Developers under pressure from their own buyers

London developers are facing fierce competition from their own buyers in the tougher housing market.

Buyers who have bought homes at an early stage of a development are reselling them in the hope of making a quick profit. They are therefore competing with the developers trying to sell homes in the same scheme.

This trend has been highlighted in a report published by London Development Research, which identifies a number of schemes that could be suffering from the problem.

Geoff Marsh, the author of the report and an expert in the London market, said: “In the healthy market nobody had a problem selling stock and typically developers would have sold out of their stock by the time they got to completion. But now, developers are finding themselves with £20-30m of unsold stock at the same time as investors may be trying to offload a similar quantity. The issue is who cracks first.”

London Development Research’s annual analysis of the London market finds that the capital has massive housebuilding potential in the planning pipeline. The private sector pipeline has doubled since 2000 to 127,800 planning permissions and applications at the end of 2004. The affordable housing pipeline has risen similarly to 35,000 permitted units and 29,000 units subject to application at mid-2005.

However, the increase in the planning pipeline has not been matched by an equivalent growth in building. In inner London, the rate of private starts has decreased since 2000, and outer London has only had fairly modest increases.

The report also cautions that mixing affordable housing with high-priced private apartments is creating socially polarised estates with no middle-class families, rather than the mixed, sustainable communities the government wants.

Marsh says: “There is evidence that this is already happening and it could pose massive commercial and cultural problems for the industry.

If it becomes perceived by investors and owner–occupiers that by buying into new developments they could be living on polarised estates, they’ll buy second-hand homes instead.”

The report is available from London Development Research, 020-7629 6565.