REIT, at least £500m gross value, few have holdings this large yet. Growth to a suitable size could come from either market consolidation or from the purchase of new stock. However both pose problems. As the market is very fragmented it is hard to see how consolidation amongst existing investors might happen to a sufficient degree to change the market fundamentally. The alternative seems just as difficult as it involves buying big in one place (risky), building a very large managed and mixed estate (not too many sites in London but there are some) or embarking on a widespread acquisition programme (but this would take time).

• Second is the problem of valuation. A residential REIT would be valued primarily on the basis of its income, not on the capital value of its assets. As residential returns are a mixture of income and capital growth the valuation of just one element creates an apparent (if not real) financial penalty. The capital gains tax advantages would need to be significant to overcome this issue.

Also the personal nature of property ownership is not to be overlooked. As one person told us:

“My view is that SIPPs would not have had much affect on the market. I am even less hopeful about REITs and unit trusts – Buy to Let small investors want to own the property directly and say ‘that is mine’, not have a share in someone else’s vehicle.”

Residential REITs will emerge, but it seems to us that they will not dominate London’s investment market in the short or medium term (5-15 years).

London Development Research. 020 7629 6565 21

London Development Research. 020 7629 6565 22 5.0 The effects of investor activity

This section first considers the two key potential effects of investor activity on new home development: The type of homes developed and the quantity and location of development

The section then moves on to consider the consequences of new homes development – both beneficial and those that have given rise to concern.

5.1 The types of homes developed

High rental yields are attractive to investors, and this might lead to developers building particular types of property – smaller or larger depending upon investor demand.

Yield is a function of the capital cost of a home relative to rental demand in the local market. Considering rental demand alone, this might entail:

• Letting a 3 bed home to a company in prime central London • Letting a 1 or 2 bed home to a couple or two sharers in a less affluent part of central London • Letting a 2 or 3 bed home to a group of sharers in a less affluent part of inner London • Or letting a compact family home in outer London (Gross rental values across London are shown in Appendix 3; an analysis of local rental markets is included as Appendix 4)

One might conclude that more people sharing offered the best rental yield. However whilst letting agents report rental demand for larger homes, development sales agents report that investors seek smaller units. The affordability of the home – the purchase price – is the driver. Investors often seek smaller homes even when tenant demand exists for larger units because of the benefits to the investor of buying a smaller home:

• Less deposit money is needed to buy the property • A stamp duty threshold may be avoided • Diversification of the rent risk • And perhaps issues of esteem “I have 2 homes not 1” (You will note that the first two points apply equally to owner-occupiers and investors.)

By looking at data on when homes of various sizes sell, we can learn whether investors seek 1, 2 or 3 bed homes. Figure 4 does just this, showing the percentage of new homes sold in developments six months prior to development completion. Here, we assume that all homes sold six months prior to development completion are sold to investors.

Figure 4: Homes sold in developments six months prior to completion in June 2006

80%

70%

60%

50%

40%

30% % bought by investors 20%

10%

0% 1 2 3 Number of Bedrooms

Source: London Residential Research, London Development Research

London Development Research. 020 7629 6565 23

One might conclude that the developers building for the investment market would therefore build a higher proportion of one bed homes, but this is not the case; Figure 5 shows the number of homes by bedroom being built in the same set of developments.

Figure 5: Homes being built in the same developments as Figure 4

60%

50%

40%

30%

% being built % being 20%

10%

0% 1 bed 2 beds 3 beds % offered in schemes

Source: London Residential Research, London Development Research

If home size were solely driven by investment demand more one-bed units would be built in London. Developers are not solely prioritising what they build based on investor desires.

Appendix 5, taken from Table 6 of our report ‘Mid Year Sales & Pricing’ shows the variation in the sizes of homes being developed across London – you will notice that the highest levels of 3 bed development is in the most expensive boroughs, Westminster and Kensington & Chelsea.

Quite what is going on cannot be understood from the data, but conversations with market participants make the causes very clear. The key issue that drives the size of new homes is affordability. All things being equal, people want a home with more bedrooms, but developers only build larger homes if they are confident that buyers can afford them – this means that 3 bed homes are built in prime London as the buyers in those areas can afford them. Elsewhere, issues of affordability lead to the development of smaller units.

5.2 Quantity and location of development

Developers are, however, prioritising where they build and how much they build based on investor demand, which is the second effect we will deal with. We will say very little on this subject as every agent and developer we spoke to said exactly the same thing, which was very succinct and as follows:

• In established residential locations in medium and small schemes, investment demand has little impact on build rates and volumes – developers will build as much as they are allowed by the planning system, safe in the knowledge that desired sales volumes and sales prices can be achieved. • In established locations on larger sites, expected owner-occupier sales volumes cannot be guaranteed, and some proportion of forward sales to investors lends confidence to the scheme and makes construction easier to fund • In emerging areas with little or low demand from owner-occupiers the existence of an investment market is vital to ensuring that schemes go ahead. • Large schemes in emerging locations would be impossible to fund without very high levels of investor pre-sales.

Next, we summarise the main consequences of investor activity. Four of these consequences are beneficial; three could potentially give rise to concern.

London Development Research. 020 7629 6565 24 5.3 The potential concerns about investor activity

We feel that the following consequences of investor activity have given rise to concerns. However please read the first two bearing in mind the caveat about whether the issue is one of excess demand or inflexible supply which follows 5.3.2.

5.3.1 Reduced choice of accommodation offered to owner-occupiers looking to buy in the new homes market

The high demand from investors, and the fact that they buy before owner-occupiers, means that the new homes that are on the market at, or close to, construction completion – i.e. when owner-occupiers tend to buy – is reduced. Investors get the first bite at the cherry.

5.3.2 In particular, the demand from investors for smaller units – the ones that are lowest priced – may lead to a lack of available owner-occupied new property at the lower end of the market where first time buyers would exist

One of the questions this report was asked to consider was whether the first time buyers might be priced out of the market by investors. In some ways this is impossible to answer – without investors many schemes would not start construction, so it does not follow that fewer investor purchases would lead to more availability for first time buyers. Certainly we would agree that excess demand pushes up prices, but it pushes up prices for everyone – investor and first time buyer alike.

Our main concern with this line of critical analysis is that it simply looks at demand, and London’s housing market is not one that has a demand problem, it has a supply problem. Any manufacturing industry with constrained supply will endure shortages and higher prices, but this is not the fault of the demand, it is the fault of supply. London has plenty of land for development but has severe practical problems in getting housing built. We feel it would be inappropriate to conclude that investors are pricing first time buyers out of the housing market.

5.3.3 The fragmented nature of the lettings market, and the concentration of rented accommodation in development schemes, can lead to bad neighbour issues in poorly managed blocks

This becomes an important issue in three situations – in one off schemes with poor management plans, on long-term multi-phased schemes, and in areas under going widespread but piecemeal redevelopment.

When investment purchasing within a block is piecemeal, and formal block management poor, the neighbourhood can be adversely affected. Some RSLs report, on schemes in which they manage the affordable housing element, crime and other anti social behaviour issues with neighbouring private sector tenants.

On long-term schemes in single ownership the developers are very aware of the need to create communities in order that later phases of the schemes sell well. The plans for such developments as Beaufort Park and Clapham Park South include a detailed consideration of who to sell to and when, and the developers’ have concluded that it is in their long term interest to consider carefully whether to sell to investors. When they do sell, the ‘quality’ of the investor is important in terms of reputation and their genuine desire to hold well managed rented accommodation for the long term.

In town centres and other locations undergoing rapid change, and where land ownership is fragmented, a concentration of rented schemes can have a detrimental effect on regeneration in two ways. First, early completed schemes in the area, often with a proliferation of investors’ letting and sales boards, can harm an area’s image and make later phases of the regeneration more difficult to deliver. Second, a transient population with few local roots could make for a soulless community.

Private developers reported to us that prospective owner-occupier purchasers are increasingly asking about the proportion of investor sales when considering buying a new-build home – some developers have active policies to avoid excessive sales to investors for this reason. Our worry is that isolated problems may become newsworthy and turn into an issue for the wider private development industry, including the many responsible developers who pay detailed attention to issues of block management post-sale.

London Development Research. 020 7629 6565 25

5.4 The beneficial consequences of investor activity

We believe that there are four main beneficial consequences of investor activity:

5.4.1 Investor demand leads to more new homes development in London, especially in emerging residential areas

Investors allow perceived development risk to be moved from the developer to the purchaser and they therefore increase confidence in the development community. This leads to housing starts in the less established residential areas of London enabling large regeneration schemes to go ahead. Even the anticipation of an improving rental market – such as office lettings at Canary Wharf – can lead to housing starts. Investors are important in poor market conditions, as they step in and buy stock at a discount and thus iron out some of the volatility in the market.

5.4.2 Investors allow larger schemes to be attempted by developers, leading to higher levels of s106 affordable housing provision

A by-product of the first consequence is worth noting separately. The largest developments in London provide affordable housing by way of s106 agreements. The more profitable these schemes are, the more cross subsidy is available to allow the viable provision of affordable housing. In the largest schemes, especially those that cannot be phased such as tall buildings, the necessary quantity of owner-occupiers does not exist to buy these schemes before or at construction completion. Without investors, the development interest costs will be higher and the cross subsidy available for affordable housing will be lower.

5.4.3 The expanded private rented sector provides accommodation for those who want to rent, and allows London to have a more flexible workforce and fulfil its role as an international business and financial centre

London is a world city that attracts workers and students from around the globe. For many of these people, buying is not an option – they are here for a short period, perhaps just a few years – and they seek rented accommodation. Those on good salaries want to rent ‘aspirational’ space close to work, the new homes market caters to this market and in part is responsible for the consequent benefits to London and the UK’s economy.

New homes investors also provide accommodation to those that might otherwise be owner-occupiers but for reasons of affordability. The Savills Prime London Rental Index, which is included at Appendix 6, shows that rents in prime London have increased by some 8% since September 1998, meaning they are only slightly higher in nominal terms now than they were 8 years ago, and are much lower as a proportion of house prices. This means that rental costs relative to ownership costs are much less in 2006 than they were in 1998.

5.4.4 New homes, as a source of investment stock, provide an accessible investment vehicle for private individuals

The largest proportion of new homes buyers in London are people who might have bought heavily into the stock market 10 years ago. The combination of lower perceived volatility, personal management and a physical asset mean that residential property has real appeal as an alternative pension investment, the appeal being even higher for some ethnic groups.

London Development Research. 020 7629 6565 26 5.5 Conclusions

Investors make up the largest group of buyers of new homes in London. This is for two reasons:

• First, private individuals have decided in large numbers that they want to be landlords. New homes offer a ready supply of the raw material required to be a landlord. There is high demand for new homes from investors. • Second, investors are willing to buy ahead of development construction completion and so offer developers and their funding partners a way to lower perceived development risk. Those supplying new homes in London find they can supply more homes when buyers commit to purchases well in advance of construction completion.

The result, from an occupancy perspective, is a larger proportion of new homes reaching the rental market than the owner-occupier market. The result from a new homes development perspective is more homes built, and through the use of S.106 agreements, more affordable homes built. The economy benefits via increased regeneration and a more flexible accommodation base for London’s workers.

There are concerns that investment buying is hindering the ability of first time buyers and other private sector owner- occupiers to access new homes in London. However it is not true that if the investment market shrank, that owner- occupiers would benefit, rather there is a real danger that total housing development would fall and nobody would benefit.

Therefore, though there are some concerns about investment activity, this report concludes that these are far outweighed by the benefits. Investors should be viewed as would the ‘middle men’ in any other commodity market – they exist because they perform a valuable market function.

London Development Research. 020 7629 6565 27

London Development Research. 020 7629 6565 28 Glossary

Arbitrage The act of buying at one price and selling at another.

BTL mortgage A mortgage for an investor who will not be an owner-occupier.

Gazumping A situation in which the price for real estate or land is raised to a higher price than what was previously verbally agreed upon.

Leveraged capital gains Profits that are enhanced by borrowing.

REITs Real Estate Investment Trusts are companies that buy, develop, manage and sell real estate assets. They distribute the majority of income cash flows to investors without taxation at the corporate level (providing that certain conditions are met).

Rental yields Rent expressed as a percentage of property value.

RSL Registered Social Landlord; usually a Housing Association.

SIPPs Self Invested Personal Pensions are a means by which it is possible to save/invest in a tax efficient and flexible way specifically for a pension.

Void A period during which a property does not have a tenant and so does not generate any income.

Volatility The relative rate at which the price of an asset or financial security moves up and down.

London Development Research. 020 7629 6565 29

London Development Research. 020 7629 6565 30 Appendix 1: Interviewees

Agents AGS Residential Foxtons Hamptons Hurford Salvi Carr Jones Lang LaSalle King Sturge Knight Frank Savills

RSLs Catalyst London & Quadrant Metropolitan Notting Hill Presentation Toynbee

Developers Countryside Crest Groveworld Taylor Woodrow

Lenders Bank of Scotland Barclays Bank HSBC

Investors Cromwell Land Crown Estate Fairbridge Residential Stirling Assets

Others British Property Federation

London Development Research. 020 7629 6565 31

London Development Research. 020 7629 6565 32 Appendix 2: Who buys new homes in London?

London Development Research. 020 7629 6565 33 Percent Buyers Purchases in 2005 After onward Percent Propensity for of in (of 16,000 private sales by 'buy- ownership at London (1 Time Category Category investors London completions) to-sell' completion Who are they low; 5 high) Goal horizon e.g. Comments Buy to let 1 or 2 homes 40% 3000 4500 6500 40.6% - Private individuals 5 Income and capital 10+ Mom and Pop Can be bright or very naive. growth; asset for the years future (kids; pension etc) 20 or 30 homes 18% 200 2000 2000 12.5% - Private individuals with 4 Income and capital 5-10 City bod or hedge fund Starts to merge into more experience and growth years managers or property Wholesalers when they size of ambition who get the bug. professionals or activity makes the day job Still work in FT job footballers/sports agents difficult etc - Various foreign 3 Secure home for their 5-10 Every nationality except nationalities that come and funds; LT capital growth years USA go Investment funds 7% 15 750 750 4.7% - Historic estates 4 Buying for yield Crown Estate/Grosvenor These are very fussy and have formal purchase and investment criteria/hurdles. Find it very difficult to buy in the current market - formally constituted funds 3 HBoS, HSBC etc Buy to sell Wholesalers & 22% 50 2500 0 0% - Property clubs 2 Buying at a discount to 1-3 Instant Access speculators OMV years - Companies 2 Imagine/Young - Private individuals 2 Look to reassign their contract before completion - Syndicates led by property 2 - Irish investors buying to professionals such as trade to personal pension accountants and solicitors funds e.g. Chancellor who have given up day job to run syndicate full time

Build to let Developers 9% 30 1000 1000 6% - Companies that build in 4 Income and capital 5-10 Ability; Cheval; Yiannis Few large firms, more small order to get the investment growth years ones stock they want RSLs 4% 10 500 500 3% - RSLs building private 3 Buy rather than build AH Some RSLs getting more rented portfolios active Subtotal 100% 11250 10750 67%

Owner First home 4250 4250 4700 29% 5 occupiers Second home 500 500 550 3% 4 Subtotal 4750 5250 33%

Total 16000 16000 100%

Notes: This information has been collated from interviews with market partcipants during autumn 2006, particularly development agents

Appendix 3: Gross rental yields across London

Appendix 3 compares average asking prices for 1, 2 and 3 bed homes across a range of development schemes completed in the year to June 2006, to a sample of rents in the same postcodes as these developments.

The asking prices are for the most recent units, the rents are current weekly rents in September 2006 so there is a delay in the timing between the numbers. The right hand columns estimate the average gross rental return that investors might expect to achieve on these developments. A range of rents has been used with the gross yield using the average of the typical lowest, medium and highest rents in each postcode. It might be expected that new homes would command the highest rents and so therefore gross yields may be slightly under stated. A range of rents was required to avoid sampling error.

London Development Research. 020 7629 6565 35 Scheme Rent Capital values Gross yields BuildingID Address Local Authority Postcode-Full 1 bed rent 1 bed rent 1 bed rent 2 bed rent 2 bed rent 2 bed rent 3 bed rent 3 bed rent 3 bed rent 1 bed 2 bed 3 bed 1 bed 2 bed 3 bed

154446 Heathway Barking & Dagenham RM10 7RU £110.83 £131.83 £151.67 £141.63 £163.33 £175.00 £186.67 £198.33 £210.00 £0 £0 £230,000 4% 155632 73-179 Blackborne Road Barking & Dagenham RM10 8SL £110.83 £131.83 £151.67 £141.63 £163.33 £175.00 £186.67 £198.33 £210.00 £137,809 £153,393 £0 5% 5% 229831 4 Glebe Road Barnet N3 2AX £161.70 £232.40 £257.83 £262.73 £259.93 £300.07 £0 £276,666 £0 5% 230125 Bittacy Hill Barnet NW7 1BL £159.00 £185.00 £200.00 £270.00 £195.00 £250.00 £360.00 £202,950 £271,472 £0 4% 4% 144396 191-197 Holders Hill Road Barnet NW7 1ND £159.00 £185.00 £200.00 £270.00 £195.00 £250.00 £360.00 £0 £346,379 £0 3% 140324 Ludford Close, Kenley Avenue Barnet NW9 5WD £163.33 £166.83 £175.00 £198.33 £202.07 £204.17 £300.00 £276.00 £230.00 £0 £0 £0 231885 9-13 Elm Road Bexley DA14 6AF £138.83 £157.50 £169.17 £163.33 £175.00 £180.83 £175.00 £186.67 £210.00 £162,500 £205,708 £0 5% 4% 132259 Eardley Mews Bexley DA17 5AQ £140.00 £152.00 £186.00 £146.00 £152.00 £187.00 £175.00 £163.00 £152,795 £160,370 £0 5% 5% 148724 37 Parkhill Road Bexley DA5 1HX £175.00 £163.00 £175.00 £191.00 £0 £254,974 £0 3% 145801 Chalkhill Road Brent HA9 9YB £175.00 £186.67 £198.33 £200.67 £256.67 £227.50 £280.00 £303.33 £0 £262,000 £0 4% 133077 1 Sherman Road Bromley BR1 3JH £152.00 £173.00 £180.00 £172.00 £253.00 £277.00 £228.00 £0 £306,608 £0 4% 154698 1-3 Lansdowne Road Bromley BR1 3LY £152.00 £173.00 £180.00 £172.00 £253.00 £277.00 £228.00 £0 £290,933 £0 4% 145918 22 Rectory Road Bromley BR3 1AA £149.00 £158.00 £210.00 £210.00 £222.00 £198.00 £185.00 £243.00 £210.00 £0 £264,521 £387,950 4% 3% 224325 72-77 Vinson Close Bromley BR6 0EG £132.00 £134.00 £173.00 £163.00 £180.00 £180.00 £187.00 £0 £0 £362,071 3% 227475 Farnborough Common Bromley BR6 8ND £132.00 £134.00 £173.00 £163.00 £180.00 £180.00 £187.00 £0 £0 £0 232143 Sevenoaks Road Bromley BR6 9JU £132.00 £134.00 £173.00 £163.00 £180.00 £180.00 £187.00 £0 £224,995 £309,281 4% 3% 228632 51 Anerley Road Bromley SE19 2AS £142.33 £151.67 £175.00 £175.00 £185.50 £192.50 £198.33 £227.50 £280.00 £164,375 £0 £0 5% 249067 11 Minden Road Bromley SE20 8EE £128.33 £138.83 £151.67 £151.67 £157.50 £186.67 £175.00 £198.33 £256.67 £0 £0 £0 142070 100-102 Anerley Park Bromley SE20 8NR £128.33 £138.83 £151.67 £151.67 £157.50 £186.67 £175.00 £198.33 £256.67 £174,995 £222,268 £0 4% 4% 239521 141-153 Drummond Street Camden NW1 2PB £230.00 £250.00 £360.00 £470.00 £475.00 £430.00 £450.00 £292,500 £442,500 £453,750 4% 5% 5% 131559 230-234 Royal College Street Camden NW1 9NJ £185.00 £230.00 £275.00 £200.00 £280.00 £375.00 £360.00 £495.00 £500.00 £281,238 £0 £459,150 4% 5% 140623 South End Green Camden NW3 2PT £220.00 £260.00 £310.00 £300.00 £400.00 £575.00 £625.00 £790.00 £895.00 £325,000 £647,368 £1,002,692 4% 3% 4% 145660 3-5 Rosslyn Hill Camden NW3 5UL £185.00 £330.00 £550.00 £495.00 £525.00 £600.00 £730.00 £750.00 £790.00 £305,000 £555,833 £872,500 6% 5% 5% 1953 3 Bow Lane Corporation of London EC4M 9EE £320.00 £550.00 £350.00 £430.00 £475.00 £550.00 £1,200.00 £0 £0 £0 230458 5-7 Kendra Hall Road Croydon CR2 6DT £134.00 £152.00 £146.00 £152.00 £186.00 £193.00 £187.00 £193.00 £193.00 £207,995 £259,995 £0 4% 4% 155570 35-37 Croham Road Croydon CR2 7HB £135.00 £152.00 £163.00 £170.00 £186.00 £222.00 £164.00 £181.00 £260.00 £195,000 £272,500 £0 4% 4% 156694 203-203a Brighton Road Croydon CR8 4HF £128.00 £152.00 £152.00 £170.00 £175.00 £187.00 £181.00 £233.00 £0 £0 £281,250 4% 244893 115 Sydenham Road Croydon CR9 2TD £139.00 £140.00 £170.00 £152.00 £175.00 £186.00 £187.00 £180,833 £217,929 £0 4% 4% 128402 1272 London Road Croydon SW16 4DQ £144.00 £178.00 £163.00 £172.00 £184.00 £280.00 £276.00 £303.00 £0 £0 £0 153331 52 Churchfield Road Ealing W3 6DL £185.00 £170.00 £231.00 £215.00 £245.00 £300.00 £288.00 £350.00 £381.00 £240,000 £332,467 £460,000 4% 4% 4% 139551 Carbery Avenue Ealing W3 9AD £207.67 £213.50 £245.00 £256.67 £298.67 £350.00 £291.67 £536.67 £396.67 £0 £294,995 £414,995 5% 5% 142068 Greenford Avenue Ealing W7 3QT £178.50 £198.33 £202.07 £221.67 £245.00 £291.67 £268.33 £303.33 £291.67 £0 £0 £0 142670 130-132 The Ridgeway Enfield EN2 8PR £158.00 £158.00 £187.00 £196.00 £268.00 £280.00 £326.00 £373.00 £0 £350,933 £0 3% 145669 26 Alexandra Road Enfield EN3 7EH £140.00 £146.00 £163.00 £182.00 £180.00 £187.00 £219.00 £228.00 £303.00 £0 £174,950 £0 5% 132919 2-4 Winchmore Hill Road Enfield N14 6PX £169.17 £184.80 £198.33 £210.00 £256.67 £299.83 £0 £315,462 £329,995 4% 5% 142193 Park Road Enfield N18 2UH £128.33 £151.67 £180.83 £186.67 £198.33 £221.67 £280.00 £167,999 £0 £0 4% 135833 Thames Street Greenwich SE10 9DH £210.00 £231.00 £245.00 £256.67 £280.00 £280.00 £291.67 £326.67 £257,500 £464,531 £0 4% 3% 140621 Woolwich Church Street Greenwich SE18 6DU £144.67 £150.50 £186.67 £170.33 £182.00 £256.67 £256.67 £280.00 £350.00 £0 £335,168 £1,025,000 3% 2% 131676 Burrage Road Greenwich SE18 7JW £150.00 £167.00 £175.00 £150.00 £180.00 £220.00 £225.00 £190.00 £350.00 £163,328 £267,499 £248,330 5% 4% 5% 132649 Warepoint Drive Greenwich SE28 0JA £140.00 £158.00 £175.00 £180.00 £200.00 £235.00 £263.00 £245.00 £257.00 £199,995 £259,995 £288,828 4% 4% 5% 139755 17-23 Lansdowne Lane Greenwich SE7 8TN £145.83 £151.67 £198.33 £198.33 £213.50 £221.67 £221.67 £256.67 £280.00 £236,429 £332,500 £0 4% 3% 130706 23-35 Waterson Street Hackney E2 8HE £200.00 £240.00 £285.00 £290.00 £410.00 £350.00 £310.00 £585.00 £350.00 £0 £0 £0 155648 101 Queensbridge Road Hackney E2 8PB £200.00 £240.00 £285.00 £290.00 £410.00 £350.00 £310.00 £585.00 £350.00 £201,125 £250,000 £300,000 6% 7% 7% 246707 Kenninghall Road Hackney E5 8BU £155.00 £180.00 £170.00 £170.00 £185.00 £200.00 £220.00 £270.00 £179,950 £202,463 £0 5% 5% 134488 Ritson Road Hackney E8 1DE £185.00 £190.00 £210.00 £230.00 £260.00 £265.00 £320.00 £325.00 £228,000 £330,833 £0 4% 4% 230227 5 Kingsland Passage Hackney E8 2JS £155.00 £160.00 £210.00 £185.00 £200.00 £335.00 £375.00 £370.00 £199,950 £255,000 £0 5% 5% 142621 257-269 Mare Street Hackney E8 3NS £165.00 £220.00 £260.00 £240.00 £290.00 £295.00 £260.00 £300.00 £385.00 £215,151 £303,855 £357,484 5% 5% 5% 129806 16-22 Martello Street Hackney E8 3PE £165.00 £220.00 £260.00 £240.00 £290.00 £295.00 £260.00 £300.00 £385.00 £0 £0 £0 141552 298-316 Kingsland Road Hackney E8 4DS £190.00 £225.00 £350.00 £220.00 £260.00 £395.00 £280.00 £485.00 £500.00 £0 £0 £0 130780 Provost Street Hackney N1 7LN £165.00 £230.00 £270.00 £230.00 £295.00 £360.00 £300.00 £360.00 £395.00 £248,240 £367,653 £0 5% 4% 130999 11-13 Britannia Walk Hackney N1 7NP £165.00 £230.00 £270.00 £230.00 £295.00 £360.00 £300.00 £360.00 £395.00 £350,000 £472,357 £0 3% 3% 225479 13 Murray Grove Hackney N1 7QT £165.00 £230.00 £270.00 £230.00 £295.00 £360.00 £300.00 £360.00 £395.00 £230,000 £311,000 £347,500 5% 5% 5% 134466 31-35 Stoke Newington Road Hackney N16 7XJ £180.00 £210.00 £225.00 £240.00 £260.00 £280.00 £380.00 £395.00 £340.00 £0 £0 £0 244915 White Hart Lane Haringey N17 8SH £155.00 £165.00 £180.00 £180.00 £268.00 £257.00 £0 £0 £0 230028 Turnpike Lane Haringey N8 0DB £150.00 £160.00 £195.00 £196.00 £200.00 £250.00 £275.00 £300.00 £400.00 £0 £0 £0 139498 Byron Hill Road, Waldron Road Harrow HA2 0HZ £163.00 £181.00 £228.00 £256.00 £210.00 £257.00 £210.00 £327.00 £257.00 £335,000 £448,000 £590,556 3% 3% 2% 143661 101-103 Roxeth Green Avenue Harrow HA2 8AQ £145.83 £158.67 £175.00 £198.33 £210.00 £210.00 £233.33 £221.67 £256.67 £0 £0 £0 135793 464-472 Alexandra Avenue Harrow HA2 9TN £169.17 £175.00 £175.00 £198.33 £206.50 £210.00 £210.00 £221.67 £233.33 £220,000 £0 £0 4% 252696 400 Honeypot Lane Harrow HA7 1JJ £160.00 £150.00 £162.00 £185.00 £220.00 £277.00 £250.00 £277.00 £315.00 £0 £245,832 £0 5% 131172 30-32 Uxbridge Road Harrow HA7 3LG £160.00 £150.00 £162.00 £185.00 £220.00 £277.00 £250.00 £277.00 £315.00 £0 £448,333 £771,667 3% 2% 147915 2 Seymer Road Havering RM1 4LB £131.83 £140.00 £145.83 £145.83 £151.67 £180.83 £186.67 £198.33 £210.00 £139,950 £167,475 £0 5% 5% 152572 200-208 Abbs Cross Lane Havering RM12 4NA £140.00 £145.83 £151.67 £170.33 £175.00 £191.33 £163.33 £179.67 £210.00 £0 £224,167 £259,688 4% 4% 157621 Ferry Lane Havering RM13 9BY £116.67 £151.67 £122.50 £162.17 £172.67 £185.50 £186.67 £198.33 £0 £167,375 £0 5% 8020281 Kingswood Lodge Havering RM2 5EE £151.67 £162.17 £169.17 £145.83 £192.50 £215.83 £210.00 £0 £350,000 £0 3% 135460 Heath Park Road Havering RM2 5UJ £151.67 £162.17 £169.17 £145.83 £192.50 £215.83 £210.00 £0 £237,136 £300,000 4% 4% 236602 140 London Road Havering RM7 9QL £108.97 £157.50 £170.33 £186.67 £198.33 £0 £178,236 £0 5% 153376 152-162 London Road Havering RM7 9QP £108.97 £157.50 £170.33 £186.67 £198.33 £0 £189,995 £0 5% Scheme Rent Capital values Gross yields BuildingID Address Local Authority Postcode-Full 1 bed rent 1 bed rent 1 bed rent 2 bed rent 2 bed rent 2 bed rent 3 bed rent 3 bed rent 3 bed rent 1 bed 2 bed 3 bed 1 bed 2 bed 3 bed

149166 2-4 Wood Lane Hillingdon HA4 6EX £162.00 £198.00 £163.00 £198.00 £222.00 £408.00 £187.00 £194.00 £268.00 £0 £328,457 £0 4% 65357 306-310 West End Road Hillingdon HA4 6QQ £162.00 £198.00 £163.00 £198.00 £222.00 £408.00 £187.00 £194.00 £268.00 £0 £241,870 £0 6% 142162 Wiltshire Lane Hillingdon HA5 2NB £163.33 £175.00 £169.17 £175.00 £186.67 £250.83 £373.33 £210.00 £221.67 £0 £249,093 £325,511 4% 4% 251308 2 Swan Road Hillingdon UB7 7JY £162.17 £134.17 £140.00 £186.67 £175.00 £204.17 £198.33 £221.67 £256.67 £0 £249,950 £0 4% 156482 91 Cowley Road Hillingdon UB8 2AG £138.83 £157.50 £169.17 £169.17 £204.17 £210.00 £210.00 £245.00 £256.67 £0 £270,787 £328,868 4% 4% 158838 Balfour Road Hounslow TW3 1JX £157.50 £169.17 £215.83 £186.67 £227.50 £262.50 £263.67 £233.33 £0 £266,450 £0 4% 139867 240 Vicarage Farm Road Hounslow TW5 0EE £151.67 £175.00 £157.50 £192.50 £198.33 £210.00 £221.67 £280.00 £256.67 £168,424 £212,162 £0 5% 5% 156135 211-221 Worton Road Hounslow TW7 6DW £186.67 £169.17 £186.67 £198.33 £215.83 £233.33 £255.50 £280.00 £291.67 £0 £271,386 £0 4% 146055 41-43 Grove Park Road Hounslow W4 3RU £210.00 £230.00 £260.00 £230.00 £275.00 £400.00 £400.00 £475.00 £577.00 £0 £0 £0 26399 6-8 St John's Square Islington EC1M 4NH £295.00 £360.00 £600.00 £350.00 £450.00 £550.00 £550.00 £850.00 £945.00 £328,333 £507,143 £795,000 7% 5% 5% 10099 2-3 St John's Place Islington EC1M 4NP £295.00 £360.00 £600.00 £350.00 £450.00 £550.00 £550.00 £850.00 £945.00 £0 £0 £0 131552 31-33 Seward Street Islington EC1V 3PA £230.00 £310.00 £340.00 £330.00 £475.00 £510.00 £370.00 £289,375 £412,500 £0 5% 6% 138246 394-416 St John Street Islington EC1V 4NN £250.00 £365.00 £390.00 £375.00 £475.00 £500.00 £525.00 £700.00 £347,500 £470,000 £665,000 5% 5% 5% 130150 272-274 Goswell Road Islington EC1V 7HD £220.00 £270.00 £310.00 £285.00 £365.00 £550.00 £685.00 £370.00 £750.00 £0 £0 £0 142491 62-67 Halliford Street & 49 Ecclesbourne Road Islington N1 3EJ £303.33 £404.37 £328.53 £404.37 £500.50 £581.23 £434.70 £0 £427,079 £572,500 6% 4% 244516 5 Tollington Place Islington N4 3QS £171.97 £182.00 £202.30 £222.37 £267.87 £259.93 £283.27 £353.97 £404.60 £0 £0 £0 254890 9-13 King's Road Kensington & Chelsea SW1W 8AA £380.00 £425.00 £450.00 £595.00 £695.00 £1,400.00 £1,400.00 £1,500.00 £2,250.00 £0 £0 £0 138646 199-209 King's Road Kensington & Chelsea SW3 5ED £285.00 £335.00 £450.00 £395.00 £485.00 £575.00 £500.00 £600.00 £2,000.00 £0 £0 £0 138117 200-222 Cromwell Road Kensington & Chelsea SW5 0SW £285.00 £395.00 £500.00 £495.00 £695.00 £750.00 £700.00 £750.00 £1,350.00 £0 £0 £0 135338 97-99 Campden Hill Road Kensington & Chelsea W8 7AP £385.00 £400.00 £420.00 £440.00 £475.00 £725.00 £950.00 £1,100.00 £1,150.00 £675,000 £955,000 £0 3% 3% 145420 88 London Road Kingston Upon Thames KT2 6PX £151.67 £163.33 £186.67 £198.33 £210.00 £245.00 £280.00 £291.67 £326.67 £194,967 £260,960 £325,000 4% 4% 5% 131555 95 Coombe Road Kingston Upon Thames KT3 4RE £172.00 £158.00 £175.00 £259.00 £225.00 £242.00 £256.00 £222.00 £0 £315,833 £0 4% 259752 25 Langley Road Kingston Upon Thames KT6 6LW £138.83 £158.67 £175.00 £198.33 £204.17 £256.67 £302.17 £326.67 £455.00 £0 £0 £0 141946 1-3 Cosser Street Lambeth SE1 7BU £300.00 £425.00 £525.00 £595.00 £650.00 £750.00 £285,000 £352,500 £485,000 8% 10% 142940 216 Kennington Road Lambeth SE11 6HR £210.00 £210.00 £265.00 £235.00 £250.00 £325.00 £265.00 £320.00 £400.00 £230,000 £338,676 £550,000 5% 4% 3% 134800 Balham Hill Lambeth SW12 9DY £175.00 £180.83 £256.67 £267.87 £280.00 £333.67 £338.80 £243,409 £372,625 £0 4% 4% 135397 51 Curtis Field Road Lambeth SW16 2TE £151.67 £169.17 £175.00 £175.00 £186.67 £256.67 £221.67 £256.67 £404.37 £191,106 £231,606 £0 5% 5% 149192 26-38 Bromell's Road Lambeth SW4 0BG £220.00 £265.00 £280.00 £270.00 £295.00 £350.00 £375.00 £400.00 £550.00 £329,000 £604,833 £0 4% 3% 8012290 14 Slievemore Close Lambeth SW4 6DG £200.00 £240.00 £260.00 £250.00 £330.00 £360.00 £390.00 £430.00 £700.00 £200,000 £312,500 £349,986 6% 5% 8% 225618 25 Rodenhurst Road Lambeth SW4 8HR £190.00 £225.00 £245.00 £230.00 £260.00 £375.00 £275.00 £330.00 £625.00 £0 £354,077 £385,000 4% 6% 229964 356-364 Wandsworth Road Lambeth SW8 4TE £180.00 £210.00 £300.00 £220.00 £395.00 £650.00 £800.00 £850.00 £900.00 £0 £0 £0 140785 328 Brixton Road Lambeth SW9 7AA £190.00 £215.00 £250.00 £275.00 £275.00 £300.00 £303.00 £189,950 £239,236 £249,950 6% 6% 6% 141641 256 Lewisham High Street Lewisham SE13 6JX £151.67 £158.67 £175.00 £182.00 £185.50 £210.00 £210.00 £233.33 £280.00 £0 £243,884 £0 4% 147188 30-40 London Road Lewisham SE23 3HF £140.00 £148.17 £175.00 £175.00 £186.67 £204.17 £186.67 £256.67 £291.67 £178,333 £244,714 £0 5% 4% 133081 Berryman's Lane Lewisham SE26 4JB £145.83 £163.33 £151.67 £162.17 £186.67 £208.83 £233.33 £315.00 £0.00 £0 £0 £0 139386 Tandem Phase II Merton SW19 2PE £145.83 £168.00 £186.67 £186.67 £204.17 £227.50 £256.67 £249.90 £322.93 £0 £0 £0 228699 69 Hartfield Road Merton SW19 3TJ £175.00 £192.50 £215.83 £210.00 £227.50 £233.33 £297.50 £361.67 £396.67 £243,750 £338,571 £455,000 4% 3% 4% 132757 39-49 St Georges Road Merton SW19 4ED £208.00 £220.00 £253.00 £235.00 £265.00 £415.00 £405.00 £415.00 £461.00 £0 £0 £0 132449 69 Worple Road Merton SW19 4LE £208.00 £220.00 £253.00 £235.00 £265.00 £415.00 £405.00 £415.00 £461.00 £0 £437,304 £0 4% 131316 7 The Downs Merton SW20 8HH £185.00 £219.00 £271.00 £230.00 £254.00 £300.00 £320.00 £350.00 £715.00 £295,000 £495,389 £695,000 4% 3% 3% 142170 84-92 Romford Road Newham E15 4EE £150.00 £155.00 £170.00 £180.00 £195.00 £220.00 £220.00 £250.00 £220.00 £209,745 £281,138 £0 4% 4% 245616 Vicarage Lane Newham E15 4HG £150.00 £155.00 £170.00 £180.00 £195.00 £220.00 £220.00 £250.00 £220.00 £0 £293,745 £324,995 4% 4% 157400 118 Victoria Dock Road Newham E16 1HL £160.00 £195.00 £220.00 £180.00 £220.00 £310.00 £275.00 £400.00 £450.00 £0 £0 £0 131628 Mace Gateway Newham E16 2QJ £160.00 £180.00 £245.00 £175.00 £310.00 £255.00 £275.00 £300.00 £350.00 £233,721 £412,414 £424,455 4% 3% 4% 141869 89-111 High Road Redbridge E18 2RH £162.00 £185.00 £169.00 £173.00 £202.00 £220.00 £207.00 £235.00 £204.00 £247,000 £315,250 £675,000 4% 3% 2% 142044 13b Richmond Road Redbridge IG1 1JG £115.00 £130.00 £180.00 £160.00 £180.00 £230.00 £208.00 £185.00 £219.00 £0 £0 £0 88825 172-174 High Road Redbridge IG1 1LL £115.00 £130.00 £180.00 £160.00 £180.00 £230.00 £208.00 £185.00 £219.00 £0 £232,270 £0 4% 141444 499 High Road Redbridge IG1 1TZ £115.00 £130.00 £180.00 £160.00 £180.00 £230.00 £208.00 £185.00 £219.00 £0 £0 £0 139807 144 Ilford Lane Redbridge IG1 2LQ £140.00 £151.67 £163.33 £163.33 £177.33 £189.00 £193.67 £210.00 £233.33 £0 £0 £0 147409 Fencepiece Road Redbridge IG6 2JS £154.93 £156.10 £151.67 £186.67 £192.50 £186.67 £192.50 £233.33 £0 £239,889 £0 4% 154019 Grove Road Redbridge RM6 4UU £116.67 £131.83 £169.17 £180.83 £198.33 £221.67 £208.83 £256.67 £159,995 £189,796 £284,300 4% 5% 4% 90366 81-87 Petersham Road Richmond Upon Thames TW10 6UT £215.00 £254.00 £300.00 £260.00 £277.00 £347.00 £254.00 £370.00 £519.00 £0 £0 £0 149206 170-172 High Street Richmond Upon Thames TW11 8HU £175.00 £204.17 £207.67 £204.17 £215.83 £232.17 £210.00 £233.33 £0.00 £265,995 £408,745 £0 4% 3% 235354 Langhorn Drive Richmond Upon Thames TW2 7SX £163.33 £198.33 £204.17 £192.50 £210.00 £256.67 £215.83 £268.33 £280.00 £205,999 £236,110 £0 5% 5% 244052 77-85 Great Suffolk Street Southwark SE1 0BU £300.00 £450.00 £525.00 £575.00 £625.00 £500.00 £282,333 £537,500 £0 8% 5% 248266 84 Abbey Street Southwark SE1 3NJ £565.00 £600.00 £625.00 £575.00 £725.00 £750.00 £233,333 £290,000 £0 13% 12% 142764 59-65 Tanner Street Southwark SE1 3PL £565.00 £600.00 £625.00 £575.00 £725.00 £750.00 £0 £449,889 £499,000 8% 152696 50 Westminster Bridge Road Southwark SE1 7QY £300.00 £425.00 £525.00 £595.00 £650.00 £750.00 £363,000 £374,000 £412,500 6% 9% 138401 159-161 Peckham Rye Southwark SE15 3HZ £151.67 £177.33 £210.00 £215.83 £233.33 £198.33 £291.67 £206,875 £296,859 £400,000 4% 4% 3% 142710 46-48 Peckham Grove Southwark SE15 6DX £175.00 £175.00 £190.00 £210.00 £227.50 £245.00 £320.00 £350.00 £0 £0 £0 142018 Steedman Street Southwark SE17 3AF £185.00 £190.00 £210.00 £208.00 £230.00 £260.00 £330.00 £240.00 £282,786 £312,921 £0 4% 4% 146652 191-199 Southampton Way Southwark SE5 7EJ £160.00 £170.00 £200.00 £231.00 £250.00 £254.00 £300.00 £330.00 £0 £245,000 £0 5% 142812 123 Denmark Hil Southwark SE5 8JE £163.33 £175.00 £186.67 £202.07 £204.17 £280.00 £268.33 £280.00 £350.00 £222,500 £280,714 £0 4% 4% 147786 8-12 William Road Sutton SM1 4QT £140.00 £145.83 £163.33 £163.33 £175.00 £245.00 £233.33 £233.33 £189,500 £216,000 £0 4% 5% 142262 2-4 Eaton Road Sutton SM2 5DN £116.67 £145.83 £169.17 £186.67 £198.33 £215.83 £232.17 £280.00 £0 £234,500 £0 4% 140151 112-116 Commercial Street Tower Hamlets E1 6QQ £308.23 £176.87 £338.57 £318.50 £424.67 £960.40 £274.17 £499.80 £1,074.97 £0 £0 £0 147695 Blair Street Tower Hamlets E14 0NT £165.00 £170.00 £240.00 £220.00 £275.00 £300.00 £300.00 £365.00 £420.00 £0 £0 £0 Scheme Rent Capital values Gross yields BuildingID Address Local Authority Postcode-Full 1 bed rent 1 bed rent 1 bed rent 2 bed rent 2 bed rent 2 bed rent 3 bed rent 3 bed rent 3 bed rent 1 bed 2 bed 3 bed 1 bed 2 bed 3 bed

141395 Manchester Road Tower Hamlets E14 3BG £180.00 £195.00 £250.00 £255.00 £280.00 £290.00 £275.00 £320.00 £375.00 £262,328 £364,500 £0 4% 4% 129034 15-29 Broomfield Street Tower Hamlets E14 6BX £160.00 £190.00 £280.00 £200.00 £229.00 £315.00 £230.00 £320.00 £350.00 £0 £0 £0 138491 38 Westferry Road Tower Hamlets E14 8LW £170.00 £207.00 £225.00 £220.00 £320.00 £375.00 £330.00 £360.00 £420.00 £0 £1,077,727 £0 1% 135389 7-13 Westferry Road Tower Hamlets E14 8RL £170.00 £207.00 £225.00 £220.00 £320.00 £375.00 £330.00 £360.00 £420.00 £306,667 £388,889 £0 3% 4% 26480 South Quay Square Tower Hamlets E14 9FT £215.00 £325.00 £370.00 £370.00 £460.00 £850.00 £595.00 £800.00 £1,000.00 £381,250 £601,408 £979,167 4% 5% 4% 226495 South Quay Square Tower Hamlets E14 9XU £215.00 £325.00 £370.00 £370.00 £460.00 £850.00 £595.00 £800.00 £1,000.00 £328,000 £578,515 £0 5% 5% 138844 26-32 Bacon Street Tower Hamlets E2 6DY £185.00 £220.00 £250.00 £250.00 £300.00 £320.00 £330.00 £390.00 £340.00 £0 £0 £0 124368 68-72 Redchurch Street Tower Hamlets E2 7DP £215.00 £270.00 £325.00 £270.00 £300.00 £360.00 £310.00 £330.00 £410.00 £240,999 £324,375 £0 6% 5% 142108 Old Ford Road Tower Hamlets E2 9PJ £190.00 £199.00 £240.00 £220.00 £280.00 £300.00 £310.00 £350.00 £350.00 £199,950 £256,822 £0 5% 5% 139461 417 Wick Lane Tower Hamlets E3 2JG £170.00 £200.00 £210.00 £200.00 £250.00 £310.00 £260.00 £335.00 £430.00 £0 £0 £0 142865 Talwin Street Tower Hamlets E3 3BS £160.00 £200.00 £225.00 £240.00 £250.00 £270.00 £250.00 £280.00 £300.00 £206,053 £276,600 £340,000 5% 5% 4% 142867 74 Bow Road Tower Hamlets E3 4DL £175.00 £200.00 £210.00 £215.00 £235.00 £250.00 £285.00 £350.00 £360.00 £210,875 £0 £0 5% 137055 Maud Road Waltham Forest E10 5NH £130.00 £150.00 £165.00 £170.00 £175.00 £180.00 £180.00 £200.00 £250.00 £0 £236,904 £0 4% 246009 17-19 Carisbrooke Road Waltham Forest E17 7EE £150.00 £155.00 £150.00 £150.00 £170.00 £195.00 £220.00 £320.00 £220.00 £0 £0 £0 157041 23 Forest View Waltham Forest E4 7AU £197.00 £186.00 £152.00 £185.00 £180.00 £190.00 £254.00 £233.00 £280.00 £0 £397,222 £0 2% 152768 8 Chingford Mount Road Waltham Forest E4 9AB £139.00 £162.00 £175.00 £200.00 £187.00 £210.00 £255.00 £280.00 £370.00 £0 £0 £0 145772 315-325 Lavender Hill Wandsworth SW11 1LN £182.00 £199.27 £222.60 £207.67 £298.20 £323.40 £350.00 £379.17 £385.00 £0 £485,000 £550,000 3% 4% 135694 1 Dryburgh Road Wandsworth SW15 1BN £230.00 £254.00 £350.00 £270.00 £300.00 £370.00 £360.00 £380.00 £425.00 £282,500 £512,500 £622,500 5% 3% 3% 132097 51-57 Lacy Road Wandsworth SW15 1PR £230.00 £254.00 £350.00 £270.00 £300.00 £370.00 £360.00 £380.00 £425.00 £240,000 £403,636 £585,000 6% 4% 3% 136861 Putney Bridge Road Wandsworth SW15 2NA £196.00 £208.83 £303.33 £326.67 £315.00 £373.33 £350.00 £396.67 £653.33 £314,950 £422,172 £0 4% 4% 231296 6-11 Augustus Road Wandsworth SW19 6EN £191.33 £203.00 £221.67 £245.00 £268.33 £291.67 £315.00 £326.67 £350.00 £0 £328,807 £0 4% 8641 Palace Street Westminster SW1E 5BA £325.00 £395.00 £450.00 £435.00 £550.00 £950.00 £1,050.00 £1,260.00 £475,625 £503,696 £695,922 4% 7% 9% 6335 43 Marsham Street Westminster SW1P 3PY £260.00 £370.00 £500.00 £400.00 £450.00 £550.00 £485.00 £1,000.00 £1,150.00 £402,000 £549,820 £667,292 5% 4% 7% 146962 200 Oxford Street Westminster W1D 1NU £270.00 £290.00 £350.00 £360.00 £390.00 £490.00 £475.00 £550,000 £747,500 £0 3% 3% 136509 5-7 & 11 Nottingham Place Westminster W1U 5LD £290.00 £325.00 £350.00 £350.00 £465.00 £665.00 £600.00 £675.00 £1,000.00 £411,667 £612,917 £801,000 4% 4% 5% 136202 143 Inverness Terrace Westminster W2 6JB £240.00 £350.00 £400.00 £400.00 £650.00 £700.00 £690.00 £750.00 £1,200.00 £374,950 £621,000 £884,980 5% 5% 5%

Appendix 4: A brief look at rental markets

This section of the report aims to provide a brief review of the new homes rental market as seen from the developer’s perspective. We start with a review of gross rents across London before briefly discussing the types of rental markets that exist in different areas of the capital.

A5.1 Rents and gross yields in new home postcodes across London

Appendix 3 shows example market rents for 1, 2 and 3 bed homes in the postcodes of the developments in the data sample used for this report. The data was collected using the web site www.findaproperty.com. Where possible, three example rents are included per postcode for each size of unit, however this was not always possible indicating a low level of homes for rent at the time the data was collected (October 2006). Of particular note is the lack of prices for 3 bed homes in SE1.

The middle right hand columns of Appendix 3 show average capital values for 1, 2 and 3 bed homes where available. The right hand columns of the table show derived gross yields.

A5.2 Rental markets across London

Rental markets across London are largely fragmented; renting is an extremely local market. This makes generalisation both the easiest way to present data, but at the expense of local market nuances.

The local markets we have chosen to discuss below include: a. Wealthy central west London b. Inner London I. Docklands II. Underground zones 1-2 – the wealthier areas III. Underground zones 1-3 – the less wealthy areas c. Outer London

When buying new homes, the larger investors try to get a mix of units, and try to get the mix that is right for the local area. The smartest investors buy selectively in areas where they see long-term growth in both capital and rent – i.e. they look for natural supply shortages. There is a general view in the market that 2 bed homes are the thing to buy as ‘two sharers offer the best rental return’ – but this is not necessarily the case any longer. First, because it is not the case that 2 sharers is always the dominant group looking for accommodation, second, because whilst there may have been a shortage of 2-bed rental homes in some locations in the past, development has ironed out some of the shortages.

a. Wealthy central west London

In the prime areas of central west London (Kensington, Mayfair and so forth) rented units tend to be large - single floor flats work well as the renters want and can afford big 3-bed homes. It is estimated (by the letting agents) that 33% of Westminster housing is privately rented.

The two main demand/tenant types are:

- Long term lets to the employees of international companies. These employees would rent as they are in London for a 3+ year placement.

- Short term lets take three main forms and all tend to be to overseas visitors flying in for a short period. The first two forms are employees flying in for a deal or short-term project, and private individuals flying in for medical work. These people are in London for 1-6 months. The third group is high net worth visitors staying for 1-3 weeks.

b. Inner London

London Development Research. 020 7629 6565 37 The lettings market in inner London is almost exclusively for mobile people without families. The renters want two things when choosing an apartment: • Good transport (tube) or an easy walk to work (certain city fringe locations) • Shops/bars/restaurants

Schools are not important to them.

Demand in the market is expanding. By some estimates, 300,000 students that went travelling in 2001/2 (when the jobs market was poor) are back and working in London. The GLA will understand better than the authors the rise in London’s population from incoming eastern European workers.

Rising travel time and rising transport costs are making people want to live in zones 1&2.

Employers have reached a point where some are considering buying accommodation to rent to their staff. Their gain when doing this is: • Keep employees in like minded social group • Keep them happy in their first year in London • Ensure they stay in London and in the firm after they finish their (expensive) training • Ensure they live somewhere handy for work

This tends to be for the first year only (e.g. during the training period for lawyers and accountants) but can be for longer periods (e.g. retailers looking after relatively low paid branch managers).

There seem to be three sub markets in inner London and these are discussed below.

bi. Docklands

According to local letting agents, the Docklands rental market operates in three price bands:

In the price band: £600 to £1,500 pw • Corporate tenants (merchant banks, oil companies), wealthy individuals (footballers) • The employing company does the letting directly • They want very highly specified units • Ballymore & St James have built for this market

In the price band: £450 (1 bed) to £600 (2 bed) pw • Middle management. • Fewer sharers than at the lower end, generally couples and singles • They like security, a porter, on-site health facilities • Berkeley caters well for this market

In the price band: £250 (1 bed) to £325 (2 bed) pw • This is the main market • Mainly young single professional sharers all working at the lower end of the financial services industry on £25k+ each. Technical staff and secretaries. • They like security (as they party a lot and can often be away at weekends) parking and leisure close by • Barratt caters well for this market

Canary Wharf employment dominates the demand for space - the tenants tend to work in financial and legal firms. However, there are a few wealthy students in Docklands and, as singles or sharers, they are able to pay about £400pw.

One agent estimates that 98% of the private rented market in Docklands is ‘not a family’. Therefore the demand for larger homes is low and there are very few 3/4 bed units. The main driver of this is a lack of schools, parks and crèche. Families prefer to travel a few minutes further away and live in Greenwich and Blackheath.

Investors’ long-term view of Docklands is that the infrastructure is in place for growth and it will do better in the next down turn than it did when schemes such as Cascades were first built. However some of the corporate investors avoid the area preferring to buy in established locations “where relative prices have been set and stable for 100

London Development Research. 020 7629 6565 38 years”. There is a wariness amongst the formal investment firms of getting into an area where pricing is a new frontier and where they perceive risks to be higher.

In the newer areas of Docklands - The Royal Docks – facilities seem to be a concern. One agent said “all renters ask where the nearest supermarket is, and tenants go to Canary Wharf to shop”. The tenants here are young single sharers that do not have the budget for Canary Wharf OR want to spend the same but get something larger.

In summer 2006, the market is a landlord’s market - there is even rental ‘gazumping’. This is a recent change, as the market has been a tenants’ market since the late 1990s. With such large amounts of residential development in Docklands one would think oversupply was an issue, and in certain short-term situations this is true. For example there was an oversupply of 2-bed homes 2 years ago, but now the slack has been taken up and supply is again restricted. In summer 2006, finding rented stock above £500pw is hard. One agent has seen the number of rental homes on their books fall 75% since summer 2005. (This is not to say that one or two recently completed schemes do not have high levels of un-let stock, but that will diminish in a short time – the larger schemes take a year to settle down).

Average length of stay in this market is 1-2 years. The lease format is a 1-year lease with a 6-month tenant’s break and an option to extend for one more year on the same terms but with rent adjusted up at RPI. 20% break; 30% end; 50% renew (though with a fall in homes to let, the percentage renewal rate in 2006 is higher than in previous years).

Tenants are from London & UK (33%); US, France, Sweden (66%). There has been an influx of overseas renters in the past few years with the expansion of employment at Canary Wharf.

bii. Underground zones 1-2 – the wealthier areas

The description of the second of the three rental markets in inner London is short. This is because much of what is written above about Docklands can be applied to other wealthy areas in inner London. The more affluent areas of inner London operate like Docklands in terms of market segmentation. However there are two differences: (1) there are lower levels of stock offered for rent in the wealthier areas, as gross yields are relatively low due to high capital values and (2) lettings are to wealthier tenants – such as those who might rent in the wealthy areas of central west London if they had higher budgets.

biii. Underground zones 1-3 – the less wealthy areas

Not all of inner London new-build is luxury housing. In the less affluent areas, small investors are the dominant suppliers of space. It is estimated that the market segments as follows:

• Own 1 or 2 properties – 80% • Own 3 to 30 properties – 20% • Own 100+ properties, almost none

The natural lifespan of ownership of a rented unit has a break at 3 years for first time landlords. By this time landlords have realised that owning is a bit of a hassle and not as glamorous as they expected and that they have not necessarily reaped huge rewards. Many become fed up with being a landlord. At this time also capital gains tax issues are about to have an affect. Moreover at the lower end of the market people consider sale when their property reaches £250k and stamp duty is in prospect on a sale. About 20% of new owners exit at year 3.

When a tenancy is coming to an end the landlord often gets a rental and a capital value valuation before re-letting. In 2006, having seen price rises, some opted to cash in rather than re-let and there was a spate of cashing in earlier in the year. In general, though, it seems that holding periods are lengthening.

The tenant groups are hard to classify, but when pushed agents will say the following:

• Students make up 25% of the market, they take a 1-year lease with a 9-month break clause and many renew. In London these are not hard up students, there is lots of international interest. Chinese and others have parents who are aware of what London costs and have a budget of £80-£100 pw. Students like to live close to college, but can be forced to a further location if there are no 3 or 4 bed homes to occupy (3 or 4 bed homes as they like to live with their mates). Students are fussy renters – they see the rent they pay as a big outgoing. • Corporate occupiers, a further 25% of the market, fall into 2 camps – those where the tenant on the lease is the employer, and those where the tenant is the employee, but the rent is being paid, at least in part, using an

London Development Research. 020 7629 6565 39 allowance from the employer. When choosing space they do so in two ways. The UK nationals want something to show off to their mates. Those from overseas (who have no mates as they are away from home) are happy with blandness. This latter group has little knowledge of London and finds it hard to get their location choice right first time. Corporate occupiers stay for different lengths of time - a third stay for 1 year, two thirds for longer • The final occupier group is a very diversified ‘all others’. They usually let for 1 year initially but often extend and do not move after one year. Once they are used to a location and have a settled lifestyle their occupancy can stabilise. ‘All others’ can be: Mates sharing including recent graduates, Couples, Singles, Families (e.g. if they are having a home refurbished). Basically anyone.

Let-ability of rented homes depends on timing. The summer is the best time as students and graduates arrive at this time, and the big recruiters start their annual intake at the same time. In the period July to October availability is most constrained. One agent was very clear that 3 and 4 bed homes are most easy to let, as tenants cannot afford to rent on their own and have to share. The example was given of a new development of 12 homes currently to let. The 4 three beds had let, only one of the eight 2 beds had let. So there is an oversupply of 2 bed homes relative to demand. 1 bed home are not as oversupplied – they can let well but in a way that is very location specific as they are usually taken by people living on their own (or a couple) and these people want to be in very central locations.

c. Outer London

Describing rental markets in outer London is almost impossible. Local markets differ considerably and market characteristics can be very diverse. For example, a discussion of the local rental market in parts of Acton would need to focus on the needs of the Japanese population.

After saying that the variety of location-specific issues makes broad-brush analysis pointless, we will make two generalisations:

• In outer London close to stations the rental market can be said to resemble biii, above • More than 500m from stations, the dominant sector of the rental market shows a demand for detached houses – in London, the lettings market for family homes is here.

Local market quirks would include such issues as the needs of the Japanese population near to Japanese schools.

A5.3 RSLs as renters

Some RSLs rent large numbers of homes from private sector landlords – one has 3,000 rented homes across London. The tenants are nominated by the local authority, and are usually those who are, or who are in danger of becoming, homeless. This level of activity is expected to fall as authorities find longer-term ways to resolve temporary housing issues – the government has a target to reduce the number of homeless households in temporary accommodation by 50% by 2010.

A5.5 HMO legislation

‘Homes in Multiple Occupation’ New legislation relating to licensing of HMOs is causing a problem for some parts of the private rented sector in terms of housing supply, and in exactly the type of stock that is thought to address housing need:

• Some buyers are wary of larger homes in case the legislation catches them. Legislation adds to ownership costs • Some existing owners have seen such a high cost caused by the legislation that they have chosen to sell, especially when they have seen recent price rises.

The biggest effect has been seen in the ownership of hostels, though, rather than other residential property. And given that most new-build tends to be 1 and 2 bed units, the HMO legislation is not having a big effect on new-build investment.

London Development Research. 020 7629 6565 40 Appendix 5: The size of homes developed in London

Table 5: The size of homes being developed, summer 2006 Local Authority 1 bed 2 bed 3 bed Barking & Dagenham 50% 49% 1% Barnet 15% 69% 16% Bexley 8% 90% 2% Brent 22% 74% 5% Bromley 7% 74% 19% Camden 28% 50% 21% Corporation of London 58% 36% 5% Croydon 24% 70% 6% Ealing 38% 54% 7% Enfield 28% 68% 4% Greenwich 19% 66% 15% Hackney 27% 61% 12% Hammersmith & Fulham 8% 55% 37% Haringey 56% 40% 4% Harrow 29% 71% 0% Havering 16% 77% 7% Hillingdon 57% 40% 3% Hounslow 35% 63% 2% Islington 38% 52% 10% Kensington & Chelsea 10% 56% 34% Kingston Upon Thames 26% 74% 0% Lambeth 52% 33% 15% Lewisham 39% 58% 3% Merton 31% 64% 5% Newham 29% 65% 6% Redbridge 23% 57% 20% Richmond Upon Thames 36% 52% 12% Southwark 27% 66% 8% Sutton 21% 74% 5% Tower Hamlets 43% 55% 2% Waltham Forest 30% 66% 3% Wandsworth 33% 57% 11% Westminster 30% 39% 31% Total 33% 58% 9% Source: London Residential Research/London Development Research

London Development Research. 020 7629 6565 41

London Development Research. 020 7629 6565 42 Appendix 6: Savills Prime Central London Residential Rental value Index

All Prime Central Date London Index % Cumulative Sep-98 157.8 2.2% Dec-98 153.8 -2.5% -2.5% Mar-99 149.5 -2.8% -5.3% Jun-99 150.8 0.9% -4.4% Sep-99 154.6 2.5% -2.0% Dec-99 154.9 0.2% -1.8% Mar-00 158.1 2.1% 0.2% Jun-00 164.5 4.0% 4.2% Sep-00 168.5 2.4% 6.8% Dec-00 172.2 2.2% 9.1% Mar-01 176.8 2.7% 12.0% Jun-01 182.6 3.3% 15.7% Sep-01 184.3 0.9% 16.8% Dec-01 167.0 -9.4% 5.8% Mar-02 163.0 -2.4% 3.3% Jun-02 158.5 -2.8% 0.4% Sep-02 155.4 -2.0% -1.5% Dec-02 151.8 -2.3% -3.8% Mar-03 148.7 -2.0% -5.8% Jun-03 146.1 -1.7% -7.4% Sep-03 147.6 1.0% -6.5% Dec-03 147.6 0.0% -6.5% Mar-04 148.6 0.7% -5.8% Jun-04 151.5 2.0% -4.0% Sep-04 153.4 1.3% -2.8% Dec-04 154.1 0.5% -2.3% Mar-05 156.2 1.4% -1.0% Jun-05 157.8 1.0% 0.0% Sep-05 159.3 1.0% 1.0% Dec-05 162.3 1.9% 2.9% Mar-06 164.8 1.5% 4.4% Jun-06 168.6 2.3% 6.8% Sep-06 171.0 1.4% 8.4%  Savills (L&P) Ltd

London Development Research. 020 7629 6565 43

London Development Research. 020 7629 6565 44 Appendix 7: The investment market in the London Thames Gateway

A7.1 Investors account for 68 per cent of all sales of new-build private homes in the London Thames Gateway region over the year to June 2006. While this sounds high, it is almost the same proportion as for other Inner London areas over the same period (69 per cent) and only slightly higher than for other Outer London (61 per cent).

Investment activity in the London Thames Gateway Total Owner Occupied Investment Number Percent Number Percent Thames 2,312 744 32% 1,568 68% Gateway Other Outer 2,404 942 39% 1,462 61% London Other Inner 1,796 553 31% 1,243 69% London 6,512 2,239 34% 4,273 66% Source: London Residential Research/London Development Research

A7.2 Research shows that one and two-bedroom homes account for over 90 per cent of new homes built in some London Thames Gateway boroughs, for example Barking & Dagenham, Newham, Tower Hamlets and Lewisham. The proportion is 80 per cent or above in all the London Thames Gateway boroughs (see Appendix 3 for a London borough breakdown).

A7.3 Similar findings were contained in research commissioned by law firm Davies Arnold Cooper from the London East Research Institute 1. This found that, in schemes containing more than 100 homes, one and two bedroom flats accounted for 82 per cent of new homes built in the wider Thames Gateway between 2000/01 and 2004/05. The proportion of one and two bedroom homes was higher in the London Thames Gateway boroughs compared to authorities in the Essex and Kent Thames Gateway. Again, in a number of London Thames Gateway boroughs, the proportion of one and two bedroom homes was shown to exceed 90 per cent.

A7.4 The bedroom-size of new homes built in the London Thames Gateway cannot be explained solely by examining the data on investor demand, but conversations with market participants make the causes clearer. The key issue that drives the size of new homes is affordability. All things being equal, people want a home with more bedrooms, but developers only build larger homes if they are confident that buyers can afford them and this means that smaller homes are developed in the London Thames Gateway. In other areas of London, for example in the prime locations of central London, three bed homes are built because buyers in those markets can afford them.

A7.5 The study has found little evidence of empty homes on new housing developments in London Thames Gateway and elsewhere in London. Only a few instances were found and these could be explained by circumstances specific to the scheme. This suggests that the demand is there for the smaller homes that are produced - either for rent or for sale - with the main reason being that they are the most affordable.

A7.6 A consequence of the large number of one and two bedroom private homes being built is obviously that homes suitable for families to buy on new developments are in short supply. While the size profile of new homes appears to be meeting demand from first time buyers, it has implications for households wishing to move to a larger home. New homes are, however, a relatively small percentage of the total housing stock and movers may prefer second hand to new homes. The large proportion of smaller private homes on new developments may also have implications for the sustainability of neighbourhoods and, in some cases, may lead to management problems.

1 Study of housing in the Thames Gateway conducted by Dr Penny Bernstock, London East Research Institute. Published in September 2006.

London Development Research. 020 7629 6565 45