London's property market - are the vultures circling yet?

My wife owns a share in an apartment on the Costa del Sol and it's lovely. But as successful investments go, it isn't one. The area between Estepona and San Pedro is littered with the marked out roads, pavements and street lights for what would have been thousands of villas and apartments. Even some of the completed developments are ghosts, mothballed by the developer or the bank against some possible - even mythical - future recovery in the housing market. Don't get me wrong here, there are also thousands of completed developments filled with happy people from all over Europe, it's just that the enthusiasm of developers, the gung ho (and sometimes corrupt) approach of local councils to development and an international property investment industry focused on flipping off-plan rather than housing people resulted in a vast oversupply of development opportunities.

For all that the Costa del Sol is great, the supply of people who want to go and live there is limited especially given the competition from other sunny, cheap and welcoming places like Bulgaria, Malta, Cyprus, assorted Greek Islands, Turkey and Portugal. Not to mention the rest of Spain's Mediterranean coast. I know that 'living there' covers a multitude of options from full time residency through spending winter on the beach to what amounts to extended tourism. But such opportunities limit the demand for such property, even in a world where a two-bed apartment will cost as little as £100-150k.

Imagine then how limited the market must be for two-bed flats that are selling at £2-3m!

There are an extra 14,000 unsold apartments on the market for between £1,000-£1,500 per sq ft. The average price per sq ft across the UK is £211.

Molior says it would take at least three years to sell the glut of ultra-luxury flats if sales continue at their current rate and if no further new-builds are started.

However, ambitious property developers have a further 420 residential towers (each at least 20 storeys high) in the pipeline, says New London Architecture and GL Hearn.

So we already have 14,000 empties and plan on building about 40,000 further properties to go onto this market? Do we not see that this is going to do nothing at all to resolve London's housing problems, will probably bankrupt a couple of developers and will result in a lot of wealthy Londoners stuck in negative equity. Regardless of any Brexit effect, the simple truth the we learned on the Costa del Sol applies here - there aren't enough people who have the cash to buy these apartments and who want to own property in London.

...hundreds of Asian investors who had bought London developments off-plan in 2015-16 in the hope of making a quick profit by selling apartments on closer to completion have instead lost hundreds of thousands of pounds. “They intended to flip [buy and sell on] the apartments and make big profits, but it hasn’t worked out like that, and now they are trying to get out at the smallest possible loss.”

A lot of folk who lounged on Spanish beaches back in 2004 or 2005 will be very familiar with this pitch - it was what the salesmen said back then: "the market's booming, everyone's investing, you only need to put down a deposit, you can't lose!" A loads of people took the punt, sticking down options on, as yet unbuilt, apartments and villas expecting to "flip them". It didn't happen. Most ended up owning an apartment they hadn't expected to own that was worth a lot less than the mortgage. For some it was a financial mess, even a disaster.

In London and for the New London Architecture "shiny city of millionaires" sort of developers, the prospects look pretty grim right now. Not because of Brexit (although that probably hasn't helped) but because if your development strategy is based on there being an increasing supply of people who can pay more than £2m for two-bed flat, then - outwith Venezuelan-style inflation - your strategy is going to crash. London's centralise and densify policies are creating this situation. Indeed, I'm sure the vultures that feed apon unsuccessful capitalists' vanity are circling already.

The problem is that, in every way (not just housing) London is too expensive, not family-friendly and lacking in the essential community that makes places work. Without revisiting the "build it ever higher" strategy - densify, densify, densify - London faces a second property crisis; one of empty mothballed homes owned by anonymous finance houses, crashed property developers, a frantic secondary market of short term lets, and an ever-wondering public asking why the city built things for international investors to 'flip' rather than homes that people might want to live in?

I recall a conversation with a Yorkshire developer about a conversion and new-build scheme in Saltaire. He ended up rescuing the development by creating a rental business for the flats he couldn't sell. Speaking to me he said: "Six months earlier I'd have been pricing up yachts, six months later I'd have been bankrupt." Right now London's 'build it and they will come' development market is looking pretty ropey and it's hard not to conclude that, as ever, avarice and vanity have meant that property developers have ignored the lessons of the Costa del Sol.

Yes, you've got benign local (and national) government keen for you to build. For sure, there are banks from all over ready to throw money at the schemes. But are there actually enough real customers for the things you're building? If there isn't, you need to think again about the strategy. In the case of London, we've maybe reached the point where there isn't.

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