Land values in central London’s best districts fell over 10% in the year through September, the biggest drop in at least five years, as higher taxes and the Brexit vote caused luxury home prices to decline.
The news comes as Britain’s biggest housebuilder Barratt said it was cutting the price of some of its most expensive London homes by up to 10% in the latest sign that the market has cooled.
After an initial dip following the June 23 referendum, demand for new homes in most of Britain, including outer London, has bounced back according to builders and surveys, but it remains weak in the capital’s wealthiest central areas.
House prices are key to consumer confidence in Britain, where many gauge the strength of the economy by rises in the value of their most valuable asset.
Banks are less willing to lend for site acquisitions and construction, fuelling the decline in values, broker Knight Frank said in a report.
Developers are also paying less for land because they need to raise their profit margins as a buffer against any further falls in home prices, the broker said.
“With the current level of political uncertainty, increased risk has been placed on house builders, causing them to look for greater margins,” Justin Gaze, joint head of residential development at Knight Frank, said.
Outside of central London, “demand for new homes is strong.”
The number of unsold central London homes under construction will reach a record high this year, increasing the risk that developers’ bets on rising demand for luxury properties will go sour.
Shares of property developers with large projects in the UK capital’s best districts have lagged competitors since the referendum after they began to write down the value of their holdings on falling sale prices.
Capital & Counties Properties wrote down the value of its land holdings in the Earls Court district by 14% in July and they may fall a further 10% this year, Peel Hunt analysts said at the time.
St Modwen Properties said the value of its stake in a project in the Nine Elms district fell by 17%.
The National Asset Management Agency here appointed receivers to a company that owns a luxury-home project in the St. John’s Wood district after the development stalled.
Land values in London’s best districts began to surge from 2012 as developers from China to Malaysia bet that the market for luxury homes would remain strong.
Instead, increases in taxes and rising values damped demand, and home prices there are now almost 11% below their 2014 peak, according to Savills.
Prices of mansions and luxury apartments in Knightsbridge, Notting Hill and Chelsea have fallen.
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