Brendan Hindle, Head of Sales
Walk around London, and it’s hard to avoid the many construction sites assembling shiny new residential buildings. Head to Manchester, and it’s much of the same. In fact, any big city in the UK is ripe for new housing development, which typically comes in the form of stylish apartment blocks.
On the face of it, so many new homes sound promising. The UK is in the midst of a housing crisis, and it’s likely that Covid-19 will only accelerate the demand for places to live. Dig a little deeper, however, and it soon becomes clear that many of these new builds are empty upon completion, with no buyer insight.
This is especially true for cities like London, where an increasing number of new homes sit unsold. The issue is, of course, affordability. Construction companies erect these magnificent towers, only to find most buyers priced out of the market.
Affordability is proving to be the main sticking point for many. The majority of these properties are created for the high-end market and come with a price tag that is too expensive for your average home buyer. Fifty-eight percent of demand for new homes in the UK is for affordable housing.
Yet, affordable housing solutions only make up 24 percent of new builds. What’s left is high-end ghost towers, much like central London’s Centre Point. As of 2018, half of the tower’s luxury flats were left unsold. Subsequently, developer Almacantar removed many from the market.
Flats in the towers ranged from £1.8m for a one-bedroom apartment to £55m for five-bed penthouses. The disparity between these prices and the average London house price (£600,000) was too high for most.
Where have the high-end buyers gone?
High house prices might be the reason why the majority of buyers are priced out of the market. But what about the high-end market – the type of buyers these homes were built for? Why have they seemingly shied away from these lavish properties?
Much of London’s luxury housing market belongs to overseas investors. However, Brexit uncertainty in previous years – coupled with new taxation for foreign investors – has led to a slowdown in property purchases from abroad. This is especially the case in parts of Asia, where Chinese currency controls have eroded the market.
Chinese and Hong Kong investment in London property amassed £7.9bn in 2019, with £750m alone going towards the City of Westminster and London Royal Borough of Kensington & Chelsea. But for the time being, the overseas market looks to be slowing in pace.
The developer problem
It doesn’t take a rocket scientist to understand that fully constructed homes sitting empty is bad news for developers – to the point where they often take units off the market. Much like the Centre Point development, undersold units are better left off the property market.
If a developer has only sold around 25 percent of its stock, they will remove the remaining 75 percent from the market. Otherwise, they dilute the sales market, and it looks like they’re desperate to sell remaining units, which will lead to a flurry of massively underpriced offers.
Instead, developers remove them from the market while they think up other ways to monetise their newly-built masterpieces. For many, that means leaving the sales market altogether and looking towards the rental market.
Finding a solution in the rental market
If you’re a developer who can’t sell their units, the next best move is to let them. Rental demand in the UK is high, with a quarter of the market set to represent the private rental sector by 2021. In London, those numbers are even higher: by 2025, 60 percent of the London property market will be made up of private renters.
Generation Rent has become a vital component of the market, with many people heading to the private rental sector by choice. Those who choose to rent as a lifestyle are often willing to spend more on a rental home as they intend to stay for the long term.
Riverside Walk in Vauxhall has proven to be a popular choice with renters after sales of the units slowed. And there are many other cases across cities like London and Manchester where buildings have become build-to-rent options.
A smart way to let, backed up by technology
Previously, renting out properties as a developer proved tricky. There’s an entire infrastructure needed to keep track of everything. Yet, with a sale, you’re essentially wiping your hands of the issue once a new owner is in place.
With renting, however, the need for maintenance becomes a primary issue – as does arranging contracts, finding tenants and all the other particulars involved. The use of technology has made these processes easier for professionals to manage, offering developers more choice when it comes to handling their developments.
Using technology, developers can control every aspect in one centralised system, from tenant finding to managing the in-life tenancy. A tech-led system that also relies on the human perspective provides an entire overview of the building, from displaying void period averages to maintenance repairs reports.
Ultimately, it makes the whole process of managing large-scale rentals easier. This way, developers keep a revenue stream while having the option of selling units off at a later date when demand picks up again.
With a growing number of new builds springing up across the UK, the need to generate revenue from them as soon as possible only increases. In a market that favours renters, there’s a strong argument to be had that turning these properties into rental or build-to-rent developments is the answer. And with a centralised system that allows developers to complete transparency over every part of the process, it’s never been easier to create a fully functioning rental community in a building.