Lloyds banker bearish on London's luxury property market

Lloyds executive says top-performing British sector due for correction

PUBLISHED : Wednesday, 26 March, 2014, 7:34am
UPDATED : Wednesday, 26 March, 2014, 7:34am

Lloyds Banking Group plans to avoid funding the development of projects in London's luxury- home market, where it sees losses ahead for investors, according to the lender's head of corporate real estate.

"I'm worried about high-end residential, which is where I think people will next lose significant amounts of money," John Feeney said. "A lot of people are buying into the 'London can only go one way' story and that fills me with grave concern. So I feel like the market needs a correction."

London luxury residences have been the best-performing British properties since 2009 as investors, particularly from overseas, snapped up houses and flats in the capital to shield wealth from political and economic instability. Annual home-price gains in Britain beat increases in the best parts of London for the first time since 2009 last month, signalling a shift may be afoot, according to broker Knight Frank.

A recovery in the wider housing market, boosted by government-backed lending, has stoked building. Registrations of new homes in London last year rose to the highest level in 26 years. Developers planned to build more than 20,000 luxury homes, valued at £1,250 (HK$16,000) a square foot or more, in London over the next decade, ramping up construction despite slowing price gains, consulting firm EC Harris said in November.

"There is an air of unreality that sits over that sector, and a belief that delivering £4,000 a square foot to £5,000 a square foot product is straightforward," Feeney said this month. "It's predicated on an unknown population of super-high-net-worth individuals continuing to see London as a safe haven.

"The higher the sales price envisaged per square foot, the more uncomfortable I ultimately get," he said. "When you get past £2,500" a square foot, "it's very challenging".

Wetherell, a broker that sells luxury homes in the affluent Mayfair district, is offering a refurbished home on Grosvenor Square for £5,130 per square foot. If the property sells for that price, it would be a record for an apartment in the neighbourhood, according to the broker.

Still, some investors say the slowing price gains for luxury homes are "a buying opportunity" because there's typically a "significant bounce back" in values after British general elections, according to London Central Portfolio, which is seeking equity for a new fund to invest in high-end apartments.

Britain's next general election will be held next year.

Lloyds, Britain's biggest mortgage lender, was seeking "development risk" and planned more lending to developers, Feeney said. It is looking to fund projects where homes have been pre-sold or office buildings where a tenant has agreed to lease the building prior to completion.