Prime Central London has always been the investment destination of choice for Asian investors. Amid the uncertainty brought about by Brexit, this continues to be the case in the commercial space, with unprecedented volumes of Asian capital invested into City of London Offices for the first half of 2018.

However, in the residential market, a new trend has emerged. Residential developers have cast their eyes beyond the glamour of Knightsbridge and Kensington, looking instead into mass market residential in Greater London.

Over the past year, Eminent Asian developers traditionally focused on Prime Central London have become involved in major projects in the suburban parts of the city. Malaysian developer EcoWorld, who had previously collaborated with Ballymore on projects such as Embassy Gardens in Nine Elms, recently entered a joint venture with developer Willmott Dixon. This partnership gives EcoWorld access to over 7,000 homes, mostly in Greater London areas such as Hounslow, Tower Hamlets and Brentford.  In March, Chinese group R&F purchased a 5.5 acre site in Croydon, which has planning permission for over 1,000 apartments.

There are various reasons why these developers are now looking to diversify their portfolio.

Prime Central Sales Floundering

Home prices in Prime Central London have fallen to a 5-year low, according to property data network consultant Lonres. Being largely an investors’ market, the area has been hardest hit by the additional 3% stamp duty imposed on buyers with more than one property as well as uncertainties brought about by Brexit.  Given the higher entry price, investors looking to take advantage of the Sterling weakness have turned to regional cities such as Manchester and Birmingham, as well as options within Greater London.

Consequently, there remains unsold stock within Central London. According to Molior London, over 2,000 new-build homes, or 39% of the total number of homes sold in the second quarter of 2018 were purchased in bulk. With a typical discount of over 10% to asking prices, this would undoubtedly impact the profits reaped by developers. In view of the existing oversupply, it is no longer a viable option to concentrate solely on Prime Central London developments.

Amid Uncertainty, Domestic Market Stable

Source: gov.uk

As shown in the chart above, while Prime Central London prices have fallen from end-2016, Non-Prime prices have risen steadily over the last five years.

This can be attributed to the demand for homes from those who work and live in London. According to the Mayor of London Sadiq Khan, 66,000 homes need to be built annually to meet housing needs. Given the lack of supply, homes have become increasingly unaffordable, prompting first-time home buyers to look further out in the suburban areas. As such, demand for homes in Non-Prime London have largely been stable amid economic uncertainties.

Long Term Potential

Besides being more affordable to the masses, many of these Greater London areas are also transforming, fuelled by regeneration efforts. The largest project in the UK is the Old Oak and Park Royal Development Corporation, which spans four Boroughs – Hammersmith, Fulham, Ealing and Brent. The scheme will bring forth 25,000 new homes, 65,000 new jobs, and four new train stations. Other projects include the £4.5bn Brent Cross and Cricklewood regeneration, which will be carried out by Hammerson and Standard Life Investments.

In time, these areas will also provide better access into Central London through transport improvements such as Crossrail, the largest infrastructure project in Europe. When completed, it is expected that 200 million people will benefit from Crossrail annually. According to JLL, Greater London homes close to Crossrail stations are expected to enjoy 7% to 16% uplift in prices between 2016 and 2020.  The potential uplift in residential prices from improved infrastructure further adds to the appeal of Greater London.

With all these pull factors, coupled with the lacklustre market in Prime Central London, it is no wonder that Asian developers are looking to jump on the bandwagon and capitalise on this growing market.