Luxury developments may already be overvalued

In a recent interview the head of corporate real estate at Lloyds Banking Group said that it was concerned over the rapid price rises on luxury developments in London. John Feeney said that whilst it would still lend to developers of luxury homes it was doing so with caution because they fee that the property market is due a correction. They are also concerned with some attitudes amongst investors who feel that house prices in London can only go one way and that is upwards.

There are many people that are investing on the basis that the market will go up further come what may. This is dangerous and is clouding the judgement of some investors. It’s not just Lloyds that is exercising caution, other lenders such as legal and General is steering clear of the luxury market in London because there is no rationale for the very high prices.

Billions flooding into London property market

A lot of money has been spent at the high end of the market and there are still plenty of buyers. This has led to a big increase in the number of luxury developments currently under construction and in the early stages of planning.

A lot of high end property is under construction and some experts are concerned that when the party stops many of these developers will be hung out to dry. Examples of these developments can be found at Battersea Power Station and the redevelopment of the Nine Elms area in Battersea. These sites are providing thousands of new homes.

There is also plan to build over 150 new residential towers across the city which are at the upper end of the market. Developers are pouring billions into these projects even though some analysts suggested that prices in London were already 10-15% overvalued.

According to Savilles the upper end of the market require 3,000 new homes every year and this is already catered for. There is a concern that there could be an oversupply of these luxury homes and that this may cause prices too come down.