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posted: 9/4/2012 5:08 AM

London luxury homebuilding to jump on foreign spending spree

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Bloomberg News

Luxury-home builders plan to complete more than 15,000 houses and apartments in London over the next decade as demand from overseas encourages development outside the city's traditional prime neighborhoods, according to EC Harris LLP.

The 10-year development pipeline has increased 70 percent from a year earlier and companies now expect to construct homes with a sales value of 38 billion pounds ($60 billion), the consulting firm said in a report today. About 3,800 units are expected to be completed in 2016, more than seven times this year's total of 500.

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"The pipeline now is pretty unprecedented," Mark Farmer, head of residential property for EC Harris, said in an interview. "Follow where the money is and at the moment it's in London prime."

Home prices in London's most expensive areas have gained 49 percent since a March 2009 low point and are now 14 percent above the previous peak in 2008, according to broker Knight Frank LLP. Investors from abroad, including the Middle East and mainland Europe, consider central London real estate a safe haven from economic and political unrest in their home markets.

About 2 billion pounds worth of new luxury homes were sold in 2011 at developments such as One Hyde Park, Farmer said. The firm estimates sales of 10.2 billion pounds in 2016 and 8.5 billion pounds the following year.

Development Risk

Despite the price surge, starting development based on today's market carries some risk for the builder, Farmer said.

"There's always the chance you miss the boat and by the time you deliver your scheme things aren't quite as good as they are now," he said.

Prices in affluent neighborhoods such as Knightsbridge and Belgravia will reach 10,000 pounds a square foot by 2016 because of a lack of luxury-home supply in the city's best locations, Knight Frank said in December.

Chelsea and Fulham are the strongest areas for new development, accounting for one in four of the planned homes, according to EC Harris. The next is the South Bank, with 17 percent, followed by the City of London financial district and its fringes and the Midtown area between the City and West End.

London luxury home prices have gained 9.9 percent in the year through August, Knight Frank said in a report today. That's the smallest annual gain since last August. Values rose 0.5 percent from last month, the London-based broker said.

Shard's Peak

Newly built luxury properties likely to be sold this year, include the final homes at One Hyde Park as well as Northacre Plc's The Lancasters site, a city block of renovated 1850s townhouses across from Hyde Park, EC Harris said. Units in the Shard skyscraper across the River Thames from the City of London will also probably be sold this year. The Shard, western Europe's tallest building, has apartments on floors 53 to 65.

"There's quite a big peak of potential development activity in 2016 and 2017," said Farmer. "One of the big issues is how many of those schemes can developers and landowners actually get funded."

Berkeley Group Holdings Plc, the U.K.'s largest homebuilder by market value, acquired derelict offices in the City of London and City of Westminster and is converting them into luxury homes. Barratt Developments Plc and Taylor Wimpey Plc, two of Berkeley's competitors, have focused on building homes for the mainstream market.

An influx of companies into London's prime real estate development market is inflating land prices and diminishing the availability of stock, according to Andrew Murray, co-founder of luxury developer Morpheus London Ltd.

'Growth Curve'

"I'd like a leveling of the turf," he said in a telephone interview. "A steep growth curve isn't attractive for our business and attracts outsiders into our market."

An apartment in One Hyde Park, a luxury complex conceived by Christian and Nick Candy, sold for 7,500 pounds a square foot after being furnished last year. A penthouse apartment in Knightsbridge was purchased for about 100 million pounds, a person with knowledge of the transaction said in December.

Morpheus develops homes in London's Mayfair, Kensington and Belgravia districts that cost as much as 3,500 pounds a square foot. It's currently building three townhouses in Chelsea and renovating a 19th century house in Belgravia.

Real estate developers hoping to attract similar prices for units in their luxury projects may be left disappointed, according to Farmer.

"There may be a question mark about the sustainability of some of the price growth we've seen in the last year or two in certain areas of super-prime London, which has been phenomenal," he said by phone.

Brokers including Savills Plc and Knight Frank define prime real estate as homes in the most expensive central London neighborhoods such as Belgravia, Kensington and Knightsbridge.

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