There has been a recent uptick in housing starts in London. This has been largely driven by domestic players who constitute the largest part of the mainstream market.
Economic recovery and increasing household incomes have played a big part in household demand, but also in encouraging property and development companies to actively promote land and build homes too. International developers and investors have also been an important part of the story.
Foreign developers and investors have accounted for a small number of land transactions since 2012 but, where they are active, their intentions are large. When calculated by number of potential units on these land holdings, international developers and investors in London land account for around a quarter of the long term development pipeline.
These include high-profile deals such as Malaysia’s SP Setia at Battersea Power Station, China’s ABP at Royal Albert Docks, and Hong Kong’s Knight Dragon at Greenwich Peninsula.
Globally-active foreign players bring with them the financial backing to get these vast and challenging sites off the ground, unlocking much-needed new housing supply. These developers are accustomed to delivering development at huge scale in their home markets, and bring with them significant expertise in large scale delivery.
Meanwhile, finance from foreign banks and institutions is funding many of London’s new schemes – even if they are being undertaken by UK developers. Foreign lenders, most notably German banks, underpinned the market during the downturn. UK-based banks are now showing renewed appetite to lend and the number of new lenders has grown rapidly.
In London development finance, 63% of financiers fall into the ‘other lenders’ category.
Such is the strength of performance in the UK real estate sector (commercial property included) that there is a significant imbalance between opportunities for lending, which currently stand at £40 billion, compared to lender ambitions of £75 billion, according to Savills figures. This will encourage funders into secondary, non-core locations and possibly into more specialist and non-core types of property.
In the London residential sector, this means outer London locations, supported by domestic end-users. This should mean more supply where it is most needed, in the lower and mid mainstream markets. It should also start to lessen the perception that only prime central, international London is being built.
If housebuilding can be increased, this would do much to lessen the fear of overseas involvement. If home building is to be increased, overseas funders, developers, land owners and promoters – and even landlords and end-owners will be instrumental in enabling it to do so. We should expect nothing less in a global city.