London property drop adds stress to local developers in UK

Local developers would face challenges to attract buyers as consumers turn cautious on volatile sentiment


Malaysian property developments in the UK could face additional pressures as the fallout over Brexit deepens, and rising inflation and overbuilding of high-end units saw residential prices in London slipping at the fastest rate in a decade.

According to a Reuters’ report, London house prices are falling at the fastest pace since the depths of the recession almost a decade ago, with the capital’s most expensive areas seeing the biggest declines.

Average prices fell to £593,396 (RM3.2 million) in January, an annual decline of 2.6%, based on a report published by Acadata Ltd on Monday. That’s the most since August 2009.

Affin Hwang Investment Bank Bhd analyst Loong Chee Wei said the London property market is witnessing some price corrections and it would likely raise some risks for developers in the country.

He said demand for the UK’s property market is largely driven by local factors instead of external reasons, and as such would affect the overall sentiment of the segment.

“Property players that have significant dealings in London would feel the impact compared to those who entered the market to diversify their portfolios,” he told The Malaysian Reserve.

“Given the cautious market condition, most of them (developers) would adopt a wait-and-see attitude before any expansion plans.

“The developers would probably complete their existing projects and will relook at new developments once the market stabilises,” Loong said.

Among the local developers with exposure in the London property market include Sime Darby Property Bhd, SP Setia Bhd, Eco World International Bhd, Eastern and Oriental Bhd, Permodalan Nasional Bhd and the Employees Provident Fund.

Meanwhile, an industry expert said the the property market dynamics in the UK capital and in Kuala Lumpur are almost identical, and they are largely influenced by economic sentiments.

The expert said local developers with dealings in London would face challenges to attract buyers as consumers turn cautious for big ticket purchases due to volatile sentiment.

The expert said overall sales could slow in the short-and medium-term period, but would reverse itself as the UK’s capital remains an attractive destination.

“Developers would be forced to provide some discounts or incentives to woo buyers during the present London’s market condition.

“They would probably have to provide added incentives such as direct discounts, furnishing packages, or even a certain fixed yield for a period of two to three years to encourage sales,” the source said.

However, the industry expert said the fallout surrounding the UK’s divorce from the European Union is temporary and the market is expected to stabilise by 2019.

Property consultancy firm Knight Frank Asia Pacific head of research Nicholas Holt said the London property market slowdown was also due to the recent stamp duty taxation and corrections in the pound.

Holt said the Brexit saga added to the market uncertainties and pushed the value of the pound lower.

“But there are some positives from Brexit. Some investors have delayed their investments due to the uncertainties. However, there have been encouraging buying opportunities from Hong Kong and Chinese investors.

“Over the longer term period, the London property market is expected to recover due to its strong positioning as a global financial centre and education hub,” Holt said.