The Nine Elms problem is one of over supply

Partly because it is back in the news ( did it ever really go away?) and partly due to the nicer weather I cycled past Battersea dogs and cats home yesterday heading up to Vauxhall which gave me a cyclists eye view of the Nine Elms and Battersea Power Station developments. One simple measure is that it takes more than a few minutes to do this which gives an initial idea of scale. Another is my crane count which has now reached 32 as opposed to the 24 or 25 of the past. So activity is rising which of course is in the opposite direction to the official UK construction series but of course for me there is a type of locality bias here. Also if you cycle through the development as I did a couple of months ago you find that adding depth to height and length adds even more to the scale.

The Financial Times has been on the case too.

Battersea luxury homes scheme powers on despite oversupply fears

Frankly I am not sure what choice there is now but let us look deeper.

Now surrounded by hoardings and scaffolding, it lies at the heart of one of the most ambitious redevelopment schemes in Britain’s capital, with nearly 40 sites, owned by domestic and overseas developers, clustered in the surrounding 561 acres known as Nine Elms.

So nearly 3 Battersea Parks and there was an effort to pinch some of the park as well back in the day which fortunately was rebuffed. This has led to this.

It is four years since the prime property market peaked in London, but estate agency group JLL estimates that 3,323 upmarket homes are under construction and another 6,332 in the pipeline across the wider Nine Elms area. The volume of homes planned for the area has prompted fears of an oversupply of luxury properties that most Londoners cannot afford. According to JLL, properties in Nine Elms command £1,400 per sq ft on average, while landlords investing in one-bedroom flats can expect to command £450 a week rent.

This takes me back to February 7th when I noted this from the Guardian.

More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”………The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units.

I guess ghost towers are a special(s) case of a ghost town.

Do you remember the good old days
Before the ghost town?
We danced and sang,
And the music played inna de boomtown

Prices?

Back in February the FT was telling us this.

Prices per square foot in prime London have fallen 5 per cent since their 2014 peak while in the most expensive “prime central” areas they are down 11 per cent.

Whereas now it is giving us examples of larger falls.

A glance at property listings online reveals hefty discounts being offered as owners cut overblown prices. A one-bedroom flat in Aykon London One, a 50-story tower planned by Dubai-based developer Damac Properties, is being offered at £1.1m — a 36 per cent discount to its initial £1.7m price in November…………
Elsewhere, a five-bedroom penthouse is available for £11m — it was listed at close to £14m six months ago. Property agents say many vendors will be investors who bought off-plan early and no longer wish to complete.

What we do not know is how realistic these asking prices were in the first place? Also if you had bought off-plan as it is called then rather than take a 36% loss if that is what it is then you would presumably simply abandon your 10% deposit.

Number Crunching

There is the issue of value which of course is in this instance a little like asking how long is a piece of string? However a reply to the FT article from B gives it a go.

Work out the numbers with stamp duty, Agent fees, maintenance costs etc and the yield works out to 1.5% per annum for a cash buyer in an oversupplied market with limited prospect of capital gains at least for some years.

Assuming the FT data is correct then applying my rule of thumb for such matters means that the price needs to halve. Of course central London runs down a different road but this from Vanessa Warwick in January provides some perspective looking at a house in Newcastle.

*Trending* Is this 3 bed terrace for £39K with £550 pcm rental income a deal?

Actually if you look into it the start price seems to have been more like £55k but on that basis our Nine Elms yield just gets worse. It would also appear from the comments that the area might be what has become called a “sh*thole” by President Trump but then of course according to him Nine Elms is an “off location”.

If City-AM was right last week perhaps someone will be along.

The number of buy-to-let investors in the UK has hit an all-time high of 2.5m in the latest tax year. According to research from real estate agency Ludlow Thompson, the number of buy-to-let investors has increased five per cent in the last year, and 27 per cent over the last five years.

Mind you with rents in London falling I am not so sure about this bit.

Rising numbers of landlords shows the enduring appeal of buy-to-let, particularly in London,” said Stephen Ludlow, chairman at Ludlow Thompson. “The long-term picture for the buy-to-let market remains strong.”

Notice the use of “long-term” which in this instance appears to mean strong in spite of falling prices and rents. Mind you for some in central London his long-term may have come true. From Acadata this morning.

This is, however, almost entirely due to a massive 30.7% annual increase in the average price in Kensington and Chelsea,
London’s most expensive borough – and that largely the result of just seven high value property sales

lucky number 7?

Mortgages

It is hard not to think of the famous quote by Karl Marx after the news from the weekend.

History repeats itself, first as tragedy, second as farce.

From This Is Money.

The Post Office has launched a mortgage designed to help first-time buyers get onto the property ladder without the need for a deposit.

The deal – known as the family link mortgage – works by giving the first-time buyer a 90 per cent loan-to-value mortgage secured against the property they’re buying plus an interest-free five-year loan secured on a close relative or parent’s home.

There’s a catch – the parental home needs to be mortgage-free for the buyer to be eligible.

But unlike alternative family mortgages, this one costs the parents nothing so long as the buyer repays the loan on time.

This may not be of enormous use at Nine Elms due to the maximum size being £500,000.

Comment

There is a fair bit to consider here although some seem to have made up their mind before it even began. The perhaps aptly named Tony Islington in the FT comments.

Stuck in the wastelands of South London…..

Perhaps he drives a London black cab but whilst some parts of the area have stunning views over the Thames there are also some like this.

You have different developers putting up “luxury” towers and blocks cheek-by-jowl.  As a resident. your view would be either that of a neighbouring development or a set of railway tracks leading into the busiest railway station in the country.   Virtually all residents have on the ground is a giant supermarket. ( Nguba )

If anybody spots the giant supermarket please let me know. In the end the project will be reliant on foreign buyers as there are so few in the UK who can buy at these prices. But there is a flow of businesses to the area as this from the Wandsworth Guardian points out.

Dorling Kindersley (DK), the world leading illustrated reference publisher will move to One Embassy Gardens in Nine Elms from their 80 Strand Office by 2020……..DK have chosen to join colleagues from its sister company, Penguin Random House UK, whose move was announced in December 2017. The move is in line with a general shift in the media and publishing industries, with Apple to soon unveil London headquarters within the Nine Elm’s district.

But for now it looks like a classic case of over-supply.

R Lee Emery

The drill instructor who was so terrifying in Full Metal Jacket has sadly passed away. Let me leave you with this from him.

Here, you are ALL equally useless!

 

 

 

Advertisements

19 thoughts on “The Nine Elms problem is one of over supply

    • Hi Screamoutsite

      It will be interesting to see if this gets treated as part of Battersea or as an adjunct to “international” central London. You would think that the area around including where I live will be affected

  1. From what I have been reading it is a similar case in Dublin, with some of the old Nama bailed out developers up to their same old same old.

    Perhaps i am incorrect but was it not Goldman Sachs who own the Post Office ?
    The plan above at least does appear to fit their modus operandi.

    • Hi Steve

      Thanks for the info about Dublin. The Post Office stands alone as I understand it but products like the mortgage I looked at above are provided by the Bank of Ireland. An old customer of mine in the UK Gilt market as it happens and just for clarity not the same as the central bank.

  2. Shaun, striking to learn that BTL is growing not shrinking, almost as perverse as seeing more cranes despite a prices fall. I can only imagine its a rush to complete and bring their stock of units to market ASAP, in they hope they sell at higher price than those in 3 months time . There’s good read from Danny Dorling here: https://www.theguardian.com/books/2014/feb/14/great-housing-disaster-danny-dorling-review

    Where he suggests the home supply shortage is a illusion, something most UK citizens would have difficulty recognising I suggest but if true then it bodes badly for the frothier developments.
    thanks Paul

  3. I’ve been to London its full of crappy old houses that should have been knocked down decades ago. So it can’t be a due to a shortage of decent housing as to why they’re not selling.

    Could it be there aren’t enough greater fools willing to buy £5 notes for £10 or in the case of Nine Elms and London property buying £2 coins for a tenna!

  4. Hi Shaun,
    Could they be talking about the Sainsburys on the Wandsworth Road next to Hebden Place? Parking is underground with flats on top so easily missed!

    No quite the topic but I supplied equipment to the concrete frame sub contractor who worked on phase 1 of Battersea Power Station for Carillion, I remember at the time they said as part of the contract they had to outlay approx £15 million before they could claim a £1 million back and I think that was back in 2014/15. Nah of course they were not in trouble then.

    • Hi Cookie Monster

      Have they rebuilt it? There used to be a large one on the Wandsworth Road and a friend of mine worked there. A couple or so years ago I took my mum there only to discover it had rather embarrassingly for me gone!

      That tactic/strategy by Carillion was rather unpleasant and frankly should be illegal. They were using sub-contractors as cash flow which should be against the law.

  5. Supply and demand should be allowed to sort this but the flats seem to be held empty so supply doesn’t increase and there’s an increasing number of people in London through migration (elsewhere in the UK and abroad), smaller family units and population growth. In the absence of market forces, the remedy will be in the next recession.

    • Re Doubting Dick’s internal migration point. A very common fallacy. If you look up on the ONS website, you will find statistics showing that London has been losing about 30,000-50,000 people for at least 25 years to the rest of the country. Mostly south east but there is not a region in the country that suffers net loss of population to London. There is only one age group decile that has net migration to London and that is the post graduation 20-30 age group.

      • Thanks, I had just assumed from what I see on the news. I can understand, though, I’m part of that outwards migration although some time ago now.

  6. I’d have thought (incorrectly obviously) that the whole point of having housing planning was to make sure the general population like teachers, policemen etc had a good home to live in at an affordable price. Who knows maybe even playing space for children and gardens to relax in. I have no idea where I get these foolish thoughts from.

  7. Stuck in the wastelands of South London…..

    so it hasn’t changed much – time for the south circular to be built – and 3 lanes as per north then

    can’t see all those Labour councils allowing that to happen

    If it want for the fact that a house price correction would scupper the TBTF Banks I’d suggest the Thailand method – you can only own property or land is you’re married to a Thai or if a Thai owns 51% interest in it.

    That’s would set the cat amongst the pigeons !

    Forbin

    • Hi Forbin

      I did not know that about Thailand. So in future you should only be allowed to own property in the wastelands of South London if you are married to someone born there or one owns 51% of it? Fine for me ( Waterloo) but not so hot for my neighbours……

  8. I think buyers will have to have Norman-like patience to ride out the ups and downs of the land market. Most BTL ‘investors’ have got the tax avoiding part right though. Let’s face it, they are a scourge on society and any pain that is inflicted on them will lead to street parties up and down the country.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.