A two-bed flat in Brixton for £465,000. No windows. You’re ‘avin a larf?

Alastair Stewart

Not according to the agent, who told the Financial Times last month: “There can be no equivalent in SW2. They still represent good value.” The first point is probably true; the second relative.

The property, described at length in the pink paper, is among eight in a converted office building, four of which have ‘traditional’ windows (the type through which people can see the world around), while two are lit by skylights and two are illuminated purely by light wells. Craig Wildy, director at Beresford Residential, defended the development, pointing out that the average asking price for a two-bed flat in SW2 is circa £525,000. (Presumably they have outside windows.)

The high point of most housing bubbles is often marked by gleefully reported examples of sellers seemingly stretching feasibility to its limit. In the late 1980s, for instance, it was the ‘Harrods Broom Cupboard’, which generated even more press coverage. The Brixton example, however, faces plenty of competition in nearby SW8. Amid the flying ‘skypools’, Versace-designed apartments and Deconstructivist architectural extravagances sprouting up in Nine Elms can be found 400-ish sq ft studios that have been listed for resale on Rightmove for several months for not far south of ‘half a bar’.

A common response by many developers to any claim that the capital is overheating is that any such risk is contained within the central London high end. Basically anything above £2m (encompassing larger units), bad; smaller units below £1m, good.

Flip side

In fact, it could be ‘cheaper’ places that face the greater downward pressure (for now, this refers to below approximately £1.5m), particularly two-bed apartments. To support this view, scour the developments at and immediately surrounding the iconic Battersea Power Station. More than 500 units are listed, largely it would appear, by would-be ‘flippers’. The number itself is distorted by a degree of multiple listing, so cannot be entirely scientific. But the total has been going up steadily for a year and some units have been languishing for many months. Some 40% have been reduced in price since they were listed. But, intriguingly, a greater proportion, some 60%, recorded price cuts at the lower price points and in the two-bed category.

As attractive as the designs and eventual facilities may be, two-bed apartments have been the commodity class of choice for off-plan investors (mainly Asian) in this London-focused bubble as they were last time around in the boom and bust in northern cities (when there was a greater preponderance of UK investors who ended up carrying the can).

As with cars, the ‘new-build premium’ may no longer exist the minute you pick up the keys

The difference this time is that many, if not the majority of, high-rise developments have not only been sold to Asians; I am told they were predominantly designed for them. At risk of over-generalisation, there are five broad characteristics that distinguish much of the appetite among Asian individuals for property: they love new-build; they prefer towers to low-rise; buying off-plan has made many of them rich (so far) in their local ventures; they go for extremely high specifications (with resultant high service charges); and, as one extremely experienced agent told me, “they have scant regard for location”.

Much of this sounds worrying in terms of selling them on if the buyers fail to complete. As with cars, the ‘new-build premium’ may no longer exist the minute you pick up the keys. The high service charges for gyms and so on will not wash with eventual renters, who will presumably go to Fitness First or, even cheaper, jog around Battersea Park. And British investors, even ‘vulture funds’, have been indoctrinated with the mantra ‘location, location, location’. (They even named a TV series along those lines.)

Chancellor George Osborne threw another potential obstacle in the way in the Budget. There had been some hope (forlorn, in my view) that large-scale investors, owning 15 or more units, would be let off the hook from the 3% stamp duty surcharge for second homes and buy-to-let properties. No such luck, prompting a chorus of outrage from London-centric developers and their lobbyists.

Looking forward, the real issue for which developments can hold their own or not is unlikely to be whether they are central London or whether they are above or below an arbitrary price point, but are they towers, are they in competing ‘clusters’, are they filled with undifferentiated two-bed flats, were they designed for Asian retail investors, and would you want to live there?

If the answer to most of the above is ‘yes’ and the last ‘no’, even the most wildly optimistic estate agent may struggle to shift them.

Alastair Stewart is an equities analyst and commentator