At first glance the headlines for Q4 2017 seem somewhat dispiriting: sales of new homes in London fell by over a fifth compared to Q3 2017. New starts on site also fell by a fifth, but starts still out-paced sales … so the number of unsold units continues to grow.
Based on the anecdotal feedback gained during our research we suspect that many readers will be nodding their heads at these points:
- The number of investors who would previously sustain a sales operation for the duration of a lengthy build programme is now much depleted.
- Remaining buyers are all seeking best value, whether they are investors or owner-occupiers and so sales velocities are highly price sensitive.
- Reversing sales positions are increasingly common.
- Developers who now find themselves off-pitch in terms of the location/quality/price equation are increasingly rumoured to be resorting to ‘Plan-B’, which usually involves some form of bulk sale - BTR or otherwise.
While all of this may paint a gloomy picture of falling sales, and an industry that is perhaps starting to become uncomfortable with the emerging situation, it is important to take a step back and look at 2017 as a whole, rather than just the Q4 headlines.
Sales across the whole of 2017 have only been beaten in 2014 and 2015. So, the combination of various marketing routes currently being used by the industry is working … just not enough to offset construction starts:
- 22,000 new homes sold in London during 2017, which has only been beaten by the 26,000 sales achieved in 2015.
- However, 27,000 units started construction during 2017.
- This continues a long running trend - since 2014 18,000 more units have started construction than have sold.
- 30,000 units under construction have yet to be sold.
- There are also 1,500 ‘stock’ units, which are complete but unsold.
Given the amount of money and effort that has been invested into a growing pile of unimplemented permissions, 2018 may not be the year during which the industry reins back on new construction starts enough to correct the imbalance with sales. However, it could well be the year during which the various forms of ‘Plan-B’ take centre stage.