Global Luxury Real Estate Cooling Off?
Financial experts have remarked that the ultra-competitive luxury London property market may finally be losing some momentum due to the extra costs associated with purchasing a top-notch home, and that this situation may remain unchanged for some time.
The news comes as somewhat of a surprise given the double-digit growth in prices that the market has enjoyed year on year as a result of both overseas and domestic investment. The last decade has witnessed a 90% hike in prices, according to the Confederation of British Industry (CBI). And the rising stamp duty costs have also had implications for the market in not only Hong Kong and Singapore, but also countries outside China as a consequence of its economic slowdown and subsequent property cooling measures.
This cooling-off period for London’s luxury property market, driven also by declining foreign-buyer interest in residential property, is not necessarily being viewed in a negative light, but the fundamental issue of supply is a significant consideration in the medium term. Given that 55% of homes in the capital are apartments, buyers are being advised to broaden their property search to include floors (basement or top floors) that they might not usually consider – ground and first floors being the most sought after. The savings in doing so could be up to £1 million, according to research.
There is therefore a requirement for additional affordable housing, with a mere 0.1% of London homes with two or more bedrooms now deemed affordable for the first-time buyer – an arguably catastrophic situation when compared with 42% of homes falling into this category in the north-east of the country.
Additional affordable housing can only be created with governmental support. For a start, George Osborne, the Chancellor of the Exchequer, has recently agreed to relax rules pertaining to the development of ‘brownfield’ (land previously used for industry) sites. This is a positive step, but brownfield remediation can be expensive, slow and made more complex because of various social and political issues. Planning and developing new communities in new areas, such as on greenfield sites, on the other hand, can be a relatively faster and easier process, with no previous issues to contend with.
Brownfield Versus Greenfield
The government has highlighted a need to identify land for 4.4 million new housing units across England and Wales (figures for Scotland have not yet been identified) by 2016, and this cannot be achieved using greenfield sites alone. The reclamation and reuse of brownfield sites will form a key component of the UK Sustainable Development Strategy, taking into account a range of economic, social and environmental factors. Brownfield redevelopment – made easier thanks to advances in lower-cost technology – can not only clean up environmental health hazards but can also be a catalyst for community regeneration. Managed effectively, brownfield sites may provide affordable housing, create opportunities for employment and promote conservation and wildlife – and prove a vision of hope for the future.
Pressure from the government is reportedly also pushing councils into proposing developments on greenfield sites that they would otherwise not chose to do. Under recent reforms, councils were being given a year to put together local plans designating areas for building new houses, which some argue is not long enough and does not allow for proposals that satisfy all parties.