London will see a record number of unsold completed homes this year because of the disparity between what’s being built and demand from buyers.
The number of new homes built in London will peak at around 46,500 in 2017, global real estate consultancy Savills said in a report Tuesday.
However, while this figure may be a relief to some, as the U.K. capital has been plagued by a chronic shortage of homes coming to market, it may not be the answer many had hoped for.
This is because many of the homes due for completion this year are expensive, whereas the most demand is at the bottom of the property ladder.
“The bigger issue remains that of a city chronically undersupplied in the homes it desperately needs,” said Edward Green, Savills research analyst.
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In fact, Savills estimates that 58% of demand is for homes costing less than £450 per square foot, which accounts for just 15% of the five-year build forecast.
As a result, while many homes have already sold off plan, more will be completed unsold this year than at any time over the past decades, according to Savills.
Between 2013 and 2016, 13,500 more homes were started than sold. Savills, meanwhile, estimates that unsold, finished homes will total 2,800 this year, up from 1,000 last year.
This is particularly prevalent in the luxury sector where sales have slowed thanks to hefty stamp duty increases and uncertainty surrounding Brexit.
While the mainstream market has been constrained by stretched affordability, there were 1.6 starts for every sale above the £1,000 -per-square-foot-price point during 2015 and 2016, accounting for nearly half of the 13,500 overshoot, the report stated.
Going forward, Savills also cautioned private sector completions will fall sharply, as developers adjust to lower rates of sale.
Policy intervention is required, Savills said, in order to reach the level of development needed and to shift the focus to the lower-value end of the market.
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