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Economy / Jobs

Price of theoretical London flats soars by half in six months

If ever you wanted proof that the market for top-end London housing has come unmoored from the needs of, y’know, Londoners, you could do a lot worse than this. From Friday’s Guardian:

…a studio flat in Battersea power station that sold for close to £1m in the spring is about to go back on the market with a price tag of up to £1.5m.

Henry Wiltshire, an upmarket estate agent that is setting up an office in nearby Vauxhall, is close to being appointed to handle the resale of the studio apartment on the fifth floor of the power station. Kyle Spence, the firm’s sales director, said the vendor was “someone we met at Cityscape [a property conference] in Dubai,” who hopes to resell the apartment for between £1.4m and £1.5m.

Here’s the punchline: the flat doesn’t even exist yet. It won’t for another four years. Its owner isn’t speculating in the market for London property, they’re speculating in the market for the idea of London property.

And the horrifying thing is, in doing so, they’re probably going to make a fortune: the estate agent quoted by the Guardian describes the £1.5m price as “credible”. Now obviously he has an interest in talking prices up, but nonetheless, the fact that, in this bizarre London futures market, you can suggest prices have risen by a half in six months and not be instantly laughed out of the industry says something in itself.

It’s tempting here to suggest that prime London property is edging into the space already occupied by things like art or fine wines: a luxury item, whose prices are set not by widespread demand, but by rich people selling things to other rich people.

On reflection, though, that’s an imperfect comparison. Partly that’s because, whatever one might think about the work of, say, Damien Hirst, it does, indubitably, exist. These flats in Battersea don’t.

The other reason comparing property to art is a bad idea is that, when prices for the latter start getting out of control, it doesn’t really matter, except to the artist: you don’t need art to live. But a flood of money arriving in the London real estate market does have an effect on those who primarily see London apartments as homes – as a commodity – rather than as a form of piggy bank. If speculators drive prices up for their own benefit, they drive prices up for everyone else, too.

That said, this tide of investment money might not be the unalloyed nightmare it’s sometimes made out to be. On a previous occasion when this issue reared its head, Adam Challis, the head of residential research at property consultants Jones Lang LaSalle, told the Guardian:

“Post-credit crunch it’s much harder to get bank debt but with 30 per cent to 40 per cent of units sold ‘off plan’ to foreign buyers, that triggers work on the development… Without international investors most residential developments in London wouldn’t happen and the housing crisis in the capital would be even greater.”

So investors may bid prices up, but they’re also enabling new homes to get built that wouldn’t otherwise get off the ground: if the bubble ever does burst, London will have more homes than it would have had otherwise. Which is kind of good, I guess.

The other thing is the prices in Battersea, seem, bizarrely, to have detached from the wider London market altogether. As bad as things have got, prices in the city as a whole have not shot up by 40 per cent in six months. Here’s Friday’s Guardian again:

In the wider market, figures published on Friday by the Land Registry suggested the frenzy that characterised the first half of the year in the capital had eased. Its data for sales registered in October, which does not include new-build homes, showed growth of 0.7 per cent during the month in London – but it found rises of 1.2 per cent and 1.6 per cent respectively in the south-east and east of England.

We noted a while ago that many surveys think that prices in some parts of London are now falling again. Deep breaths, everyone.
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