Who Buys New Market Homes in London?
Total Page：16
File Type：pdf, Size：1020Kb
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 London Development Research. 020 7629 6565 5 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.