It said residential tax changes and Brexit uncertainty have seen completed sales of new flats in PCL down 41.4% in Q4 2016, compared with the previous year. Average prices also fell 8.7% over the same period to £1.9m.
The luxury end of the PCL market saw the biggest reduction in sales. There was a 57% fall in new-build sales over £5m. LCP attributed this to three successive Stamp Duty increases since 2012, a rise from 5% to 15% for some purchases, and other aggressive tax hits on foreign ownership.
There was also a 38% fall in sales for new-build properties under £1m. However, this likely to be due to increasingly less stock availability at this price point, which now represents just 22.5% of all of PCL’s new-build sales.
Naomi Heaton, LCP chief executive, said: “Whilst the story for new builds in PCL, particularly luxury property, looks grim, these represent a very small proportion of the PCL market due to the lack of development possibilities.
“There were only 867 new-build sales in 2016, representing just 14.6% of total property sales. Although sales volumes in PCL as a whole were at their lowest level on record, average prices saw a 3.75% rise over the year.”
With buyers rushing to beat 2016’s deadline for the new additional rate Stamp Duty on second properties in April, 44% of all PCL’s new build sales took place in Q1. This represented a 91% increase over the previous year and the highest number of new-build sales recorded in any previous quarter.
Meanwhile, inner London, made up of the nine inner boroughs outside PCL and including landmark developments such as Battersea-Nine Elms, also saw large reductions in new-build completions at the end of 2016.
Average prices of new flats stalled, with a fall of 2.1% to £721,355. Overall, sales volumes were down 3.9% in Q4 compared to the previous year, but there was a significant 29% fall compared with the previous quarter (Q3).
Recorded completions in Q4 2016 were at their lowest level since the beginning of 2015 when high value sales were adversely affected by the change in the Stamp Duty regime to a graduated system.
Like PCL, the luxury end of the inner London market saw the biggest fall in new-build sales. Completions for flats were down 51% above £5m across the year. The final quarter of the year also registered a significant 34.6% fall in new-build sales under £1m. This sector represents 88% of all new-builds in inner London.
Heaton said: “The struggling performance of the new-build market in inner London will certainly be beginning to worry developers. It has already been reported that Battersea Power Station has reached a ‘critical stage’ and has written down its projected investment returns from 20% to 8.23%. As is now being seen, in areas such as Battersea-Nine Elms, there is a saturation of over-priced, over-supplied ‘commodity style’ property which leads to a softening market, particularly during times of instability.”
She added that high value sales to international buyers typically off-set the cost of providing more modest housing as well as cash-flow to reinvest into new development.
“The government may well struggle to deliver upon its affordable housing targets if this trend continues. Battersea Power Station has already reported financial viability issues in delivering its affordable housing targets.”
Heaton also said that the Q4 fall for new flats under £1m, is a concerning reflection of the domestic market. Alongside negative sentiment affecting purchasing decisions, with more economic uncertainty ahead, she attributed the fall to new caps on mortgage lending, restricting borrowing to 4.5 times salary.
“This is hampering domestic buyers’ ability to get onto the housing ladder or trade up.”